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Solar Panel Inventories Begin Taking Their Toll

Warnings that an over-supply of solar panels will hurt the solar industry, repeated by industry watchers for the past several months, have finally been fully realized with a massive $217 million second quarter loss for LDK Solar, one of the most prominent silicon wafer manufacturers. The loss was double what some analysts were recently predicting.

Of the total amount, $175.8 million came solely from an inventory write-down, meaning that LDK had to reduce the on-paper value of its unsold wafers to reflect the market's current pricing. Just a month ago, LDK was predicting only $150 million to $160 million in write-downs.

The loss is bad news for LDK, representing as it does about a sixth of the company's current market cap. And because LDK is continuing to manufacture more wafers that aren't selling, the heavy bleeding could continue. The company is looking at Chinese government loans and a new stock issue to last until the market revives.

LDK is just a particularly bad case of what's ailing the entire industry. Take JA Solar, a solar cell maker which also announced its earnings yesterday. JA said that its inventories rose 18 percent over the quarter, leaving it, just like everyone else, with an ever-increasing case of warehouse bloat. All of the excess panels being made today will have to be sold in the coming years before the market can return to normal.

When that recovery will occur is a moving target. Most solar companies are fairly optimistic; less than three weeks ago, a group including LDK were citing rising sales numbers as evidence a turnaround was close. On the whole, most solar companies would probably have us believe that the industry will be over the hump sometime in 2010 to early 2011, consistent with predictions made late last year.

But that's not the picture painted by iSuppli, an electronics research outfit that's generally pretty accurate. At the beginning of this week, iSuppli predicted over-supply lasting into 2012. That's based on sales forecasts for this year, which show that half of all the panels being made are going to inventory -- an observation that LDK and JA Solar just supported with their quarterly results.

The obvious result of all this will be a number of solar companies folding. The assumption so far is that most of those will be smaller players and startups like DayStar Technologies, which may run out of money soon. But the bigger problem, the worldwide recession, is not yet over. Until it is, optimism should come at a premium.

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