China Solar Stocks: Poised for Beat-and-Raise

Guardedly Upbeat

We remain cautiously upbeat after traveling throughout China for the last seven days. Through our interviews with both public and private solar companies, we return to the U.S. with a very positive near-term outlook for both shipments and pricing, but also have some trepidation due to rising input prices. While our general conviction is that most companies are poised for beat-and-raise scenarios in the upcoming earnings season, we fear that some will also reveal near-term margin pressure as cost declines will be hard-pressed to keep pace with ASP declines. From a very simplistic view, 2011 looks to be another year where the bears make the quantitative argument of over-estimating supply while simultaneously under-estimating demand, and thus call for an implosion to the solar income statement. Our only solace is the qualitative argument that demand always surprises, which perpetually puts the bear argument into hibernation for another six months.

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