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The general tone of module makers is thatdemand has picked up nicely in 2Q09, maybe 50-100% sequentially formost module vendors. The improvement is off a very low base. It appearsthat May was noticeably better than April. Module makers indicate thatthey are no longer receiving as many calls from system integratorspushing orders out to later delivery dates, an indication that projectsare going forward and inventory levels have improved. Orders from
distributorsare also returning. STP noted that the order improvement was fairlybroad-based, with markets like Spain and Italy improving from the low1Q09 levels.
Limited Visibility Remains; Current Trends Positive:
Companiesstill say visibility is more limited than what was present in mid-2008,but that if recent trends continue June will be a solid quarter. Manyof these companies have guided investors to expect this type of 2Q09rebound in shipments, but appear to have a bit more confidence in itnow than even a week ago.
Moduleprices have fallen about as expected, perhaps 12% from 1Q09 to aboutthe $2.45 per watt (from low-cost China vendors). Some companiesindicate a belief prices will level out in 3Q09 (notably YGE), whileothers believe further digression is likely in 2H09. We believe thatprices will continue to decline in 3Q09, as there is still tremendousexcess capacity and the cost of producing modules will decline asvendors burn through higher cost polysilicon and wafer inventory. Atcurrent spot market prices, many solar module vendors are able toproduce modules for less than $1.60/watt, so we find it unlikely thatmodule prices will
be sustained at current levels, since competitionwould erode that margin. Wafer prices are surprisingly low, at lessthan $1.00/watt on the spot market.
Channel Inventory at More Reasonable Levels:
Wehave several indications that suggest channel inventory has beenreduced to more reasonable levels, which implies that sell-out hasexceeded sales into the channel over the past month. System integratorsindicate that they are no longer being bombarded with the unsolicitedmodule offers from random distributors that had been filling theiremail boxes in February and March.
Financing Remains Difficult:
Indicationsare that financing remains difficult in most markets, which is limitingcommercial installations in markets like Spain and Italy. While thenear-term outlook has improved, we believe our 5,575MW worldwide moduleforecast for the year may prove to be aggressive. Our forecast assumes2,400MW of that total will come from German demand.
Discussionswith many market participants located in Germany suggest a level in the2,000-2,200MW range is more likely. Participants in the Italian solarmarket indicate that our 450MW forecast for that country is a best casescenario. Our forecasts of 350MW for Spain may also be at risk, as 1Q09was very low and 2Q09 appears to be below a pace needed to reach thatlevel. If these markets do miss our forecast, a good portion of theshortfall for these markets
will have occurred during 1Q09, so not necessarily that painful for the outlook.