SAN JOSE, Calif. -- The solar industry is seeing its first downturn, but the worst could be over in the arena.
''Contrary to bearish concerns of an industry-wide inventory build-up and oversupply, our research indicates that inventory levels in the solar channel have returned to reasonable levels,'' said Edwin Mok, an analyst at Needham & Co. LLC (New York), in a report.
''With strong demand, many Asian companies have ramped factory utilization close to full levels. We believe higher utilization coupled with reduction in channel inventories suggests near term supply/demand has returned to equilibrium.''
There are other positive signs in solar, which has been hit hard by the recession and inability to obtain credit in the market. The global solar market entered a severe downturn in early 2009 due to a sharp decline in expected installations in Spain, according to iSuppli Corp. With suppliers ramping up production at a rapid pace, the drop in demand triggered a severe inventory pileup that caused prices to fall, according to the firm.
Price pressures, caused by overcapacities in the worldwide solar panel business, have exerted pressure in the solar panel value chain. No surprise that the quarterly figures of German PV vendors Q-Cells SE and Conergy AG are written with red ink.
But the inventory glut plaguing the industry has begun to abate somewhat due to surprisingly strong demand from Germany, according to iSuppli. "Solar-panel installations in Germany began surging to record levels in July as prices for photovoltaic (PV) systems plunged," said Henning Wicht, senior director of photovoltaics research for iSuppli, in a report. "This phenomenon has boosted the global solar panel business and mitigated the severe oversupply situation that has stung the industry throughout this year."
Based on the oversupply situation in early 2009, it appeared that the panel glut would persist through the year 2010, he said. However, with Germany exhibiting strong demand elasticity in the face of price reductions, the glut could be resolved as soon as next year, depending on how the industry reacts, he added.
Others are more bullish. ''Our solar supply chain model indicates that channel inventories exiting 3Q '09 are similar to levels seen in 2008. We note that downstream inventories have grown, suggesting that industry participants are less worried about pricing pressure in the near term,'' Needham's Mok said.
Using inventory data from 32 solar companies, Needham found that average inventory days declined from 89 days in 1Q '09 to 53 days in 3Q '09.
''Likewise, we believe the inventory picture is likely to remain stable in the near-term on strong demand, limiting price decline through 1H '10. However, the high aggregate inventory level could post some longer-term risks to order rates for solar companies should a major subsidy reduction causes demand to falter,'' he added.