Before assuming the likely bankruptcy for Suntech Power Holdings Co., Ltd. (NYSE:STP) is a harbinger of death for the entire solar industry, know that not all solar stocks are carbon copies anymore. Indeed, the whole industry - and the geography of it - has gotten messier over the past four years than neater. That's good news in some ways though, and it's really good news for United States-based solar panel maker SunPower Corporation (NASDAQ:SPWR) if Suntech Power Holdings Co. is out of the picture. Here's the deal.
As if the last two months could get any worse for STP shareholders - the stock had fallen from a January peak of $1.99 to yesterday's close at $0.83 - revived worries of bankruptcy drove shares to their current price of $0.68 after reaching a multi-year low of $0.41.
Before assuming this is the beginning of the end for the global solar panel industry though, chew on this... last year, in the United States, we installed more solar power-generating capacity than we did in 2011. In fact, we installed more solar power-generating capacity in 2012 than we did in 2011, 2010, and 2009 combined. All told, 3.3 gigawatts was installed last year, which was 76% than new capacity put into place during the year before. Though not quite as dramatically, the rest of the world also grew its solar power installation pace last year, rather than slowing it.
It begs the question... if we're buying more and more solar panels, why are companies like Suntech Power Holdings going out of business (not that other players like SunPower Corporation)? The answer: Though the industry is growing, the industry is also still burning off excess production capacity that was established through 2008, before subsidies started to vanish.
Geography is also playing a role. At the onset of solar-mania, China's government was willing to fund and even lose money on its support of the nation's solar power industry and its companies like STP. There's only so much money any government can afford to lose, however, before things reach the "not worth it" stage. China seems to be at that point, and seems to be willing to let Suntech Power Holdings Co., Ltd. dry up now that solar panel prices have fallen - probably permanently. Add in a painfully-high tariff on solar panels imported into the United States (which is becoming the world's second-biggest market), and Chinse makers don't have a prayer.
American producers of solar power panels like maker SunPower Corporation, of course, aren't dealing with the tariff, which has pushed it to the front of the line for U.S. based consumers clamoring for the solar power option. Indeed, SPWR may one of the best U.S. based solar plays - if not the best - available right now.
Not that it alone as a buy-worthy detail, but the fact that one of Warren Buffett's companies purchased a couple of solar power projects from SunPower Corporation bodes well for the caliber of the company. What speaks even louder about the company is the fact that it expects to turn a profit in 2013... one of the missing ingredients for too many of the solar industries names. SunPower is projected to earn $0.59 per share this year.
There's still too much panel-production capacity out there, but it's slowly being whittled away, while demand rises to catch up with supply. The good news is, the winners are starting to separate from the losers.