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A few words from Lehman on why DRAM, solar industries don’t compare, but polysilicon does

10 September 2008 | By Tom Cheyney | Chip Shots

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lehmanbldgThe news has been grim for Lehman Brothers today, but one part of the giant investment bank that's doing yeoman work is its solar energy equity research group, led by analyst Vishal Shah. His daily email newsletter and periodic reports are some of the most informative and cogent in the space.

Earlier this week, he sent out a detailed industry overview/solar demand analysis, including major takeaways from the recent EU PVSEC conference and exhibition in Valencia, Spain. I asked Vishal if it would be OK to excerpt some of the report, and he said to "feel free" to do so.

I've extracted one subsection of particular interest for the semiconductor community--and those semi refugees now working in solar. In my blog at sister site PV-Tech, look for different excerpts.

On why the solar industry is not similar to the DRAM industry, the Lehman report says the following (with minor editing):

The solar industry is often compared with the DRAM industry—common comparisons include the commodity nature of both DRAM and solar industry, the relatively low technology barriers to entry, and low-cost manufacturing as the key differentiating factor among companies.

We believe the solar industry is different from DRAM for the following reasons:

  • Solar industry revenue pool is growing whereas DRAM industry revenue pool is shrinking.
  • Fixed costs for DRAM manufacturers are high whereas fixed costs for solar companies are low.
  • DRAM industry has no pricing floor, solar industry has pricing floor.
  • Capital intensity of DRAM industry is twice that of solar industry.
  • No Moore’s Law within solar industry–where is the need for replacement capex every few years?

But the report does note that "within the solar industry value chain, the polysilicon industry perhaps represents the closest [thing] to the DRAM industry." Here's why Vishal and his team think so:

In our view, there is a high level of similarity between polysilicon industry and DRAM industry as both industries are characterized by high capital intensity levels. We believe due to the relatively high fixed cost structure, polysilicon manufacturers are likely to continue to run factories at nearly full utilization rates as long as polysilicon price is greater than marginal cost. We believe this competitive dynamic is likely to result in significant polysilicon price declines, just as we have observed in the DRAM industry in the prior cycles.

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Reader comments

The above mantioned question is very topical nowadays because the reserves of energy resources slowly cone to an end. That's why the development of solar industry should play an important role in the industrial life of any country. By the way, the main reason for developing this branch is contained in the following point "Fixed costs for DRAM manufacturers are high whereas fixed costs for solar companies are low."
By Natty on 27 September 2009
Let's get the bad news out of the way first, and it starts with the semiconductor sector. Last month I wrote how the market for consumer electronics was one of the first to go as consumers buckled down as the recession hit home. That has set the semiconductor market in a downward spiral and now the evidence is cropping up that the headache won't be going away anytime soon. First, a host of analysts have come out in the past month with downward projections for the entire semiconductor industry. Tristan Gerra, the chip analyst at Robert W. Baird is particularly bearish, downgrading chip market bellwethers like Texas Instruments and Analog Devices. Altogether, Gerra sees the chip sector losing 40% of its value ‚?? no, that's not a misprint, in the fourth quarter of 2008 and the first quarter of 2009. As for investing in chip stocks in what would appear to be a market bottom, Gerra advises waiting until the second half of the year, when institutional investors factor in all the bad news and peg semiconductor stocks accordingly. Needham Associates tech analyst N. Quinn Bolden is equally bleak, estimating that the semiconductor sector will fall of by 16% in 2009, as the economy slides deeper into recession. He is a bit bullish on 2010, where Bolden sees 10% growth. Again, like Gerra, Bolden doesn't see any great buying opportunities in the semiconductor market until late 2009.
By Jack on 07 January 2009

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