More data supporting German solar slowdown

Newly-public solar module maker Canadian Solar Inc. (CSI) (NASDAQ: CSIQ) is the latest company to point to a softening in German solar growth.

In its quarterly earnings call this morning, CSI CEO Shawn Qu said he'd just returned from a recent visit to Germany, and "unlike earlier visits, I observed some weakness in this important market, which I believe is attributable, in part, to inventory clearance efforts by smaller solar module makers, many of whom are, I believe, leaving the market."

Qu acknowledged what has become a traditional German industry slowdown in December, but said this time, "the mood has changed". He pointed to what he called "psychological factors" causing German distributors to delay or reduce their end of year buying plans.

"They don't know where prices will go," he said.

The German government determines the so-called 'feed-in' tariff rates. The government has the flexibility to raise the tariff in 2007, which would be expected to be positive for the industry. In the meantime, residential feed-in tariffs are slated to decline by 5%, and tariffs for ground mounted systems by 6.5% in 2007.

The tariffs are to be revisited early in the new year.

"I think some of the smaller upstarts in module assembly are getting out of the business and dumping their product on Germany at low prices, which has lead to a slowdown for those trying to see stable margins," confirmed Jeff Osborne, solar analyst for CIBC World Markets. "Lower prices should stimulate elastic demand in Germany, which is what we have been hearing," he added.

Osborne suspects many module vendors and distributors had elected to lower pricing about 5% to 10% to see at what point demand elasticity is stimulated in Germany.

For its part, CSI says it will react to the German market slowdown by:

• Increasing co-marketing and branding with distributors
• Accelerating its marketing efforts outside of Germany, particularly in Spain, the U.S. and Korea, and
• Renegotiating agreements with suppliers

Today, CSI posted a net quarterly profit for its latest quarter of $239,000 USD, down from $1,237,000 the same quarter a year earlier. The company's share price has been on a downward march since its IPO at $15 just over a month ago in November. It was down 6% to $10.26 near the end of the day's trading.

The company raised about $83M in its public offering. Among its plans for the money: building four solar cell production lines. CSI's first production equipment is schedule to arrive in early January, according to officials today.

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