Suntech Power Holdings (STP)

Suntech Power faces stiff competition from the photovoltaic divisions of large conglomerates such as Sharp Corporation's $2.6 billion joint venture with Italy’s Enel SpA (EN), Kyocera Corporation (KYO), and SunPower Corporation (SPWRA). Many of Suntech's competitors have become vertically integrated--from silicon wafer manufacturing to photovoltaic integration--gaining precious market share. Suntech also faces competition from smaller competitors such as First Solar (FSLR), which is producing thin film solar modules, amorphous silicon, and string ribbon. These advanced technologies may prove to be more efficient in generating energy than Suntech's crystalline polysilicon technology.

Finally, all of the competitors in the solar market face competition from non-renewable energy companies, such as coal, natural gas, and oil producers. Since the price of crude oil has plummeted from its peak of about $147 in July 2008, solar technology has become less economically viable in the short term. High photovoltaic manufacturing costs and the low price of crude oil, coal, and natural gas all make solar companies dependent on government support and less economically attractive in the short term.

Suntech Power is going through a difficult period due to a weaker Euro, low oil prices and a sector that has become very crowded. It is hard to believe that this $8.54 stock is the same one in which we took partial profits in late 2007 at $65.17 for a gain of 151.33%. The company recently lowered its guidance for the fourth quarter of 2008 as well as full year 2009 and was hit by six analyst downgrades. It is really hard to see the bright side of solar at this point if you expect oil to stay at or below these levels and the strength in the US dollar to continue. However declining polysilicon prices, increasing efficiency of solar panels and expected green initiatives by the Obama administration should bode well for solar long-term and I am going to retain our position in Suntech especially since I do not believe oil is going to stay around $50 per barrel for very long.

With silicon prices skyrocketing due to a silicon shortage, PV equipment is becoming more expensive, making it less cost-effective than other forms of energy like coal.

The fact that conversion efficiency is the only thing that distinguishes one line of PV equipment from another coupled with the insignificance of the differences between the efficiencies of current product lines means that firms will compete based on prices, leading to lower profits.

Because Suntech has only achieved its major growth in the past year, it must continue to work to attract customers and keep them in the future, a process that could incur heavy costs.