After a strong 2007 campaign, solar stocks – and the overall clean energy sector – fell hard in the first quarter of 2008.

The PowerShares Wilder Hill Clean Energy Portfolio (PBW), an industry standard, plunged nearly 30%. But now that their darkest days are behind them, solar stocks represent a big play opportunity for any investor savvy enough to buy in while valuations are still low. 

At Money Morning, we’ve said repeatedly that alternative energy isn’t an alternative anymore. Indeed, soaring energy costs and heightened awareness about global climate change have ushered solar power into the mainstream over the past year.

On Friday, light, sweet crude for May delivery rose 20 cents to $110.31 a barrel in afternoon trading on the New York Mercantile Exchange – just below the record price of $112.21 a barrel set Wednesday. Notwithstanding a much-criticized Energy Department projection that the escalation in petroleum prices will stop by June, there have been few – if any – real indications that oil and gasoline prices will retreat heading into the summer driving season.

That’s particularly bad news for consumers who are already feeling the pinch from the credit crunch and sinking home values. But it’s another round of good news for solar energy, which will almost certainly receive more attention – from the public, and from elected officials who feel compelled to extend, and even broaden, tax subsidies for renewable energy.

Reuters recently reported that a new bipartisan proposal by U.S. senators Maria Cantwell (D-Wash.) and John Ensign (R-Nev.) would extend existing tax credits for the clean energy sector. Many Wall Street analysts have said the measure has a good chance of passing because it is not linked to a tax hike or to "Big Oil."

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”

In addition to offering an alternative to costly and politically contentious foreign oil, solar power is also popular with environmentalists. That’s because solar power emits, per unit of energy, about one-tenth the amount of carbon dioxide emissions given off by more-conventional power sources.

Also, advances in technology have made solar cell production even more eco-friendly. A recent study by the Brookhaven National Laboratory in Upton, N.Y., found that for each unit of energy produced by solar cells, the pollution that’s emitted during the cells’ manufacture is only 2% to 11% the amount produced by power plants in the United States and Europe.

In fact, newly developed solar cells can "pay back" the energy required for their production in just one to three years. And improvements in manufacturing efficiency could reduce emissions from solar power by another 50% in five to 10 years.

There have been tremendous advances in the production and efficiency of solar technologies. And those advances couldn’t have come at a better time. Political support for the industry is at an all-time high as oil prices and environmental awareness both continue to rise.

The "First" Option in the Solar Sector

The shares of First Solar Inc. (FSLR) were badly battered during the first quarter. After climbing as high as $280.91 a share in December 2007, First Solar shares tumbled to $165.60 in February. Since then, they’ve battled back and are currently trading near their 52-week high.
And there’s good reason for all the company’s forward momentum.

First Solar’s reliance on low cost thin-film cells helped the company avert a silicon shortage that has savaged the bottom lines of countless other solar companies. As a result, the Phoenix-based solar module manufacturer has been able to produce solar cells for a lower cost than its rivals.

"First Solar’s new technology that uses cadmium telluride is much cheaper," Matthew Patsky, portfolio manager of Winslow Green Mutual Funds (WGGFX), told FOXBusiness. "The cost of their solar cells is much less than the cost of the traditional [silicon-based] cells, so if you’re doing an installation on any scale, they are the best alternative right now."

First Solar’s ability to undercut the competition helped it to rake in a $62.9 million profit last year. That’s a 686.3% improvement from the $8 million posted in 2006. Revenue nearly quadrupled to $200.8 million.

First Solar expects revenue to rise again this year, to between $900 million and $950 million.

To fuel that surge in revenue, the company will rely heavily on its globally diversified production base. Company officials said last year’s earnings were boosted by the full increased efficiency at their factory in Germany. This year they expect additional savings from a brand new plant in Malaysia.

"As we’re moving to Malaysia, I think our models imply a 20 cent cost-per-watt reduction," Jens Meyerhoff, First Solar’s chief financial officer, told a Piper Jaffray investment conference.

The company expects its first Malaysian production line to start running this year, followed by three fully operational lines in 2009.

First Solar is also in talks with several U.S. utilities to build renewable energy projects. Chief Executive Michael Ahearn told Reuters the company was "having multiple discussions" with U.S. utilities.

"What we are trying to get to this year is some initial relationships and pilot projects," he added.  

Impressed with the company’s prospects, Winslow Green’s Patsky took advantage of First Solar’s turbulent first quarter.

"In January, the stock dropped to around $160 and we re-established a strong position," Patsky said. "If it hits $300 in the near term, we might trim our position again; but our target is really for it to be trading at $380 over the next 12 months – the estimates are too low and I don’t think the street is as aggressive as what we expect."

Canaccord Adams recently reiterated its "Buy" rating on the stock and added First Solar to its "Best Ideas" list.

"We recommend investors add to positions in front of First Solar’s Q1 report on the back of 5N’s results," the firm said in a statement. "With the political backdrop improving for solar stocks in general, reduced near-term execution risk and likely upside to our estimates, we are adding First Solar to our Best Ideas list and reiterate our BUY rating and $325 price target."

First Solar’s shares closed Friday at $268.30, down $2.90 a share, or 1.07%. The stock is trading only 8% below its 52-week high of $291.49.

From a Hot IPO to a Reliable Rebound

LDK Solar Company Ltd. (LDK), which debuted on the New York Stock Exchange last summer, grabbed the spotlight when it climbed 140% in its first four months of trading.  But, as of March 12, the stock had plummeted 72% from its 52 week high.

The shares have rebounded in recent weeks – soaring 54% since March 12 – and closed Friday at $32.35 each. That’s still well below its 52-week high of $76.75, but some recent positive developments indicate that LDK will continue its resurgence.

The company just announced the signing of three new contracts, including a 10-year pact with Moser Baer Photo Voltaic, a division of Moser Baer India Ltd., which calls for the sale and delivery of high-quality, multi-crystalline silicon wafers necessary in the production of PV cells that are capable of generating 640 megawatts (MW) of solar power.

LDK will also provide Silcio S.A. with 50 MW of silicon wafers over the next 6 years, and Arise Corporation of Canada 33 MW of silicon wafers between 2008 and 2011.

And LDK is pushing to expand. It expects to complete a brand-new silicon plant with a 1,000-ton production capacity this summer. And another plant with a production capacity of 15,000 tons per year is set to come online some time next year. In addition to the $1.2 billion the company expects to spend on the new plants, LDK will spend another $600 million to expand its wafer production in the next year.

Chief Financial Officer Jack Lai said at a recent conference that LDK would finance the bulk of its ambitions growth plans through cash from operations. That includes expected net profits of $200 million in 2008 and $400 million in 2009. An additional $1 billion will come from customer deposits for long-term wafer contracts, he said.

LDK will finance the rest by issuing $400 million in convertible notes. The notes will pay cash interest semiannually at a rate of 4.75% a year, and in certain circumstances will be convertible into the company’s American depositary shares.

LDK said last week it expects higher revenue but lower profit than initially forecast. The company expects earnings per share to come in between 40 cents and 44 cents, down a penny from its previous prediction. However, LDK raised its revenue outlook by $15 million to a range of $225 million to $235 million.

There’s a strong possibility that LDK shares could get a boost from upgrades from Wall Street in the near future. Four of the six analyst ratings for LDK are a "Hold" or worse, according to Zacks Investment Research. Any upgrades or new coverage based on the company’s positive news could push the share price up even more.

News and Related Story Links:

• Reuters:
  Solar stocks soar on outlook for U.S. subsidies

• FOXBusiness:
  One Fund Sees Green in First Solar’s Solar Modules

• Business Standard:
  Moser Baer in pact with China-based LDK Solar

• Seeking Alpha:
  Solar Stocks Continue to Roll

• Reuters:
  LDK Solar to issue $300 mln in convertible notes

• Money Morning:
  Gray Skies Are Going to Clear Up: Profiting From China’s Green-Tech Movement

• Money Morning:
  As Solar Sector Goes Global, Investors Can Capitalize on Dawning of a New Industry

• Money Morning:
  Outlook 2008: Alternative Energy Companies Will Power "Green" Profits in the New Year.

• Money Morning:
  One Sure-Fire Sign That Gas Prices are Heading Higher.

Back in the 1970s, when solar energy was brand new, it took as much energy go make a solar cell as that device would produce over its 20-year lifespan.

Just a decade ago, solar-cell emissions were very high – about double their current levels.

But with recent technological advancements, solar technology has turned the corner. The sector is poised for a global business boom as such nations as China, Germany and Japan join the United States in a race to perfect solar power.

"Solar power has been criticized in the past," Vasilis M. Fthenakis, the study’s lead scientist told Science News Online, "but what we find out is that those criticisms are not true with the new technologies."

Solar power emits, per unit of energy, about one-tenth the amount of carbon dioxide emissions given off by more-conventional power sources. That makes solar a very viable source of energy, as well as an intriguing profit play, since traditional energy sources are continually scrutinized for their high costs and toxic carbon emissions.

A recent study by the Brookhaven National Laboratory in Upton, N.Y., found that for each unit of energy produced by solar cells, the net emissions of greenhouse gases and other pollutants due to the cells’ manufacture, were but 2% to 11% the amount produced by power plants in the United States and Europe.

Unlike their "dark-age" solar predecessors, newly developed solar cells can "pay back" the energy required for their production in just one to three years. And improvements in manufacturing efficiency could reduce emissions from solar power by another 50% in five to 10 years.

In the United States alone, production from solar power installations rose from 49 megawatts in 2002 to 314 megawatts in 2007, the Solar Energy Industries Association reported. One megawatt is enough to power 778 average homes, according to the Energy Department.

"Ten years ago, green was sort of the idea of a few tree huggers in Northern California," John Hardy, an analyst with American Technology Research, told BusinessWeek. "Now, being green has taken on more widespread appeal."

Sign up right now, and we’ll send you an important new report for free: "The Three Best Investments in Asia." Money Morning subscribers receive in-depth news and expert investment advice daily, free of charge.

And there are three solar companies riding the wave of that green movement to big time profits, beginning with Japan’s Sharp Corp. (OTC: SHCAY)

Sharpening Solar Technologies

Sharp claims it is responsible for 25% of the world’s cumulative solar cell production. Sharp estimates that worldwide solar cell production reached 8 gigawatts in 2007, and believes that it is responsible for 2GW of that total cumulative production.

Sharp started making solar cells in 1963, and began the production of the so-called "thin-film" solar cells in 2005. The company also is active in the solar-cell-material and manufacturing-equipment businesses. Sharp is also the only Japanese solar cell manufacturer authorized by Japan Aerospace Exploration Agency, making it the sole supplier of solar cells for Japanese satellites.

After Sharp’s supremacy has been tested by German rival Q-Cells, the Japan-based company has responded with aggressive efforts to grow its business.
To address shortages in silicon, Sharp hopes to boost its annual output of thin-film solar cells six-fold by 2012. Thin-film solar cells use roughly one-hundredth the silicon of conventional solar cells.
To achieve its goals, Sharp has planned a new plant in Osaka, which is scheduled to go online by March 2010. The company expects the plant to 1,000MW of cells annually. Sharp also hopes to raise output at its Katsuragi plant in Nara, Japan, from 15MW to 160 MW by October.

Last month, Sharp announced a partnership with Tokyo Electron Ltd. to develop production equipment for thin-film solar cells, which use less silicon than conventional solar cells. Tokyo Electron, which will hold a 51% stake in the venture, expects to start making and selling the equipment early next year.

Sharp will also team up with Japanese homebuilder Daiwa House Industry Co. and Dai Nippon Printing Co. to develop large lithium-ion batteries that can store solar energy for houses. The deal will help Sharp build upon its solar power systems business and let Japanese homebuilder Daiwa House increase the value of its homes with energy saving technologies, the Nikkei Business Daily reported.

Sharp will invest $5.56 million [600 million yen] in Eliiy Power, a developer of lithium-ion batteries. Both Daiwa House and Dai Nippon Printing already hold sizeable stakes in Eliiy.

However, Sharp’s biggest deal was announced Feb. 26, when Sony said it would pick up part of the $3.5 billion tab for what will be the world’s most advanced TV-panel plant. You see, in addition to being one of the world’s largest solar cell manufacturers, Sharp is the third-largest maker of liquid crystal display (LCD) television sets in the world.

Both companies were quick to point out that they were not merging, but merely entering into joint ownership of the Sakai plant. The tie-up will greatly reduce the cost burden for Sharp, and result in the exchange of key technologies and know-how. After assuming one-third of the cost, Sony will own one-third of the most advanced LCD plant in the world. The remaining two-thirds will belong to Sharp.

While a weak U.S. economy may put a temporary damper on television sales, the long-term outlook is exceptionally upbeat. TV unit sales are expected to reach 98 million units this year, an increase of 24% from 79 million last year, according to DisplaySearch.

Fierce competition and rapid advances in technology have resulted in annual price declines of 20% to 30%.

Sharp enjoyed all the benefits of a well-diversified company last year, posting strong fourth-quarter results even as global economies began to sputter. Net income was $278 million for the three months ended Dec. 31, up 3.8% from net income of $267.8 million a year earlier.  Sales gained 12% to $8.7 billion. The company left its full-year forecasts unchanged. In October, Sharp forecast that its net income for the year would rise 3.2%, reaching $994 million, on sales of $32.2 billion.

Sharp can’t rest on its laurels, however: The tech industry is notoriously competitive, and competition in the solar industry is escalating.

Q-Cells Cranks Up the Heat

As Sharp was wheeling and dealing last month, German solar-cell maker Q-Cells announced that it had become the world’s leading producer of solar cells. Q-Cells also recorded stellar 2007 results and said that it, too, plans to expand production capacity.

Q-Cells reported full year sales of $1.26 billion, a 59% jump. Full-year earnings before interest and tax (EBIT) rose 52% to $301 million, leading to an EBIT margin of almost 23%.

Net income for the fourth quarter rose to $54.5 million, up from $38.7 million a year earlier, the company said in a statement on its Web site. Sales increased 81% to $430.6 million.

Q-Cells kept its growth targets for 2008 in place, expecting sales of about $1.77 billion, which analysts said was a conservative estimate.

"This is impressive since wafer sourcing costs increased while cell selling prices declined. This shows that Q-Cells is very capable of reducing production costs and we see much more still to come," Benjamin Kluftinger, an analyst at Citigroup Inc. (C), told Reuters.

To keep the ball rolling, Q-Cells said it would invest $263.2 million in a production site in Asia, the company’s first foray into the region. The facility, slated for construction in Malaysia, will have a maximum capacity of more than 300 megawatts. The factory’s first phase will have a capacity of 160MW and is scheduled to start operations in next year’s first quarter.

Q-Cells sixth production line at its headquarters in eastern Germany will begin operation in the fourth quarter, and will have an initial production capacity of 130MW. These upgrades will add to a level of output the company says is already the highest in the world. Production volume reached 389.2MW in 2007, outdoing even the company’s own goal of 370MW.

"With this figure, Q-Cells would already have produced a greater total output than its largest competitors – Sharp and Suntech," the company said in a statement. Suntech Power Holdings Co. (STP) is the world’s third-largest solar cell manufacturer. It expects to have 2GW of production capacity by 2010, double its expected 2008 total.
In 2008, Q-Cells expects total solar cell production to come in between 565MW and 590MW.

Q-Cells productivity is starting to attract attention from abroad.  Masdar Clean Technology, a state-owned fund of the United Arab Emirates, is planning to buy a stake in the German solar cell maker, Die Welt,a German media outlet reported.

"The fund wants [to buy a stake], and we are open to it," a spokesman told Die Welt. The newspaper cited sources as saying Masdar could help Q-Cells finance construction of a thin-film solar cell plant in Germany with a volume of about $764 million.

Last but Not Least

There’s a third, relatively unheralded, solar modules manufacturer sneaking into the fold to challenge Q-Cells and Sharp, the industry’s two most prominent leaders. Phoenix based First Solar Inc. (FSLR) posted stellar fourth quarter earnings as the company boosted production.

First Solar brought in $62.9 million last year, a 686.3% jump from the $8 million posted a year prior. For 2007, revenue nearly quadrupled to $200.8 million, up from $52.7 million in 2006.

"Our 2007 results increased our position as the low-cost leader in the industry and brought us closer to achieving price points that make our solar electricity viable," without significant government subsidies, First Solar Chief Executive Officer Michael J. Ahearn said during a conference call with analysts.

The company expects revenue to rise again this year, to between $900 million and $950 million.

Like Sharp and Q-Cells, First Solar’s profit margins have been insulated by steering clear of a silicon shortage by focusing on low cost thin-film cells, and maintaining globally diversified production bases.

Company officials said earnings were helped by realizing the full production capacity of their factory in Germany. And they expect additional savings from reduced costs at a new plant in Malaysia.

"As we’re moving to Malaysia, I think our models imply a 20 cent cost per watt reduction," Jens Meyerhoff, First Solar’s chief financial officer, told a Piper Jaffray investment conference.

The company expects its first Malaysian production lines to start running this year, followed by three fully operational lines in 2009, Reuters reported. That would bring First Solar’s output capacity to 1GW a year.

News and Related Story Notes:

• Science News Online:
  Greener Green Energy: Today’s solar cells give more than they take

• Nikkei:
  1/4 of World’s Solar Cells Produced by Sharp

• Market Insight:
  Market Insight: First Solar Hitting on all Cylinders

• Money Morning:
  Solar Rivalry Heats Up as Q-Cells Moves Into Malaysia

• Reuters:
  Sharp, Tokyo Electron to tie up on solar cells

• BusinessWeek:
  First Solar results spark industry rally

• Reuters:
   UPDATE 1-First Solar sees lower costs from Malaysian plant

• BusinessWeek:
  Sony and Sharp’s LCD Linkup.
• Money Morning Financial Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

Most experts view the pollution problem in China as one of the world’s biggest problems. But General Motors Corp. (GM) Chief Executive Officer Rick Wagoner views it as one of the world’s biggest business opportunities.

With incomes soaring and a new wave of middle-class consumers emerging across China, car and truck sales are soaring. But with clouds of pollution roiling the atmosphere, the market could very quickly migrate to such new technologies as alternative fuels and hybrid-powered automobiles.

GM is taking a decisive step to capitalize on that shift.

The Number One U.S. carmaker on Monday announced plans for a $250-million research and development center in Shanghai, The Associated Press reported.  The center will develop eco-friendly technology, including alternative fuels, hybrid cars, and more-efficient power trains, including those utilizing new technologies.

The R&D center will also serve as headquarters for GM’s China and Asian-Pacific operations. The main goal of the venture will be to help alleviate China’s surging pollution problems, while also capitalizing on the fastest-growing auto market in the world.

China has already become the world’s second-largest auto market after the United States. In the first nine months of this year, there were 4.58 million vehicles sold there, a 23.84% increase from a year ago. GM, working in conjunction with Shanghai Automotive Industry Corp. and Liuzhou Wuling Motors Ltd., expects to sell more than 1 million vehicles in China for the first time this year. That would be a 20% jump from the 830,000 sold in 2006. 

But there’s a problem: A recent report from the State Environmental Protection Administration said vehicle emissions accounted for 79% of the contamination in China’s most polluted cities.

China is home to 16 of the 20 most-polluted cities in the world. So the fact that it recently overtook the United States as the Number One emitter of greenhouse gases on the planet – a title the U.S. held for more than 100 years – is hardly a surprise.  

With the new R&D facility, Wagoner, the GM CEO, is banking on the hope that the Chinese government, and China’s consumers, will increasingly demand vehicles that are more fuel efficient, and less harmful to the environment.

"We believe China has the potential to become a leader in the adoption of alternative propulsion systems," he told reporters during a visit to Beijing on Monday.

According to Wagoner, what happens in China will have a major impact on the global auto industry’s adoption of environmentally friendly technologies. If China accepts hybrids and other alternative technologies, 50% of auto sales could be environmentally friendly vehicles in five to six years, versus 10% today.

The General Motors Center for Advanced Science and Research would have the explicit mandate of helping China overcome its reliance on fossil fuels. According to the AP, Wagoner said GM picked China for the research center because of the country’s fast-growing vehicle market and the government’s push to develop alternative energy sources.

"We see a lot of [government] interest in working with auto manufacturers to bring those to market as quickly as possible," he said.

A solid foothold in the Chinese market and the blessing of the government in Beijing might be just what General Motors needs to reclaim its position as the world’s Number One automaker, a post that Japan’s Toyota Motors Corp. (TM) has snatched away. 

News and Related Story Links:

• Associated Press:
  GM to Set Up China-Based Research Center

• Money Morning:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China

• Money Morning:
  Investors Will Clean Up From Beijing’s Toxic Mess for Years to Come

• Money Morning:
  Strike of 31,000 Chrysler Union Workers Ends After Six Hours With a New Agreement; GM Workers Ratify Their Union Deal

• Money Morning:
  Will One or Two Degrees Make A Difference In Emerging Markets?

Enter Your Email Address Below:

Officials at solar-cell-maker LDK Solar Co. Ltd. (LDK) were apparently confused about the quality of the silicon in the firm’s inventory- just as an ex-finance official has alleged- according to an audio recording of an internal conference call obtained by The Wall Street Journal, the newspaper reported yesterday.

LDK, based in southern China’s Jiangxi province, makes the silicon solar wafers used to convert sunlight into electricity. But it depends on a mix of both new and recycled batch silicon, and that requires the company to be very specific about the source and the age of the silicon that’s in its inventory.

However, in e-mailed messages to regulators and to KPMG, Charley Situ, LDK’s former financial controller, has accused the solar-cell maker of reporting inflated figures for its silicon feedstock, The Journal reported. Specifically, Situ alleges there is a discrepancy between LDK’s reported inventory and the amount of "usable" silicon that’s actually available.

And The Journal says the recording of the Sept. 13 conference call that it obtained seems to support the contention of Situ, the ex-LDK official. In the recording, Situ and two other LDK officials- Yao Qiqiang, the vice president of accounting, and Liu Yizheng, an accounting manager- openly discussed the quality of the "feedstock" silicon with Jack Lai, LDK’s finance chief.

On the call, Situ estimates that two-thirds of the feedstock in question is older than 180 days, making it unsuitable for use producing the solar-panel wafers- something LDK should reflect by taking a write-down that will appear on its financial statements, affecting its financial position, the newspaper reported.

After finance chief Lai ask why that feedstock isn’t usable, account manager Liu explained that the inventory is leftover bits of the silicon that had already undergone testing by the production team. According to The Journal, Lai then said that "I think you should do some careful data analysis" to determine the quality of the inventory.

Yao said that "what the accounting department needs to do is a categorization of the inventory in terms of life and ways in which it was purchased…and hand it over to the technology team for a review. Let them decide whether it is usable or not," stated the newspaper report.
LDK says that Situ’s allegations are without merit, and described him as a disgruntled ex-employee who was fired. He says he resigned, the newspaper reported.

In its initial public offering on June 1, LDK raised nearly $500 million. By Sept. 26, the shares hit their all-time high of $73.95, leaving the company with a market value of $1.3 billion- nearly a three-fold increase. It paved the way for a handful of other China-based solar-power firms to go public, as well. [To read Money Morning's full report on all the China-based solar-energy firms that have gone public in the past year, please click here. The report is free of charge.]

LDK’s shares plunged $3.24 each, or 7.24%, to close at $41.51 yesterday (Thursday). Some U.S. shareholders are traveling to China to visit the company’s headquarters to assess LDK’s prospects, the newspaper reported.

News and Related Story Links:

• The Wall Street Journal:
  On Recording, LDK Officials
  Were Confused About Inventory.

• Money Morning News:
  LDK Shares Plunge Another 26% Due to Worries, Barron’s Report.

• Forbes.com:
  LDK Solar Rises.

• Money Morning:
  Fluor to Build Polysilicon Plant in China.

• ExpansionManagement.com:
  Fluor to Build Polysilicon Plant in China.

• Reuters:
  Fluor Wins $1 Billion Contract for LDK Solar Plant.

• Money Morning Investment Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

• Money Morning News:
  China Solar Cell Maker JA Solar to Sell $280 Million Worth of Additional Shares.

• Money Morning News Analysis:
  When Corruption is Low, Your Profits are High.

• Reuters:
  LDK Solar Shares Extend Slide, Down Almost 26%.

• Reuters:
  German Solar Firms Boost Capacity to Meet Demand.

Shares of high-flying LDK Solar Co. Ltd. (LDK) plunged 26.4% to close at $37.50 yesterday (Monday) – extending losses from last week – based on continued concerns that the China-based maker of solar wafers has serious production problems.

The shares of the Jiangxi, China-based LDK are now trading at less than half their 52-week high of $76.75 a share. However, they remain about 39% above their June IPO price of $27 a share. LDK’s stock plunged 26% last week after news leaked out that a former financial controller had challenged LDK’s inventory controls.

The shares of other solar power developers – until now, an apparent emerging strength for China – fell in response yesterday. China Sunergy Co. Ltd. (CSUN) dropped 9.52% to close at $10.08; Yingli Green Energy Holding Co. Ltd. (YGE) declined 9.8% to $28.11; and Suntech Power Holdings Co. Ltd. (STP) fell 5.17% to finish trading at $38.85.

LDK has said its own internal investigation found no material discrepancies in its financial statements, but many analysts rejected that statement as insufficient because the investigation was conducted internally.

Making matters even worse for LDK was the fact that the widely read Barron’s reported this weekend that it interviewed (through an interpreter) someone familiar with the company’s production operations. And its findings weren’t encouraging.

"That person said that the company’s silicon ingots were indeed so impure that a recent production run had produced tons of them that were too contaminated for technicians to even analyze with instruments," Barron’s reported. "The company says it knows of no such problems."

Early last Thursday, LDK said it conducted the internal investigation after its former financial controller, Charley Situ, said the company has been inconsistent in reporting its inventory. Situ, who was fired in September, made the allegations a few days earlier, LDK said. The company has asked an independent firm to conduct its own audit.

CIBC World Markets analyst Adam Hinckley has downgraded the stock to "Sector Underperformer," or "Sell," from "Sector Performer." According to Hinckley, investors should sell LDK’s shares and wait for more details about the accusations that Situ made – and for more proof from LDK about the audit it said it conducted to prove it did no wrong.

"We view the [LDK] press release as unsatisfactory, as it does not disclose the specifics of the allegations and leaves questions unanswered," Hinckley wrote in an investment note to clients.

Clay Sumner, an analyst for Friedman Billings Ramsey, said the controversy could hurt LDK’s efforts to boost its capacity. And for investors who like the solar-power sector – it does have great promise – deep problems at LDK could open the door for rival MEMC Electronic Materials Inc. (WFR). That could turn MEMC into a real investment opportunity, if the LDK situation is as bad as it now seems.

LDK, which makes multicrystalline solar wafers used in solar panels, said last Wednesday it had signed a five-year contract to supply those types of wafers to Taiwan-based Solartech Energy Corp. Contract pricing is fixed for the first three years of the deal, during which LDK agreed to deliver about $224 million worth of the wafer products to Solartech.

News and Related Story Links:

• Forbes.com:
  LDK Solar Rises.

• Money Morning:
  Fluor to Build Polysilicon Plant in China.

• ExpansionManagement.com:
  Fluor to Build Polysilicon Plant in China.

• Reuters:
  Fluor Wins $1 Billion Contract for LDK Solar Plant.

• Money Morning Investment Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

• Money Morning News:
  China Solar Cell Maker JA Solar to Sell $280 Million Worth of Additional Shares.

• Money Morning News Analysis:
  When Corruption is Low, Your Profits are High.

• Reuters:
  LDK Solar Shares Extend Slide, Down Almost 26%.

• Reuters:
  German Solar Firms Boost Capacity to Meet Demand.

Shares of high-flying LDK Solar Co. Ltd. (LDK) fell yesterday (Thursday), even after the Chinese solar wafer maker said an internal audit revealed no evidence of wrongdoing related to the way it reports inventory.

Early Thursday, LDK said it conducted an investigation after its former financial controller, Charley Situ, said the company has been inconsistent in reporting its inventory. Situ, who was fired in September, made the allegations a few days ago, LDK said. The company has asked an independent firm to conduct its own audit.

CIBC World Markets analyst Adam Hinckley has downgraded the stock to "Sector Underperformer," or "Sell," from "Sector Performer." According to Hinckley, investors should sell LDK’s shares and wait for more details about the accusations that Situ made — and more proof from LDK about the audit it conducted to prove it did no wrong.

"We view the [LDK] press release as unsatisfactory, as it does not disclose the specifics of the allegations and leaves questions unanswered," Hinckley wrote in an investment note to clients.

Clay Sumner, an analyst for Friedman Billings Ramsey, said the controversy could hurt LDK’s efforts to boost its capacity, opening the door for rival MEMC Electronic Materials Inc. (WFR).

LDK, which makes multicrystalline solar wafers used in solar panels, said Wednesday it had signed a five-year contract to supply multicrystalline solar wafers to Taiwan-based Solartech Energy Corp. Contract pricing is fixed for the first three years of the deal, LDK Solar said. During these three years, LDK is to deliver solar wafers worth about $224 million to Solartech.

News and Related Story Links:

• Forbes.com:
  LDK Solar Rises.

• Money Morning:
  Fluor to Build Polysilicon Plant in China.

• ExpansionManagement.com:
  
  Fluor to Build Polysilicon Plant in China.

• Reuters:
  
  Fluor Wins $1 Billion Contract for LDK Solar Plant.

• Money Morning Investment Analysis:
  
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

• Money Morning News:
  China Solar Cell Maker JA Solar to Sell $280 Million Worth of Additional Shares.

• Money Morning News Analysis:
  When Corruption is Low, Your Profits are High.

From Staff Reports

Site preparation has begun for a Xinyu City, China, polysilicon production plant that will be located adjacent to LDK Solar Co. Ltd.’s (LDK) existing solar wafer manufacturing facilities.

Fluor Corp (FLR), the U.S.-based engineering-and-construction company, said it landed a contract worth more than $1 billion to provide engineering, design and other services for the LDK facility. Fluor said it booked front-end engineering and design work in the third quarter, while the engineering, procurement and construction-management services would be booked in 2008.

LDK, which makes multicrystalline solar wafers used in solar panels, has said it plans to reach polysilicon production capacity of 6,000 metric tons by the end of 2008 and 15,000 tons by the end of 2009.

Tight supplies of polysilicon have crimped expansion in the fast-growing solar market, and many companies have moved to develop their own supplies of the key solar cell component.

Of the six China-based solar-energy companies that went public this year, three are among the best-performing IPOs through the first nine months of this year. [For more information on these IPOs through the first three quarters of the year, please click here and check out our related story on IPO deals through the first nine months of this year].

The includes the No. 1 performer, JA Solar Holdings Co Ltd (JASO), the solar-cell maker whose shares have more than quadrupled in value since it went public on Feb. 6 at $15 a share. LDK Solar Co. Ltd. (LDK) and Yingli Green Energy Holding Co. Ltd. (YGE) – which went public a week apart in early June – ranked third and fourth, respectively.

News and Related Story Links:

• ExpansionManagement.com:
  Fluor to Build Polysilicon Plant in China.

• Reuters:
  Fluor Wins $1 Billion Contract for LDK Solar Plant.

• Money Morning Investment Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

• Money Morning News:
  China Solar Cell Maker JA Solar to Sell $280 Million Worth of Additional Shares.

China-based solar-cell maker JA Solar Holdings Co. Ltd. (JASO) is selling 6.33 million American Depositary Receipts, worth about $280 million based on its closing price of $44.01 yesterday (Monday), Reuters reported that sources said.

The pricing of the deal, jointly handled by Credit Suisse (CSGN.VX: Quote, Profile, Research) and Lehman Bros. Holdings Inc. (LEH), is set for Oct. 10, the source said. Of the shares to be sold, 63.2% are primary, with the rest secondary.

The deal also has an over allotment option equal to about 15% of the shares being sold.

JA Solar’s ADRS have nearly tripled from their February IPO price of $15 each.

News and Related Story Links:

• Reuters:
  China’s JA Solar Selling About $280 Million in Shares.

• Money Morning Investment Analysis:
  How to Profit as Surge of Solar IPOs Mark Dawn of New Industry in China.

• Money Morning News:
  IPOs Soar in Third Quarter, Fueled by Solar, Software and Finance Deals.

Of the five best-performing initial public stock offerings so far this year, three are China-based solar-energy companies.

With energy prices soaring, China is making a big move into the market for solar-energy technologies.

Initial public offerings (IPOs) of solar-energy firms have reached record levels this year, with at least half a dozen China-based alternative-energy technology companies helping to fuel that trend.

According to a recent report by New Energy Finance, solar-energy IPOs had reached $4.7 billion as of July 31, more than double the $2.2 billion recorded during the same period in 2006 and triple the $1.5 billion for 2005.

Of those six China-based solar-energy companies that went public this year, three are among the best-performing IPOs through the first nine months of this year. [For more information on these IPOs through the first three quarters of the year, please click here and check out our related story on IPO deals through the first nine months of this year].

The includes the No. 1 performer, JA Solar Holdings Co Ltd (JASO), the solar-cell maker whose shares have more than quadrupled in value since it went public on Feb. 6 at $15 a share. LDK Solar Co. Ltd. (LDK) and Yingli Green Energy Holding (YGE) – which went public a week apart in early June – ranked third and fourth, respectively.

LDK, which closed Friday at $68.90, is up 155% from its offering price. It manufactures "multi-crystalline" solar wafers, the main raw material needed to produce solar cells. LDK sells multi-crystalline wafers globally to manufacturers of photovoltaic products, including solar cells and solar modules.

Yingli, which ended the week at $26.07, is up 137% from its IPO price. Yingli is a vertically integrated photovoltaic (PV) product manufacturer in China. Through Baoding Tianwei Yingli New Energy Resources Co. Ltd. (Tianwei Yingli), the company’s principal operating subsidiary based in China, it designs, manufactures and sells PV modules, and designs, assembles, sells and installs PV systems that are connected to an electricity transmission grid. As of June 7, Yingli’s annual production capacity was 95 megawatts of poly-silicon ingots and wafers, 90 megawatts of PV cells and 100 megawatts of PV modules.

Three China-based solar-power-technology companies went public in the final two months of last year, raising $508.8 million, not including "green shoe" overallotments. Four more solar-energy-related firms went public this year, raising $1.11 billion.

What’s the attraction? Unlike many high-tech startups, solar-energy companies can become profitable very quickly, analysts say. For that reason, this surge in IPOs is an investment boom – but not a bubble.

"Solar companies, once they’re ramped up, they’re solidly profitable," Jeffries & Co. analyst Jeffrey Bencik told The Associated Press in a July interview. "This is not the Internet bubble. These companies have real products and real profits."

Soaring economic growth – primarily in China, but also in India, parts of Latin America and Eastern Europe – have sent crude oil prices soaring to record levels north of $80 a barrel, and have caused other commodities roar north, as well. And those spiraling energy and commodity prices have drawn the interest of retail investors, as well as institutional, private-equity and venture-capital investors, too.

The ultimate objective: Find the technological breakthrough that will one day enable oil, coal, and natural gas to be replaced with either alternative sources of energy, or even better with a clean, cheap, renewable fuel or energy source. As long as the prices of conventional fuels remain as high as they are now, those investments in energy alternatives will continue to increase.

In the United States alone, engineering, manufacturing and construction jobs related to the solar industry will total 30,000 by 2015, according to the report, "Solar Power Commercial Market Applications," from Energy Business Reports.

So-called "green" mutual funds – officially referred to as environmentally friendly funds – have experienced significant gains in recent months, as investors moved to profit from these same trends. The Portfolio 21 Fund (PORTX) has posted a year-to-date total return of 12.59%, is up 23.3% over the past year and has an average annual total return of 19.93% over the past five years. The Winslow Green Growth Fund (WGGFX) has done even better: It’s up 15.4% year to date, has a one-year total return of 24.23% and has generated a very lofty average annual total return of 26.76% over each of the past five years.

Morningstar rates Portfolio 21 as "above average" in terms of both risk and return, while Winslow Green is rated as a "high" risk and return fund.

Then there are the companies themselves.

LDK Solar (LDK) and Yingli Green Energy Holding (YGE) both went public in early June – LDK at $27 a share and Yingli at $11. As noted, LDK, which closed Friday at $68.90, is up 155% from its offering price. Yingli, which ended the week at $26.07, is up 137%.

The SunPower Corp. (SPWR), whose shares closed Friday at $82.82, has been a major solar energy player since late 2005. Its shares are up 192% in the past 12 months, including an advance of nearly 28% in the last three months alone.

In a research note on Thursday, Schaeffer’s Research analyst Joseph Hargett said several factors favor continued gains in the stock: The so-called "short interest" is very high – equal to 65% of the shares outstanding and available for trading – and analysts who follow the stock are somewhat bearish, with seven "buys" and six "holds." That leaves a lot of room for analyst upgrades, Hargett said.

And while he didn’t actually use the term, the scenario Hargett outlined – high short interest and lots of room for analyst upgrades in a stock that’s already performed strongly makes a rally-igniting "short-squeeze" very possible, if not likely.

There’s a reason SunPower’s shares have sizzled: Its financial performance has been extremely strong, as well. Over the past 12 months, sales have advanced at an annual rate of 227%. Revenue for the second quarter was $174.1 million, a 22% increase from the prior quarter’s revenue of $143.2 million.

The San Jose-based maker of high-efficiency solar cells, and systems, opened a new plant in the Philippines on July 30.

LDK is a leading manufacturer of multi-crystalline solar wafers, which are the principal raw material used in the production of solar cells. Net profit for the second quarter of 2007 was $99.1 million, up 35% from $73.4 million in the first quarter. This was a 716% improvement over $12.1 million in the second quarter of 2006. Gross profit was up 1,265% from a year ago, as well. Yingli Green Energy is set to release its second quarter earnings on August 15.

Both Yingli and LDK are based in China, which may have the worst pollution problem in the world. It’s estimated that the country’s pollution is responsible for the death of more than 750,000 Chinese citizens a year. The country is going through a tremendous amount of trouble to clean up its act before the 2008 Olympic games.

Because of the Olympics, China will spend $3 billion on pollution-control initiatives during this year alone.

Last year Beijing removed 15,000 old taxis and 3,000 buses from the city to try to ease pollution and traffic. Beijing officials also say they have planted nearly 200 million trees since 2002, which was the year after Beijing was named the host of the 2008 Games. And, of course, the silicon solar panels will be used to help provide power to the Olympic game venues.

Four other Chinese solar companies have gone public in the past eight months. In addition to JA Solar Holdings Co Ltd (JASO), whose shares have more than quadrupled in value since its Feb. 6 IPO at $15 a share, other U.S.-listed China-based companies involved in the solar-power sector include:

• Solarfun Power Holdings Co. Ltd (SOLF), manufacturer of both photovoltaic (PV) cells and PV modules in China.
• Trina Solar (TSL), which makes standard solar modules ranging in power output from 160 watts to 185 watts.
• Canadian Solar Inc. (CSIQ) produces and sells solar cells and module products that are have residential, commercial and even industrial uses.
• Suntech Power Holdings Co. Ltd. (STP), maker of photovoltaic cells and marketer of integration services. Its products are used to provide standalone power for street lamps, garden lamps, telecommunications relay stations, and mobile phone networks.
• And China Sunergy Co. Ltd. (CSUN), which manufactures solar cells from silicon wafers.

This is no coincidence. A mad rush to clean up the country before the Olympic games isn’t going to be enough to permanently squelch China’s pollution epidemic. If the country is going to get the problem under control it’s going to have to count on alternative energy technologies like solar power for contributions.

News and Related Story Links:

• Money Morning Special Investment Report:
  A Special Investment Report: With Crude Oil Prices Still At the Base of a Five-Year Climb, Turn Pain Into Profit.

• Money Morning News Analysis:
  China Tries to Tap the Brakes on Growth.

• Money Morning Investment Analysis:
  Alternative Energy: How Oil’s Unpredictability Is Driving Investment In Renewable Fuel Sources.

• Barron’s Tech Trader Daily:
  Solar Stocks Go Nuts On Supply Agreements; Is The Sector Overheated?

• Investors Business Daily:
  Rise Of The Solar Energy Industry Lights A Fire Under Wafer Maker.

• The Associated Press:
  LDK Solar Jumps After IPO.

• China Venture News:
  Yingli IPO Opens Down.

• Schaeffersresearch.com:
  The Casual Contrarian: Here Comes Sunpower [Video].

• Prime Newswire:
  Macy’s Launches 28-Store SunPower Solar Power Program in Westminster.

• China Analyst:
  China Solar Stocks Comparison Table (9/27/2007).

• Reuters:
  J.A. Solar: Key Developments.

• Reuters:
  Value of U.S. IPOs soar in Third Quarter, Year to Date.

Companies raised more than $12.5 billion via initial public offerings (IPOs) in the U.S. financial markets during the third quarter. That’s 67% more than the $7.5 billion raised in the third quarter a year ago, Dealogic said. The third quarter is typically the slowest of the four quarters because of a summer lull from the middle of August to the middle of September.

But there was a wild card this year – or, rather, two of them – as in $4 billion worth of offerings from U.S. brokerage firm M.F. Global Ltd. (MF) and software maker VMware Inc. (VMW).

Although the dollar value of the IPOs soared dramatically, the volume of offerings only rose modestly, with 43 new issues coming to the market in this year’s third quarter, up from 40 a year ago.

That huge dollar jump despite the moderate increase in the number of deals demonstrates "how a couple of large issues can dominate the sector," Francis Gaskins, president of IPO research firm IPOdesktop.com, told Reuters.

Finance companies raised the most cash, with nine IPOs raking in proceeds of $4.3 billion during the quarter.

MF Global, spun off by hedge fund firm Man Group PLC raised $2.9 billion in July in the second-largest IPO in 2007, after private equity giant Blackstone Group’s (BX) $4.7 billion IPO in June, according to Dealogic’s data.

Software and Solar Energy

But where finance deals raised the most cash, technology deals were the most plentiful. There were 12 new issues in the sector, raising $2.5 billion.
VMware, the year’s fifth-largest IPO – and a deal that’s been closely followed by both Money Morning and its sister publication, The Money Map Report – led the charge, raising $1.1 billion with a sensationally performing IPO.

VMware caters to a new sector known as "computer virtualization." One use of this new technology actually solves a problem that has confounded computer users since the dawn of the Mac vs. DOS debate. On a computer network, the software enables a computer to reconfigure itself to run whatever operating system is needed at a particular moment. For instance, a server might be running Windows N/T one moment, Linux the next, and Apple the moment after that. It makes computers and networks more efficient, and saves money, too, since a company doesn’t have to operate different networks for each computer language it utilizes.

VMware is expected to reap $1 billion in revenue this year. And the overall computer virtualization market is projected to double and reach $12 billion in revenue in five years.

The software maker has also posted robust gains since its IPO. Its stock closed on Thursday at $85 a share, up 193% from its IPO price of $29 per share. That stellar return ranks VMware as the second-best performing IPO stock this year, trailing only JA Solar Holdings Ltd. (JASO), a China-based solar-energy-technology company whose shares have more than quadrupled in value since its Feb. IPO. In fact, rival Chinese solar companies LDK Solar Co Ltd (LDK) and Yingli Green Energy Holding Co Ltd (YGE), were the No. 3 and No. 4 best-performing IPO stocks so far this year. [To see related story on China-based solar-energy-technology companies that have gone public this year, please click here].

Lululemon Athletica Inc (LULU), a Canadian retailer of yoga apparel, rounded on the top-five best-performing IOPS of 2007.

Concerns about "global warming" – caused by a big spike in the use of fossil fuels and by the scorching growth rate in China – has caused a big uptick in interest in alternative energy sources. And it’s not just the environmental impact that concerns investors and consumers alike – the spiraling costs are also a huge concern. That is part of what helped drive the widespread development of the China-based solar-energy companies – more than a half dozen of them this year alone.

IPO Market Rises 40%

Through the first three quarters of 2007, IPOs in the U.S. market raised $43.5 billion – nearly 40% more than the $31.2 billion raised during the first nine months of last year. The number of IPOs rose 21%, from 156 in the first nine months of 2006 to 188 in the first three quarters of 2007. A fairly full pipeline has boosted optimism for the rest of this year: 171 companies have filed for IPOs with securities regulators, a set of deals that could raise $35 billion, if they come to fruition.

Said IPOdesktop’s Gaskins: "The Dow is up, Nasdaq is up: The appetite is there for companies that have a solid income statement. But people are looking more critically at income statements now, as a ripple effect" from the subprime-mortgage crisis and the evolving worldwide credit crunch.

News and Related Story Links:

• Reuters:
  
  Value of U.S. IPOs soar in Third Quarter, Year to Date.

• Money Morning News:
  U.S. Tech Firm Boosts its IPO Offering, Despite Volatile Stock Markets.

• Money Morning News:
  VMware Tech Shares Soar 76% in IPO Trading Debut.