lunes, junio 04, 2007

CHALLENGES: Burnt By The Sun?

Solar power, the once hippie-dippy technology touted by crunchies from Berkeley, Calif., to Cambridge, Mass., is good at more than just turning sunlight into electricity. Thanks, in part, to rich government subsidies for solar power put in place by governments from Spain to Germany, it has also turned out to be one of the few green technologies able to reliably turn big stacks of money into even bigger stacks of money.

The result? A boomlet of stock offerings from Chinese outfits whose low manufacturing costs give them an edge in the labor-intensive business of cranking out solar panels. The latest comes from LDK Solar, which manufactures the silicon wafers that other firms turn into solar panels. For now, at least, the numbers look good: For the three months ended March 31, the company reported net income of $25 million on sales of $73.4 million.

The firm--based in Xinyu City, north of the electronics manufacturing hub of Guangdong province--will offer 13.4 million shares at between $25.00 and $27.00 this week on the New York Stock Exchange under the ticker symbol LDK (existing shareholders will sell another 4.0 million shares). The offering could raise as much as $361.6 million, before subtracting underwriting fees, which will be used to expand LDK Solar's factory, pay for polysilicon feedstock--the raw material the company uses to make silicon wafers--and to invest in research and development. Morgan Stanley (nyse: MS - news - people ) and UBS (nyse: UBS - news - people ) are the lead underwriters on the deal.

The catch? The market for solar panels is in flux right now. High oil prices have demand booming. But without government subsidies, solar-power still costs more per unit of energy than the conventional alternatives. So what could happen? Just look at the ethanol industry. A wave of hype around the alternative fuel last year caused an IPO boomlet--but as corn prices shot up and the hype wore off, profits faded, burning investors.

by Brian Caulfield

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