Vertically integrated PV manufacturer LDK Solar (NYSE:LDK) is expected to come out with its Q4 earnings update shortly. The company was severely hit by the shakeout in the solar industry in 2011 with prices falling across the solar value chain impacting almost all of its product offerings. LDK Solar is a leading wafers and panels manufacturing firm in China. The company is also involved in the manufacturing of polysilicon, which is the main raw material used for making PV modules. It competes with companies like First Solar (NASDAQ:FSLR) and Suntech Power (NYSE:STP). Polysilicon spot prices have fallen drastically in the last quarter of 2011 because of industry overcapacity.
We have a $4.50 price estimate for LDK Solar, which is almost 30% below its current market price.
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LDK Solar faced a tough last quarter as polysilicon prices dropped because of excess production capacity in the industry and falling demand for modules in major European markets. Polysilicon prices are heavily influenced by the PV modules market as almost 90% of the raw material is used in the production of solar modules. Norwegian competitor REC said in its Q4 earnings update that the polysilicon prices dropped by 42% while wafer and module prices fell by 31% and 15%, respectively.  We expect LDK to report similar declines in prices in its upcoming results.
Despite dropping prices, modules sales volumes increased in the last quarter because of the last minute rush from installers in Germany looking to beat possible cuts in subsidies in 2012. Sales volumes also increased in China and the U.S., pushing up total installations across the country. Chinese companies are pinning hopes on the expanding Chinese modules market to absorb the overcapacity in the solar industry. Dropping prices are helping expand the solar market in emerging markets like China and India.Notes: