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Guest eysteinh

Yes I don't think I am disagreeing with you odyd. So if the basis for the test no longer is valid and they are not as profitable they will have to write down. Simple as that. For example rec had a 20 year view on the asp and cost of fbr that did not pan out and they did a write down of parts of the silicon plant. I don't yet give judgement on gcl, because if they can add fbr at 6$/kg and we dont even know the basis of the original impairment test, then they might not have write downs. To be frank I am more worried SOL that i am holding. Not now but for 2015. But joshchang does have a point that as long as they deliver to themselv the impairment test could simply hold still. Anyhow again like I have said before I like sol for a lot of reasons, but the capex on daqo really shocked me, and then I got the news of capex of gcl recently too. 

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Guest joshchang

I'm saying that GCL's poly operations, by their own admission, are hugely unprofitable.

Then how do you value SOL's poly business? GCL is at least producing at positive GM but SOL is getting negative margin on poly. GCL started showing profit in their poly/wafer business in October according to Zhu. They would generate huge cash flow if they can hit their cost cutting target even if ASP stays at $18 next year.

 

I am not arguing with your forestg, but as an investor we probably should be more fair and not to use different standards to judge companies.

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I'm saying that GCL's poly operations, by their own admission, are hugely unprofitable.

Than you are inaccurate 2.6% in half of the year just for solar, and higher now, after impairment took place. Their GM is positive. SOL is not profitable either for that matter. SOL will remain a low GM poly producer, with small profitability unless the ASP goes up in a significant terms. The impairment reduces asset value and widens GM, but the biggest lost is in the shareholder equity. This creates pressure on the leverage and borrowing  covenants. I have feeling that DQ, moved the equipment and written everything down to a residual value and used in the new location. The company a year ago was making poly at $30. I have no idea how they can claim $4 in $15 dollar cost and drop that cost to $14.00. I begin to think their accounting is very "aggressive" 

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Inventory write down in 2013 was .4m in q1 and .3m in q2. Negligible in my view. I saw no other impairment than the 6.5m on mono furnaces in their 20-F.

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Guest joshchang

Josh, unlike DQ and GCL, SOL uses 100% of their poly internally. 

So what? GCL is at positive margin at poly segment and much higher cash margin. I can hardly see their poly segment "worthless" as you stated. Again, asset is not worthless if they can use asset for positive gross margin or even positive cash flow margin. 

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Guest joshchang

Their own words of needing $20 ASP to break even make it worthless. Especially for 65,000 MT that were pitched as the lowest cost.

Then using same standard, all CN 11 in 2012 were worthless and most CN11 now are still worthless because all of them failed to break even in 2012 and most of them still lose money in 2013. I am out of this discussion with you Forestg since I don't see any value in this.

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I've to admit, I'm happy to see that reason and objectivity have slowly returned to this thread. I mean, by all means, what DQ is saying is good news for the entire PV sector and even for SOL. Firstly, above all, lower poly cost will help almost everybody in the PV chain because module makers are assured a healthy profit even when module ASP declines in Q1 14 and beyond (aren't we quite worried about this recently?)  and PV installers will enjoy an even more vibrant market due to solar becoming more competitive with traditional power sources. As for SOL, a possible short-term poly shortage and stable or even slightly higher poly prices projected by DQ will surely be beneficial to its bottom line. If SOL reaches $16 poly cost as planned, isn't it true that SOL gains a huge advantage to other module makers which have to buy poly from market at $17 to 19 (and even 20)? In addition, DQ's $12 cost also shows that SOL has the potential to further lower their poly cost. When that happens, SOL will become a leader among all module makers.

 

As someone with a large position in SOL, I wish SOL does everything to realize its potential. But if SOL fails to execute, they might be better off to write down their poly plant and direct their resources and energy in other areas, such as downstream projects. Fortunately, for us the investors, (who I think are lucky to see the energy revolution unfolding right in front of our eyes), there are plenty of alternatives to invest the money. With poly cost substantially being reduced, JKS and CSIQ come to my mind as two of the best companies to invest. Heck, I might even shift my money to DQ if SOL fails to show progress in their Q3.

 

Forest, with due respect, I think you've made enough point about GCL, DQ and others lying without evidence. Personally, I think it is beneficial to this forum that you stop doing that. Given a choice to pick one side to believe, I think the choice is obvious for most investors. Frankly, we all know your love of SOL, but no one should allow a personal investment to cloud his vision and compromise his judgement.  If that is not case, then I apologize, lets just use that as refreshment of the principle that all of us need to adhere to.

 

Finally, thanks to eystainh and josh for injecting objectivity to the discussions. Which is, unfortunately, overdue.

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Guest joshchang

 

 

I've to admit, I'm happy to see that reason and objectivity have slowly returned to this thread. I mean, by all means, what DQ is saying is good news for the entire PV sector and even for SOL. Firstly, above all, lower poly cost will help almost everybody in the PV chain because module makers are assured a healthy profit even when module ASP declines in Q1 14 and beyond (aren't we quite worried about this recently?)  and PV installers will enjoy an even more vibrant market due to solar becoming more competitive with traditional power sources. As for SOL, a possible short-term poly shortage and stable or even slightly higher poly prices projected by DQ will surely be beneficial to its bottom line. If SOL reaches $16 poly cost as planned, isn't it true that SOL gains a huge advantage to other module makers which have to buy poly from market at $17 to 19 (and even 20)? In addition, DQ's $12 cost also shows that SOL has the potential to further lower their poly cost. When that happens, SOL will become a leader among all module makers.

 

As someone with a large position in SOL, I wish SOL does everything to realize its potential. But if SOL fails to execute, they might be better off to write down their poly plant and direct their resources and energy in other areas, such as downstream projects. Fortunately, for us the investors, (who I think are lucky to see the energy revolution unfolding right in front of our eyes), there are plenty of alternatives to invest the money. With poly cost substantially being reduced, JKS and CSIQ come to my mind as two of the best companies to invest. Heck, I might even shift my money to DQ if SOL fails to show progress in their Q3.

 

Forest, with due respect, I think you've made enough point about GCL, DQ and others lying without evidence. Personally, I think it is beneficial to this forum that you stop doing that. Given a choice to pick one side to believe, I think the choice is obvious for most investors. Frankly, we all know your love of SOL, but no one should allow a personal investment to cloud his vision and compromise his judgement.  If that is not case, then I apologize, lets just use that as refreshment of the principle that all of us need to adhere to.

 

Finally, thanks to eystainh and josh for injecting objectivity to the discussions. Which is, unfortunately, overdue.

 

Well said, Sunnysky.

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Than you are inaccurate 2.6% in half of the year just for solar, and higher now, after impairment took place. Their GM is positive. SOL is not profitable either for that matter. SOL will remain a low GM poly producer, with small profitability unless the ASP goes up in a significant terms.

That assumes that SOL would just stand still in further cost cutting. We need to see in CC how their new cost target for 2014 is, isnt that the reason they issued 70m in equity? Daqo just came out with this low target in Q3, SOL is still due to speak, so we dont know yet. @Forestg, when did GCL say they need over 20$ ASP to be profitable, and based on what utilization? Arent they working on further cost cutting on a fast pace, so your 20$ might just be outdated already. Fact is, SOL decided to be in the poly dog race, so they have to play it full or else they will drop out of the competition, also of the other rest of their business if there equity is gone. There is no room for error here.

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I'm more relaxed than ever given all the good news coming out of Q3 earnings and look forward to JASO's result on Tuesday. Leaving for tennis now and will check the forum late tonight.

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Inventory write down in 2013 was .4m in q1 and .3m in q2. Negligible in my view. I saw n other impairment than the 6.5m on mono furnaces in their 20-F.

As I already corrected on furnaces, what does it tell you they are writing off the poly in Q2 of 2013?

It tells me that they produced minute amounts of own poly in Q2. In fact what they produced were testing amounts after integration. The plant was shut down from November to June. They issue I have is that I am not clear how much idling did they took under the margins for Q2. I would say that maybe not everything has been accounted for, simply because poly is not produced and in accrued accounting you cannot expense something , which you are not using. In Q3 poly production could have adverse results, which is pretty scary that I just realized this on Sunday.

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I agree with Makan. DQ indicates something's up in the China poly scene. SOL said raised funds would be used to optimize poly plant. I read that as they might improve cost structure and maybe announce a lower cost target for 2014 than their old $18 target. Let's hear what SOL says in their q3 dscussion to after hearing gcl and dq.

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Sunnysky, if DQ is saying true that a 50,000 MT shortage is coming and that everyone worldwide is losing money with poly at $19, of course it is hugely bullish for SOL. Massively bullish. But there is another reason. Unlike DQ and GCL, SOL has built now a brand name and that brand is getting ever better recognition and higher ASP. So unlike DQ and GCL, for a company like SOL that uses 100% of the poly they produce internally, all they need is just $1 (spot price) above their all in costs (whatever those end up being) to show a huge benefit in margins in their wafers/modules margins.

IMHO one advantage of SOL is they dont need to be best in class poly producer to have benefit of that operation. However, they should not be far away also, since this industry seems to be working in "winner takes all" fashion. Whenever their direct cost is below market price of poly (hard enough to achieve) they have benefit because they get it cheaper than competitors that have to buy at market price.

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IMHO one advantage of SOL is they dont need to be best in class poly producer to have benefit of that operation. However, they should not be far away also, since this industry seems to be working in "winner takes all" fashion. Whenever their direct cost is below market price of poly (hard enough to achieve) they have benefit because they get it cheaper than competitors that have to buy at market price.

 

But if SOL (phase II @ $16.5) is second best after DQ that only has 6 kT capacity in 2014, then they are in a good position in my view. Even if GCL would be better than SOL, price will still depend on what at least two out of OCI, Wacker and Hemlock can achieve, since (normalized) price ends up at the cost to supply the last demanded GW. Since both SOL and mostly GCL consume their own poly they don't really add much supply to the open market for those who want to buy poly, which I think is a smart point. DQ is also doing some wafers.

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I think I understand a bit better what is happening with DQ. Chongqing polysilicon facilities were 4,300MT of poly production. The second phase pant in Xinjiang was built during 2011 to 2012 season and was going to produce 5,000MT of poly which in total would produce 9,300MW. Chongqing polysilicon facilities did not produce poly since November 2012 (like SOL)

From Q1, 2013 in June: “In April, we conducted several process optimization projects in our Xinjiang facilities. This enabled us to further reduce our total production cost to approximate $18/kg by the end of May."
In February the plant was working at $20 per kg. 
From Q2, 2013 in September 2013” " In April, we successfully conducted several technical improvement projects which reduced our production cost below $16/kg” then “We plan to expand our capacity in Xinjiang to 6,150 MT by the end of 2013. By achieving that, we expect that we can reduce our cost to the level of $14/kg at that time," commented Dr. Gongda Yao, Chief Executive Officer of the Company.”
In June DQ reported producing poly at $18 in May, but in September this was already below $16 in April. In three months they dropped $2 per kg, even one month earlier, how?
The company essentially shut down Chongqing. I have the PPE in 2010 at $370M, $73M in depreciation from 2011 to 2012. Impairments for those years were $82M.  This leaves some $229M. Another $10M deducted for Q1 2013 and $158M in Q2. This is leaving $51M of residual. Xinjiang 5000MT looks like $432M. 20 years for the plant is about $20M at $4 per kg, or $20M, so residual is around $32M after 20 years.
This means Daqo has no blended costs, but just one plant, one year old. If the equipment worth some $51M was moved and it is a contributor to 1,150MT of poly production this is about $46 per 1kg, vs $86 per kg. This sounds a lot to me for a poly plant, when I think of SOL's $35/kg. So DQ is not honest about its depreciation cost, and in consequence cash cost, imho. Just to illustrate 5,000MY plant at $35 is about $179M at 20 years at $4 as they have declared plant would be zero in 8 years. Something is not accurate, to put it mildly. 
 
 

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If you look at their Q2 and Q3 statements, they have reduced the PPE, but further $10M, which suggests $40M per year. Their Q1 to Q2 reduction was $171M, if you take $158M for the old plant, what did take $13M. Their gross margins were negative, they are impairing new plant or what?

Their income statement tells the different story than their narrative does. 

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But if SOL (phase II @ $16.5) is second best after DQ that only has 6 kT capacity in 2014, then they are in a good position in my view. Even if GCL would be better than SOL, price will still depend on what at least two out of OCI, Wacker and Hemlock can achieve, since (normalized) price ends up at the cost to supply the last demanded GW. Since both SOL and mostly GCL consume their own poly they don't really add much supply to the open market for those who want to buy poly, which I think is a smart point. DQ is also doing some wafers.

IMHO since SOL doesnt need to be first mover on cost cutting or upgrade initiatives and be the cost leader, they can always wait and see what worked for others and match these best practises a bit later. Strategically this is less risky for them.

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This has been a very interesting and educational thread. Thanks to all! I have to say though, that it makes CSIQ/JKS/TSL and other downstream actors even more attractive, in light of uncertainly in the upstream companies. The installers look pretty good too for the next few years, as their  costs keep going down, while their margins are more sticky.

 

The big picture though, is that grid parity is coming even faster than even this board probably expects. I think we are in for an epic run in installations in the years ahead. Hold on tight !

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Regardless of the tricks DQ is pulling to get blended depreciation cost below $3, it looks clear that they are achieving cash cost below $10 with Siemens in west China. This is the most interesting point.

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Guest JulyWebb

Scsnospam, in the last cycle in 2010, the downstreamers CSIQ and TSL hit their peaks in January 2010 (CSIQ near $34, TSL $31+) while the upstreamer like SOL was at $6. Fast forward to October 2010 and the upstreamer SOL had nearly tripled to $15+ (from $6 in january 2010), while the downstreamers CSIQ and TSL had gone nowhere if down (CSIQ down to near $18 in Oct 2010 down almost 50% from Jan 2010, and TSL had gone nowhere from Jan 2010 to Oct 2010 while SOL had tripled). My point is that looking at history of this cyclical commodity business, upstreamers run ahead of downstreamers, and then the upstreamers run ahead of downstreamers. You can look at the charts and verify that what I'm saying to be true. And as they say, those that don't learn from history are doomed to repeat it. JMHO. Do your DD.

 

Nonsense

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Regardless of the tricks DQ is pulling to get blended depreciation cost below $3, it looks clear that they are achieving cash cost below $10 with Siemens in west China. This is the most interesting point.

The only way this works they are depreciating the plant at 10 years from 20, In fact it looks like they have $10M written off last quarter after they took everything down on 4,300MT facility to $50M or less. Explo how did they get negative GM at $17 poly and $15 total cost? Did they give ingots for free?

Smaller they get more bizarre stories they tell. 

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Guest eysteinh

I agree many things are fishy with daqo. But they do say that excluding the old plant it was postitive gm.

 

". Excluding costs related to the polysilicon operations in Wanzhou, the non-GAAP gross margin was positive 9.8% in the third quarter of 2013,"

 

 

 

http://dqsolar.investorroom.com/2013-11-22-Daqo-New-Energy-Announces-Unaudited-Third-Quarter-2013-Results

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The only way this works they are depreciating the plant at 10 years from 20, In fact it looks like they have $10M written off last quarter after they took everything down on 4,300MT facility to $50M or less. Explo how did they get negative GM at $17 poly and $15 total cost? Did they give ingots for free?

Smaller they get more bizarre stories they tell. 

 

Yes I agree their GM, ASP and cost story did not add up. I broke down their depreciation earlier in this thread so I think we are seeing the same thing there:

 

http://solarpvinvestor.com/community/index.php/topic/2233-dq-invests-5-billion-rmb-to-build-the-largest-polysilicon-factory-in-xinjiang/?p=29018

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I agree many things are fishy with daqo. But they do say that excluding the old plant it was postitive gm.

The old plant is not operating since November 2012. This company is not truthful. 

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Guest JMK

That Wacker plant being built in Tennessee is increible expensive. Depreciation and interest cost alone would be higher than DQ. Why build an expensive plant there, when customers are in China and U.S. declared solar trade war on them? Sounds like massive stupidity.

I feel (do not know exactly though some invisible first signs already appeared) that US is going big for PV solar starting within next 1-2 years. Probably much higher than China and Japan combined.

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I feel (do not know exactly though some invisible first signs already appeared) that US is going big for PV solar starting within next 1-2 years. Probably much higher than China and Japan combined.

 

Yes, but most wafer capacity is still in China and majority of the rest in other parts of Asia. So the Wacker Tennessee poly plant would not be located close to the immidate market even if panels based on there poly eventually makes it to the U.S. to be installed there.

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Regarding DQ's below $10 cash cost. I think it is due to very low electricity rate in Xinjiang. I think plants there or in Inner Mongolia can get lower electricity price because of the coal abundant rural nature of those provinces. This means that some of China's biggest poly plants that GCL, LDK and SOL have are equally screwed in that sense. Can someone with China insight (Jason?) confirm this suspicion?

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Guest joshchang

Regarding DQ's below $10 cash cost. I think it is due to very low electricity rate in Xinjiang. I think plants there or in Inner Mongolia can get lower electricity price because of the coal abundant rural nature of those provinces. This means that some of China's biggest poly plants that GCL, LDK and SOL have are equally screwed in that sense. Can someone with China insight (Jason?) confirm this suspicion?

GCL and Tebian will be using electricity from their own power plant which will bring electricity cost down to 0.32 yuan. Inner Mongolia has similar rate maybe a little bit lower rate than Xinjiang. LDK used to get subsidized rate at around 0.4 yuan. Not any more I think. So in the future, you either need to be in a place where electricity is dirt cheap (Xinjiang, Inner Mongolia) or have own power plant to be competitive on electricity cost in China.

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GCL and Tebian will be using electricity from their own power plant which will bring electricity cost down to 0.32 yuan. Inner Mongolia has similar rate maybe a little bit lower rate than Xinjiang. LDK used to get subsidized rate at around 0.4 yuan. Not any more I think. So in the future, you either need to be in a place where electricity is dirt cheap (Xinjiang, Inner Mongolia) or have own power plant to be competitive on electricity cost in China.

 

If think LDK got 0.40 at wafer plant and 0.25 at poly plant from Xinyu city. I think it's very few provinces where it is easy to get significantly lower rate than national average now. A lot of hiking was done in 2011 as central government tried to optimize resource allocation I think. So what Xinyu offered to LDK I think is harder these days, that's why DQ decided to move equipment from Chongqing plant to Xinjiang plant and take a 160m write down on the now equipment- and thus useless Chongqing poly plant. Integrating to use own power plant as well as MG-Si production is quite common in poly production. Once you get your closed loop system in place electricity and raw material are main cash cost components.

 

Would be interesting if SOL commented on the poly scene and what DQ is doing.

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