The Solar Industry in Turbulent Times

“Look, one day I had gone to a little village. An old grandfather of ninety was busy planting an almond tree. ‘What, grandad!’ I exclaimed. ‘Planting an almond tree?’ And he, bent as he was, turned around and said: ‘My son, I carry on as if I should never die.’ I replied: ‘And I carry on as if I was going to die any minute.’ Which of us was right, boss?”      Nikos Kazantzakis from Zorba the Greek

This reminds me of the solar industry and business in general.  When times are good, the economy is expanding and companies (and stocks) can do no wrong, we see companies expanding like there were no tomorrow.  The build buildings, open new territories, hire staff and mid management well beyond what is sustainable and generally invest heavily in gaining market share.  They live as if there were no tomorrow and in fact are incapable of reflecting on the past.  We are seeing the results of this now that the banks are frozen in fear and investors have fled the stock market.  The solar business has dropped off due to tight credit and uncertainty.  There is still a high level of interest but many customers have taken a wait and see attitude.

Companies that expanded too quickly and built too much brick and mortar are now retrenching rapidly.  Akeena just announced that it had lost $9.5M on $10.2M in revenue.  Several other companies are rapidly pulling out of areas that they had tried to gain a foothold.  We are hearing that many others are losing money rapidly.  Companies that extended themselves to gain market share at all costs are now paying a heavy price.

This market reminds me of the old story in the Semiconductor industry.  Most companies would chase market share at all costs when times were good.  I could name dozens that went up in flames at the end of the dot com era.  There was one firm that always stood out, however.  Maxim had a different model than almost anyone else.  When times were good, they raised their prices and grew slowly, deliberately.  When the inevitable downturn occurred, they would have a financial war chest with which they could survive the downturn.  They could reduce prices to a reasonable level but they didn’t need to cut their own throat.

Right now, we are seeing some companies (especially ones that expanded too quickly) slashing their prices below cost in order to continue operations.  They are desperate and living like they are going to die tomorrow.  Unfortunately, many of them probably will.

I feel bad that many companies are giving out 10 year warranties that they know they will never honor.

The question in business is whether to build as if you are going to live forever, or whether you are going to go for the quick buck, sell the business, cash out your stock and retire on a beach somewhere.  The second sounds like a lot of fun but the first is the more rational long term strategy for your customers, and for your employees and stockholders.

Recently, I read an article that said the only companies that would survive the shakeout in the solar industry would be the ones that are very big and vertically integrated.  Personally, I think these companies have the least flexibility and will be the first to go.

My closing thought.  If you are going to hire a solar company, make sure that you look to someone that plans to be around for awhile–planting almond trees, tending the garden, waiting for the harvest in autumn.

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