Thursday, August 13, 2009

There's selling, and then there's SELLING (SOLR)

AlphaNinja - That title refers to companies selling shares. There are offerings of stock to raise money to retire debt, to fund acquisitions, and many other useful actions. Sometimes the proceeds go to the company, and sometimes the stock is sold by existing owners or employees, in which case the company does not receie the proceeds. Contrary to what some think, it's not always a bda sign when emplyees and executives sell shares - when it's a massive part of your compensation (not to mention net worth), it is to be expected that you'd sell occasionally.

GT Solar (SOLR) filed an S-3 - current stockholders (Venture partners like Oaktree Capital) registered to sell their entire 106million shares of the stock. That doesn't mean they'll quickly dump all the shares, but it means they're likely to sell at least some.
106million shares, out of a total of 143million, a huge number.
Why might they sell? A look at the company's own risk warnings sheds some light. Among many risks outlined:
Amounts included in our order backlog may not result in actual revenue or translate into profits.
As of March 28, 2009, our order backlog was approximately $1.2 billion and as of June 27, 2009, our order backlog was approximately $1.1 billion. Although our order backlog is based on signed purchase orders or other written contractual commitments, we cannot guarantee that our order backlog will result in actual revenue in the originally anticipated period or at all. In addition, the contracts included in our order backlog may not generate margins equal to our historical operating results. We have only recently begun to track our order backlog on a consistent basis as a performance measure and, as a result, we do not have significant experience in determining the level of realization that we will actually achieve on our backlog. Our customers may experience project delays or defaults on the terms of their contracts with us as a result of external market factors and economic or other factors beyond our control. During the fiscal year ended March 28, 2009, some of our customers failed to make deposits when due under their contracts, and we terminated those contracts as a result of the customers' breach. As a result of these terminations and other contract revisions, our order backlog was reduced by approximately $39 million during the fiscal year ended March 28, 2009 and by $7 million during the three months ended June 27, 2009. In addition, certain of our large customers have requested that we extend the delivery schedules under their contracts in our order backlog. We are currently in negotiations with these customers over their requests. Any contract modifications that we negotiate could likely include an extension of delivery dates, and could result in lower pricing or in a reduction in the number of units deliverable under the contract, thereby reducing our order backlog. If we cannot come to an agreement with these customers, it could result in a reduction of our order backlog. If our order backlog fails to result in revenue in a timely manner, or at all, we could experience a reduction in revenue, profitability and liquidity.
And if you read further, you come across my worry for the whole solar industry -->> namely that it is heavily reliant on "government subsidies," rather than real economic demand:
Government subsidies and economic incentives for on-grid solar electricity applications could be reduced or eliminated.
"...any government subsidies and economic incentives could be reduced or eliminated altogether at any time and for any reason. Relevant statutes or regulations may be found to be anti-competitive, unconstitutional or may be amended or discontinued for other reasons. For example, the predecessor to the EEG was challenged in Germany on constitutional grounds and in the European Court of Justice as impermissible state aid. Although such challenge was unsuccessful, new proceedings challenging the EEG or comparable minimum price regulations in other countries in which we conduct our business may be initiated. Amendments to the EEG are currently being discussed and there can be no assurance that subsidies and economic incentives under the EEG or other similar legislation in other countries will not be reduced or eliminated. "
Not helping matters today was a Barclays downgrade of the entire solar sector, saying current troubles are "secular, not cyclical."

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