Tuesday, April 29, 2008

Best Energy, AMAT, LDK, Xiaofeng Peng.

The LDK Investors Group has put out an update, and Greentech Media has a followup.

Regarding the mystery deal between AMAT and a Chinese Company, per the article:

Xiaofeng Peng, the founder and CEO of LDK has set up another independent company called Best Solar and it is this company which has signed the deal with Applied Materials.


It's interesting. We've known that there was a deal with some mystery company in China for some time now, and Conor's group has broken the story.


There is alot that could be said about the deal; there is significant room for conspiracy theories and intrigue. I'll speculate later.


What grabs me, upon reading the Greentech article is that here comes The LDK Investors Group, they bust open a story, and boom! Suddenly analysts with knowledge of the deal are coming out of the woodwork. Hmm, it seems that Jesse Pichel has a habit of selectively releasing information. Of course this is no suprise, analysts are paid for their information, and retail investors don't cut the big checks. It just goes to show, though, the nature of the game that is being played. Big Kudos and Thanks to Conor and his Group!


Ok, to speculation.


One, the possibility of Mr. Peng's involvement in a second, private company, sets off alarms. Not just due to dilution of his personal effort, but due to a potential direct conflict of interest, and possible skimming of LDK resources or profits to benefit the second company. This concern is assuaged somewhat if this company goes Public, but that's not a certainty.


I'm an optimist not only on LDK, but on the ethics of Mr. Peng and his Team, but I'll try not to discount the above risk out of hand.


A Couple of points in LDK's favor are:


- There is reason to believe that the majority of Mr. Peng's personal wealth is tied up in LDK. He doesn't have the money to make this huge deal with Applied Materials by himself. Where Mr. Peng is in absolute control of LDK, he can only be a partner, and likely a minority partner, in such a large secondary project.

- LDK is Mr. Peng's face. If LDK fails, then Mr. Peng loses that face. Especially after all of the insults thrown at Mr. Peng by Wall Street Analysts and Media Outlets, Mr. Peng is very likely driven to prove them very, very wrong. He won't do this by corrupting and destroying LDK.


Initial Conclusion: Mr. Peng has too much tied up in LDK to allow it to do other than succeed, and whatever plan he's spelled for the recent investors of $400 Million, surely includes an appreciating share price. Those guys probably knew about "Best Solar" long ago; it seems that in some circles this deal has been common knowledge.

I'd be much more worried if I were at FSLR, and saw a One GigaWatt Competitor on the horizon, and not only thin-film, but Silicon-based thin-film. As the price of Tellurium Increases, we'll be seeing the price of Silicon Decreasing. FSLR is going to have a tougher time scaling up over time, to fill the niche, than a silicon-based competitor.

As for LDK's Target Market in comparison to that of "Best Solar," they aren't necessarily in direct competition. The Niche filled by "Best Solar" is going to be in very low cost / low efficiency / large land area Installations; the same as FSLR. LDK's higher efficiency, smaller area panels will be applied in more densely populated areas, where space is at a premium.


So, I don't know, but these are some initial thoughts. I'll be very interested to see what additional details come out about "Best Solar" and Mr. Peng. We really do need to know what his capacity is with "Best Solar."



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A final thought on the subject is captured in a statement that I'll title as "the genius of Peng."

I consider the Sunways Deal to be an indication of Peng's Genius. Siemens Reactors aren't constructed in a day. If Peng had ordered the two reactors that are going in this month from scratch, there's no way that he would have had them near installed by now, but he managed to work his way into two reactors that Sunways had ON HAND.

This was a big first step in getting the jump on alot of Competition.

Next, GT Solar. LDK is the largest Customer of GT Solar, and the scale involved has got to be a significant portion of GT's capacity. What LDK buys from this young growing company, can't be sold to LDK's Competition.

Here's step two in depriving competition from accessing much-needed equipment.

Now, Applied Materials. "Best Solar" makes a $1.9 Billion deal with Applied Materials for Sunfab lines. To my knowledge, AMAT hasn't built any Sunfabs, and here's a Peng Enterprise buying up a GW worth. "Best Solar" must have some kind of priority over other potential buyers that might want some Sunfab Plants. Applied Materials isn't just going to be able to go from none to a GW in a month. There's going to have to be some dedication to "Best Solar's" order from some time.

Step three. Deprive Competition of Sunfab thin-film lines.

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