• Tuesday, April 29, 2008 Latest Update: 3:25PM

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Solar

Jennifer Kho April 29, 2008 1 Comments

LDK CEO Starts Thin-Film Firm

The LDK Investor Group says Best Solar, a thin-film startup founded by LDK CEO Xiaofeng Peng, placed the $1.9 billion order that Applied Materials reported to the U.S. Securities and Exchange Commission in March.

Rumors about Applied Materials’ (NSDQ: AMAT) mystery customer have been flying ever since the company reported a $1.9 billion sales agreement “with a privately held corporation based outside the United States” in March.

Some industry insiders thought the purchaser was Masdar, Abu Dhabi’s alternative-energy company, which later that month announced it would build $1.2 billion worth of concentrating solar projects in the south of Spain. Others guessed it was Moser Baer, which in February had said it would pump $1.5 billion into thin-film solar, and still others thought it was Chinese solar-wafer manufacturer LDK Solar (NYSE: LDK).

Now, the LDK Investor Group thinks it has solved the mystery.

In a report released Tuesday, Hakan Telenius, the group’s organizer, said the buyer is Best Solar, a new company set up by LDK CEO Xiaofeng Peng.

Best Solar is an independent company that is unrelated to LDK -- other than sharing a founder -- and that aims to become the world’s largest supplier of thin-film solar panels, according to the report.

“I’m sure this is correct,” said Telenius, who wouldn’t disclose his source but said it was “a direct source” and that the information was confirmed by “lots” of other unnamed sources. “I also knew the news was spreading – lots of people, including at least one analyst, were well aware of what was happening – and we felt we had to release the information to all shareholders.”

Jesse Pichel, an analyst at Piper Jaffray, said he believes the report is correct, based on his own information. The theory also fits in with LDK’s annual report, which states that Peng and his family members “are considering and may invest or otherwise participate in his personal capacity in several alternative-energy projects, including projects involving thin-film solar technology, solar-thermal, wind energy and biofuels.”

“If true, it means the CEO’s personal business is directly competing with LDK shareholders,” Pichel said. “It’s a competing technology – one’s thin-film and one’s polycrystalline. And given that Peng’s the driver of the company, his attention may be diluted now that he’s having to run a big private company. He’s ramping a 1.5-gigawatt poly plant, a 1.5-gigawatt wafer plant and a gigawatt of thin film all at the same time.”

Officials at LDK didn’t return a call and e-mails by press time, and Applied Materials spokesperson David Miller said he couldn’t confirm or deny the information. “Applied continues to have no comment beyond our earlier filing,” he said.

LDK earlier this month said it was raising $400 million to build a 15,000-ton polysilicon plant and to expand its wafer production (see LDK to Raise $400M, LDK Wants $300M and LDK Seeks Big-Time Capital).

Telenius also mentioned the possibility of competition.

“If you’re selling solar panels through regular technology and thin-film technology, you’re kind of competing,” he said. “I wish we knew the strategy behind it all. And there may not be a strategy.”

He said he hopes Peng is considering a merger that would integrate LDK and Best Solar, diversifying its technology. But client relationships might prevent that if LDK has agreed not to get into the solar-panel business, he said.

In the report, Telenius wrote that distraction is a concern, but also found some silver lining: Peng “is reinforcing the impression we have of his ability to strike bold deals and launch large companies – a true entrepreneur – and that he is committed to building a strong solar industry in China.”

On the phone, he said the news confirmed Peng’s reputation as a deal maker and a company builder.

“I’m not sure he’s that good at executing later, but he’s a bold entrepreneur. He’s going to do this again and again,” Telenius said. “To those who sort of doubt what’s going to come of LDK, this is one thing to keep in mind: He may well do lots of things that hopefully create value for shareholders.”

While the deal with Applied Materials is a big one, several analysts said they are waiting to see what materializes before chalking it up as a win for Best Solar.

After all, Applied Materials’ technology is still a risky proposition, said Brian Yerger, a research analyst with Jesup & Lamont.

“There’s a lot of promise and a lot of hype and market capacity built into their solar division, and they’re going to be spending a lot of money and [capital] to ramp it up, but in reality they don’t have any modules that generate power yet,” he said. “It’s unusual for someone so large with such a long history spending so much to take a large shot at solar. There’s always some risk that a startup could come up and find a game-changing technology that could make Applied Materials obsolete.”

Still, betting on Applied Materials, with its size, history and credibility, is less risky than investing in a startup, he said.

Comments [1]

  • S S 05/6/08 1:32 AM

    Pichel’s contention that LDK will be “ramping up” three entities seems like an exaggeration. Also, I fault the author for not clarifying the inference with another question.

    There will also be some time in 2009 or early 2010, when LDK will have completed construction on the poly-SI plant. As it stands, LDK has already booked (or nearly completed booking) its capacity for 2008, 2009 and 2010. There will possibly be some surprises when China’s work force, finishes the Beijing Olympic construction and many skilled contractors looking for another job, may end up submitting resumes with LDK.

    What will LDK do in late 2009 or early 2010, when its poly silicon plant will be completed, nearly completed, or in full production mode? Will they simply stop having a vision for the future of solar? Is that the expectation of Pichel and his associates at Piper Jaffray?

    If LDK has booked 85 - 94% of is capacity for 2008, 2009 and 2010 (possibly more than 85% and possibly longer reaching contracts than 2010), what is to become of over demand? Should LDK or Xiaofeng Peng turn away from other demand when it comes calling? Or should they make plans to deal with more demand than was first estimated in 2005-2006?

    The notion of “conflict of interest,” implies professional misconduct, where recently the SEC has cleared Peng and LDK of any form of misconduct.

    I think this loose language or inference of Pichel, possibly the author, and any former associates of Needham & Co to slam Peng or take pot shots at him, indicates a bias. Peng’s native tongue is not English. That these so called professionals are taking pot shots at him (after the SEC just cleared him) indicates a type of unprofessional behavior that seems bent on chasing Peng or trying to act adversely in a manner to fatigue him. They already know he has a full plate. Running a large business through a construction phase is not a small task.  Perhaps they wish to distract him from his priorities. Quite possibly, it hints of patriotic competitiveness between Americanized ways of doing business vs Chinese ideals. I would like the author to research more fully, if Pichel or former associates at Needham & Co, having conflicts of interest of their own, being invested more fully in United States firms or receive large fees in their association with U.S. based solar companies; or possibly U.S. based petroleum firms that have been known to buy up smaller companies in competing technology (such as electricity, hydrogen or battery production) and wrecking the company while slandering the inventor of the technology.

    I ask this because it is potent misuse of the phrase “conflict of interest,” unless a person is cited for professional misconduct. It is not a parlor room statement. It is an exacting statement meant to slander or distress. It is meant to fatigue as when pack animals drive their pray for miles, before tripping them up.

    As for professional misconduct implied in “conflict of interest” type inference or statements: Innuendo is cheap-shot, tom foolery. It is old school east coast Bull Shit. It is a malicious game of fatiguing an opponent (to such firms as First Solar or others venturing into the Thin Film).

    It was not long ago, Piper Jaffray and associates at Goldman Sacs, black-balled LDK and accused them of inventory issues, while piling on large short positions (or encouraging associations to do same) in the week prior. There was a point when more shares were being shorted than were actually in the market.

    They accused LDK of failing to properly account for its inventory, in a business whose inventory is in a constant state of fluctuation. They relied on heavy doses of innuendo and implication of criminal fraud. They down graded the company, much the same way as analysts downgrade a firm when it is actually indicted in a fraudulent practice. (From 70 to 21$.) They made steep “conviction sell” notes, while implying fraud that turned out to be not true.

    This was never prosecuted by the SEC. After LDK filed its Form 20F on February 7, 2008 (and all required documents near this time), the SEC cleared the company and its CEO of any wrong doing.

    I wondered what was next when Piper Jaffray and Goldman did not issue a retraction after that.

    It appears that Piper Jaffray (previously rejected by LDK) is now poised to line up its next barrage of slanderous, inflammatory remarks.

    Good thing they have an objective press outlet here, to give them a voice.

    Jesse Pichel has already exhibited Potipher’s Wife syndrome in the last conference call. I have no idea why any reporter even listens to him, especially after the SEC looked it over and cleared LDK and Peng of wrong doing.

    Reply

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