Another Energy IPO (Hopeful)

The heavily-covered IPO filing by solar panel maker Solyndra (some facts here from Greentech Media) got me to look at the numbers in the “new energy” market again.  They remind me of another science-driven market a decade ago: optical telecom components.  I was right in the middle of that one.

What are some of the features they might have in common?

  • Massive venture capital investments.
  • Dozens of competitors funded.
  • Highly unpredictable, expensive research and development.
  • Negative gross margins – we’ll make it up in volume.
  • Extremely challenging reliability and lifetime requirements.
  • A long, heavily fluctuating supply chain.
  • Calls for government spending when actual customers don’t want to pay.
  • Chinese competitors keep cutting costs of “old generation” products.

The one thing optical communications had going for it, that new energy does not: end users knew they wanted it because it clearly made life better (and possibly even more productive).  Everyone wants more channels, more broadband, cheaper phone service, video on demand, cheaper cloud services.  Most electricity consumers don’t care what color that electron is, as long as it’s cheap.  And, unfortunately, the winds are increasingly against the taxpayer funding green electrons to be delivered at the same price as dirty ones.

Some specifics on Solyndra:
They are the second high-profile cleantech IPO filing this year, and the second one to do so with negative gross margins on products.  A123 is the other.  The idea is that as you scale revenue, you break into positive territory.  If you can maintain pricing.  A quick plot of some critical lines – extrapolated by implication and without a responsible “model:”

The good news is that the (highly unscientific) lines do actually converge.  However, they converge at an annual revenue run rate of about $1.4 billion.  At the 2009 Solyndra selling price of $3.42/Watt, this can’t be provided by Fab 1 and Phase 1 of Fab 2 (to be completed 2012H1).  Of course there are many scenarios I have left out (both positive and negative).

All that said, I salute the team who built a very difficult technology from the lab concept demo to a company that is probably clicking along at a > $200M run rate.  It is no small feat, nor is raising the very large amount of money required to pull it off!  And I hope they get to profit territory soon!


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