LDK's a Future Play

If you're an LDK Solar (NYSE: LDK) investor, 2010 can't come soon enough.

That's the year that LDK's in-house polysilicon production ought to be making a big difference to the wafer-maker's bottom line. With the help of contractor Fluor (NYSE: FLR), this plant is progressing on schedule. LDK's got plenty of company in this race to take the world from poly-poor to poly glut. Hoku Scientific (Nasdaq: HOKU), for example, is fighting against the odds to supply Solarfun Power (Nasdaq: SOLF) and Suntech Power (NYSE: STP) with homegrown poly of its own.

In the meantime, however, the polysilicon pinch isn't doing LDK's margins any favors.

I've noted the company's steady gross margin declines, and we've now arrived in the upper 20s, as anticipated. Even at this stage in the game, however, LDK has misjudged the impact of those persistent cost pressures. February's 26%-31% range for full-year gross margins has now been clipped by 3% at both the high and low end.

There were no big surprises in LDK's quarterly numbers, because the company took care to update its forecast multiple times. Results came in at the high end of guidance, with $233 million in revenue and more than 119 megawatts (MW) of wafer shipments. The shipment forecast in late February was a range of 98-104MW.

While this year's margin crunch is no fun, we're seeing several positive developments at LDK. After the whole inventory dust-up -- regarding which the SEC has dropped its investigation -- the company appears to have taken great care to improve its communication with the investment community. Guidance for the most recent quarter was proved conservative. Talk is important, but it's also cheap. The greatest source of reassurance continues to be LDK's string of contract signings.

The company has landed half a dozen new long-term supply agreements this year, with clients such as Moser Baer and Qimonda AG. The latter company, like Applied Materials (Nasdaq: AMAT), is a semiconductor player that's seen the green in solar. The agreement with Qimonda also helps LDK secure more scrap silicon. Hey, every little bit helps until that poly plant's up and running.

On a final note, I'd like to correct an error of mine. In a past piece on SunPower (Nasdaq: SPWR), I said that LDK was forgoing in-house trichlorosilane (TCS) gas production. It is in fact building a TCS facility, which will employ a closed-loop process to recycle waste gas.

Related Foolishness:

• Here's a more straightforward solar manufacturing play.
• Does this indicate a sunset for the silicon shortage?
• LDK isn't the only one making use of silicon scrap.