Other than First Solar, who holds a low-cost manufacturing benchmark?

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In its conference call last night, MEMC called out a Chinese company with “very nice costs” in the context of best-known methods in solar industry wafering. As MEMC ramps its in-house wafering operations after years of outsourcing, we believe the company was referencing ReneSola. Combined with its affirmation of industry growth at price declines in line with our model, we continue to see ReneSola as the top pick in our coverage universe with more than 130% upside to our target price.

MEMC measures itself against a leading Chinese wafer manufacturer

Without mentioning the exact company, Ahmad Chatila, MEMC’s CEO, highlighted a Chinese company as being representative of the solar industries best-known methods during the conference call, saying;

“There are some manufacturers that are not efficient. These we don't count in our assessments. Then there is the typical Asian manufacturer who's really good. Those, we know that they'll have low cost. And then you have the best-known methods and it's not the largest company. It is actually in our head one company in China that has, let's say, its number four or five in the world. They have a very nice cost [structure]. We will have lower cost [structure] than them in our view.”

According to our calculations, ReneSola is ranked number four, and as a supplier to MEMC, it has visibility into ReneSola’s manufacturing process.

We continue to highlight the importance of aggressive cost programs as a differentiator in the solar industry. With its industry-leading cost position and price declines potentially less onerous than ‘consensus’ previously expected, ReneSola’s industry leading cost position mitigates margin declines. We are modelling 16% wafer price decline through 4Q11, evenly spread across the year.

Guidance for 20% growth in MEMC’s solar materials division and implied flat pricing on constrained polysilicon supply until 2H11 supports a better view than our more evenly spaced price decline expectations through the year.

With higher demand in Germany and Italy potentially starving other regions of supply going into the strongest part of the year, price risk is to the upside vs. MEMC’s expectation of 15%-20% wafer price declines in 2H11.

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