Dec 1, 2011 - The solar power industry seems to be experiencing the “perfect storm” of a market shifting too fast from constricted supply to overcapacity with nearly all major solar product makers booking third-quarter losses and analysts starting to talk of imminent shakeout of market players and consolidation of the solar power sector.
by Tsvetomira Tsanova
The average selling prices of solar power products have been on the slide since the start of 2011 along with the bottom lines and gross margins of most companies from the sector. The gap between demand and production capacity has also significantly expanded. According to a study by Swiss Bank Sarasin (SWF:BSAN), solar module production capacity at the end of 2011 will stand at around 50 GW, while sales are seen at only 21 GW.
Sarasin projects that "only the fittest and best-positioned companies", which are geographically diversified and vertically integrated, will survive an inevitable shakeout on the market. That shakeout, however, is seen to bolster the overall growth prospects within the solar manufacturing industry. The Swiss lender lists Chinese Suntech Power Holdings Co Ltd (NYSE:STP), Trina Solar Ltd (NYSE:TSL) and Yingli Green Energy Holding Co Ltd (NYSE:YGE); US First Solar Inc (NASDAQ:FSLR) and SunPower (NASDAQ:SPWRA); and German Solarworld (ETR:SWV) as the companies that are most likely to benefit from the next stage of growth on the photovoltaic (PV) market projected for after 2013.
Following is an overview of the latest "balance-sheet developments" in the industry's flagship markets and companies.
Growing tension in the US
The fierce competition for market share over the past several months has prompted European and US PV module makers to blame heir weakening performance on Chinese competitors. In October, the Coalition for American Solar Manufacturing (CASM), formed by seven US sector firms, submitted petitions with the US Department of Commerce and the International Trade Commission accusing China of illegally subsidising solar cell production and dumping crystalline silicon cells into the US market.
CASM also calls for the US government to impose duties of more than 100% on the imports of solar cells and modules. However, CASM's aggressive moves are criticised by many US firms which believe that the lack of cheaper Chinese equipment may pose even greater threat to the US solar power industry when it comes to project development.
Discouraging financial statements in the US and Europe
US photovoltaic equipment maker SunPower turned to a third-quarter net loss of USD 370.8 million (EUR 278.5m) from a profit of USD 20.1 million a year ago due to write-downs. Gross margin declined to 10.8% from 20.4%, while revenue increased to USD 705.4 million from USD 550.6 million a year before. SunPower said it would launch a corporate restructuring programme in the current quarter in order to cut operating cost and improve its operating efficiency. The restructuring is aimed at reducing by 10% the company's operating expenses in 2012.
US solar panel maker First Solar was probably the only major module manufacturer that managed to bolster its net profit in the third quarter of 2011. The company posted a profit of USD 196.5 million, compared to USD 176.9 million a year ago after revenue jumped to USD 1 billion from USD 798 million.
US silicon wafer maker MEMC Electronic Materials Inc (NYSE:WFR) also posted a third-quarter net loss of USD 94.4 million, against a net profit of USD 17.6 million. Revenue rose 3% on the year to USD 516.2 million.
At the same time, German PV group Solarworld swung to a loss of EUR 9 million (USD 12m) in the third quarter of 2011. A year earlier, the company made a profit of EUR 19.9 million. Revenue fell to EUR 237.8 million from EUR 342.1 million.
German solar firm Q-Cells (ETR:QCE) saw its net loss expand to EUR 57.1 million in the third quarter of 2011 from EUR 19.8 million in the prior-year period. Revenue nearly halved to EUR 228.8 million from EUR 401.6 million and put additional weight on profitability.
German solar technology producer Conergy (ETR:CGY) reported an after-tax loss of EUR 62.9 million for the third quarter of 2011, widening a loss of EUR 6.6 million in the prior-year period on lower sales and one-offs. Due to decline in demand in Germany and the sustained fall in prices, total revenue fell to EUR 182.4 million from EUR 275.3 million.
German Phoenix Solar AG (ETR:PS4) turned to a third-quarter after-tax loss of EUR 19 million from a profit of EUR 2.3 million. Revenue increased by 18.7% on the year to EUR 113.1 million. The company has already launched measures to cut costs and optimise the business model in a bid to return to profitability in 2012.
Chinese producers are also in the red
Despite all the accusations from Western companies that Chinese competition is to blame for most of their losses, nearly all big solar power product manufacturers in China bled red ink in the third quarter of 2011. Many companies booked huge inventory provisions and lowered their projections for the full year on the back of the tough market conditions and falling prices.
Yingli Green Energy swung to a third-quarter net loss of CNY 180.5 million (USD 28.3m/EUR 21.3m) from a CNY-456.1-million profit a year ago. Gross margin plunged to 10.8% from 33.3% a year earlier and 22.1% in the second quarter of 2011. The sharp decline was due to falling average selling prices and a CNY-258.6-million non-cash inventory provision. Third-quarter revenue grew to CNY 4.26 billion from CNY 3.28 billion a year back.
Yingli had to cut its shipment projections for 2011. It now expects PV module shipments for the full year of 1,580 MW to 1,630 MW, down from 1,700 MW-1,750 MW in an earlier forecast.
Solar wafer maker LDK Solar (NYSE:LDK) posted a third-quarter net loss of USD 114.5 million against a profit of USD 93.4 million a year ago. Gross margin was negative at 3.6%, compared to a positive 22.2% last year, due to inventory write-downs a result of a drop in market price of wafers. Revenue decreased to USD 471.9 million from USD 675.6 million a year ago.
PV equipment major JA Solar (NASDAQ:JASO) turned to a third-quarter net loss of CNY 376 million (USD 59m) from a profit of CNY 514 million a year ago, and lowered its full-year shipment guidance to 1.6 GW, compared to 1.8 GW forecast earlier. Gross margin came negative at 4.3% due to inventory provisions, without which it would have been positive, the company said. A year ago, the gross margin was positive at 22.5%. Revenue dropped by 31.6% year-on-year to CNY 2.5 billion.
Solar product maker JinkoSolar Holding Co Ltd (NYSE:JKS) saw its net income drop 73.8% year-on-year in the third quarter of 2011 to CNY 68.1 million (USD 10.7m) on revenues of CNY 1.8 billion, up 23.8% on the year, but down 21.4% quarter-on-quarter. Gross margin in the third quarter contracted to 3.7% from 33.5% a year ago and 25.4% in the second quarter as average selling price fell faster than polysilicon prices. The latter discrepancy was also the main factor behind a CNY-170.9-million inventory provision which knocked 9.6% off gross margins.
ReneSola Ltd (NYSE:SOL) reported a third-quarter net loss of USD 8.2 million versus a profit of USD 60.1 million a year ago as revenue dropped 47.3% year-on-year to USD 189.1 million. Gross margin was negative 4%, compared to positive 32.5% a year earlier, due to the considerable decline in solar wafer and module prices, driven by oversupply and weak demand.
Suntech Power posted a third-quarter net loss of USD 116.4 million, against a net profit of USD 33.1 million a year earlier. Gross margin declined to 13.3% from 17.9%. Suntech expects its gross margin to further drop to between 9% and 11% in the fourth quarter of 2011. Third-quarter revenue improved to USD 809.8 million from USD 743.7 million, while photovoltaic (PV) product shipments rose by 36% year-on-year. Still, the company guided for a 20% quarter-on-quarter decrease in shipments in the fourth quarter of the year.
Trina Solar recorded a net loss of USD 31.5 million for the third quarter of 2011 compared to a USD-82.9-million net income a year ago. Gross margin fell to 10.8% from 31.4% a year ago, hit by a USD-19.1-million inventory write-down. Revenues fell 5.2% on the year and 16.8% on the quarter to USD 481.9 million.
For the fourth quarter, Trina Solar expects shipments of 320 MW to 350 MW and gross margin of around 10%. It has also revised down its forecast for full-year module shipments to 1.4 GW from between 1.75 GW and 1.8 GW expected previously.
(USD 1 = EUR 0.751)
(CNY 1 = USD 0.157/EUR 0.118)
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