SOLAR POWER:

Chinese companies report weak 2Q results, rising shipments

NEW YORK -- Solar-equipment manufacturers based in China have taken hits from the global recession and rapidly escalating industry competition. But there are signs that Chinese solar firms could emerge stronger than many of their competitors.

While their bottom lines look bad now, most companies say shipments of photovoltaic (PV) module are rising fast, a sign that demand for solar power is rebounding.

Yesterday, Suntech Power Holdings Co. (NYSE: STP) reported that its second quarter 2009 net income fell by some 80 percent, from almost $52 million in the same period last year to $9.6 million. The company blamed the collapse on sharply lower prices, driven by weak demand and the falling cost of polysilicon, a PV feedstock material.

Though Suntech still managed to pull a profit while most of its peers reported losses, Wall Street was unimpressed and sent the stock lower. Still, the company tried hard to highlight positive indicators.

Perhaps most significant, the company boasted that the science journal Progress rated the energy-conversion efficiency of Suntech's Pluto module technology at 15.6 percent, meaning the company has achieved the world's highest efficiency for photovoltaic equipment.

Suntech also played up deals it has recently inked with several Chinese provinces to supply projects worth 1.8 gigawatts of solar power over the next few years. The company has also been selected as the supplier to a 5-megawatt project in California, with products scheduled for delivery in the final three months of the year.

Indeed, Suntech's numbers suggest it is getting product out the door at a fast clip even as it struggles to improve profitability. The leading Chinese solar company says it expects shipments in the next fiscal quarter to rise by 50 percent over the previous quarter as it leverages new supply agreements in Japan, the United States and the Middle East.

"We are confident that the strategies that we are implementing today will position Suntech for strong growth over the next several years," Suntech CEO Zhengrong Shi said.

Likewise, many of Suntech's peers took steep losses, while simultaneously reporting sharply higher shipments over the same period.

Yingli Green Energy Holding Co. (NYSE: YGE), considered by many analysts to be among the rising stars of solar power, reported that last year's profit melted into a loss in the second quarter. The company said it lost about $57 million in the second quarter, sending the stock down almost 8 percent.

But the company also reported that its shipments of PV modules rose by an impressive 72.3 percent from the beginning of the year, a clear sign that demand for solar power equipment is fast improving.

Likewise, LDK Solar Co. (NYSE: LDK) reported 20 percent higher shipments of its main product, solar-cell wafers, over the start of the year. The company also reported a large loss of $205 million in the quarter, from a net profit of $112 million over the same period last year.

"The continued decline in prices for solar wafers impacted our top and bottom lines and required an additional inventory write-down for the company, which significantly impacted our margins in the second quarter," company CEO Xiaofeng Peng explained.

Though the company was among the worst performers in the industry, LDK executives said that they were getting assistance in the form of short-term loans from the Export-Import Bank of China and other lenders. Many analysts noted previously that Chinese makers enjoyed much stronger access to credit than their Western counterparts, and LDK's second-quarter report seemed to confirm this view.

Most Chinese solar manufacturers posting their numbers this week showed a similar performance. Solarfun Power Holdings Co. (NASDAQ: SOLF) reported a second-quarter loss of nearly $8 million compared to strong profits last year. The company also said it shipped 50 percent more PV modules than over the same period last year, from 43.1 MW worth in second quarter 2008 to 64.3 MW.

Trina Solar Ltd. (NYSE: TSL), one of the few Chinese makers to actually post a profit this period, also said its PV modules shipments rose by nearly 31 percent from the start of 2009 and 34.3 percent year over year.

Industry analyst Paula Mints at Navigant Consulting said that the Chinese solar players, especially Suntech, are aggressively cutting their prices in a move to get ahead of competition. Though many experts earlier warned that manufacturing overcapacity would hit the industry hard this year, Mints sees firms mostly keeping capacity high to take advantage once sales rebound.

"They are already at overcapacity. What they are doing is slowing the expansion in capacity, however, since demand will return," Mints said. "Next year, I think we'll be back to conservative growth. Year after that, probably accelerated growth."

News from ReneSola Ltd. (NYSE: SOL) epitomized the theme of weak financial performance and strong future sales prospects underlying most Chinese makers' reports.

On Wednesday, ReneSola posted a net loss of $3.6 million as its total sales volume fell by some 52 percent, leading investors to send the stock lower. But yesterday, the company announced a $700 million deal to develop a 150 MW solar power project in northern China, pushing its stock up sharply. Company executives say careful inventory management and a focus on manufacturing efficiency in the face of brisk price competition should ensure a bright future for the company.