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Mainland China leads solar industry in first half of the 2011 Update 1.

Aug 18, 2011 Hit: 11 Written by 

Insofar reported results of the first half of the year Chinese companies listed in US and Asia reviled that solar industry is becoming a local economy of China.


Insofar reported results of the first half of the year Chinese companies listed in US and Asia revealed that solar industry is becoming a local economy of China.

Revenue of those Mainland China companies, which reported to date, had generated 39% growth compared to H1 2010. The total revenue is well over $5B. In the same period, European based companies have lost 1%, ending up with US$4B. US operators: First Solar, MEMC and Sunpower increased their revenue growth by 23% on average, to $3.6B in total.  Despite the idle inventory and confirmed module glut, American and Chinese companies showed not only resilience to adversity but remarkable growth.

It is important to note that First Solar is losing its share of the market, by around 4% in revenue so far this year. Unusually strong Q2 quarter for MEMC and strong revenue from solar systems managed by Sunpower had elevated group’s performance, saving face for First Solar.

Fourth largest solar production hub is located in Taiwan. Majority of members in this index will report their results in next 10 days. The only company, which reported to date, and is part of the Taiwan index, is Sino- American. They have shown 15% increase of the revenue year over a year. Our analysis of the region shows large disparity in growth for the period. Some of the companies reported doubling of the revenue while others, particularly Gintech last year’s second in total revenue, have lost around 28% for the first six months.

From beginning of 2011, module and polysilicon had experienced 20 to 25% drop, while wafer and cell pricing fallen even further to 37% and 43% respectively.  The changes have been rapid, and they affected entire sector. In this environment, it is not surprising that gross margin followed the direction.  Average reductions by location of origin versus Q1 results are as follows: Mainland China 22%, US 20%.  Chinese companies have been operating in H1 on average with 19% GM while US companies are within 21%.  In the European index, Norwegian company REC is heavily weighting on results of the group. The resulting index’s gross margin is more related to REC’s polysilicon production dynamic than actual control of the cost. In regards of Taiwanese, SPVI speculates that overall performance will receive the largest impact on GM, with the range of 50% decrease.   

SPVI's third measurement is a regional EPS growth/loss. Based on the data observed to date, the average equal weight earnings per share show strong operational success of Mainland solar companies. The actual result is as follows: Chinese 0.74, US $0.34 and Europe a loss of $1.20 per share.  In line with gross margins decrease, Taiwan is expected to receive similar drop in power of earnings.

If financial markets are aware of those facts, they are certainly not putting any value on it. Chinese companies listed on US exchanges trade in distressed values, away from reality of strength of own cash accounts and financial backing of Chinese Banks. 

Historically second half of the year is dramatically stronger in sales than first half of last four years. This may be confirmed in volume of megawatts sold, but may prove rather difficult when looking to a generation of the revenue. Split on the expectations, almost all players are looking for relief in cost of polysilicon to prop dropping margins of in-house manufacturers and sellers of wafers. There is a strong expectation that tier one companies, despite the premium over the spot, will sell modules in area $1.30 to $1.40 in Q3 and $1.10 to $1.20 in Q4.  In light of this, further gross margin reductions are on the way, impacting earnings per share and adding inventory write downs similar to Ja Solar, REC and LDK from Q2. When weakened exit or go bankrupt, new potentials will remain on the sidelines. Chinese listed in US are expected to claim empty space as soon as one is created.

 

Last modified on Sunday, 06 October 2013 00:43
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Robert Dydo

CEO-Editor SolarPVInvestor, SPVI Reserach

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