Another Heavy Loss at Suntech Solar, For Now All-In-Costs Fall Behind

In operational areas, Suntech (NYSE:STP) continues to struggle to match cost efficiencies presented by other solar peers, particularly those of Trina Solar (TSL) and Canadian Solar (CSIQ).

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Suntech (NYSE:STP)  has reported its Q1 delivering results, which show that the largest module maker in the world is still taking hits under market conditions. The reported revenue was $409M, a 35% decrease from Q4-2011, and a 53% drop from the same period of last year. The company guided a 30% reduction in shipments from last quarter; however, the result came up better to a 27% reduction, which SPVI estimated to be 384MW of modules shipped. For the period gross margins were below one percent, with a net earnings loss of $133M. Loss per share was at $0.74. Like Trina, the company had taken on the $19.2M provision against potential countervailing and anti-dumping duties.  In addition to this provision, operating expenses had $20M worth of expenses associated with lower utilization of Suntech’s capacity, $7.3M due to bad debt and $18.2M in association with prepayment to long-term supply contracts.  Despite the provision for tariffs, Suntech has assured that moving forward, modules for the American market will be shipped without cells manufactured in Mainland China, thus making them free of any penalties. The company sold 34% of its revenue to the US in Q1.

In financial improvements, Suntech managed to reduce account receivables by around $57M through tighter credit practices. There was also an increase in accounts payables, which follows the trend of other solar companies expanding the number of days in a payable cycle in return for preservation of cash.  Some of the cash was used to reduce the amount of convertible bond, which now has also become a short-term liability worth $511M with terms prior to the end of Q1 2013.

In operational areas, Suntech continues to struggle to match cost efficiencies presented by other solar peers, particularly those of Trina Solar (TSL) and Canadian Solar (CSIQ).  Dr. Zhengrong Shi, CEO and Chairman of Suntech, presented the road map to cost reductions, which estimated all-in-cost levels at $0.90 to $0.95 in Q2, $0.80 in Q3, and by the end of the year at $0.75. Almost all are higher than Q2 all- in-processing costs for Trina, which expects $0.50 or below per watt for non-silicon processing, and perhaps as low as $.13 per watt of polysilicon cost by the end of 2012. At that point, the gap between the two companies will be 20% unfavorable to Suntech, a condition which Suntech explains as the price of its quality.

To further uphold its bankability and reputed first place in quality and brand, Suntech seeks opportunities for enhancements with a drive towards efficiency.  Plans include 1.2GW of internal wafer production with a yearend processing objective of $0.15. To meet its year guidance Suntech will need to procure wafers from external sources, possibly sourcing from GCL Poly, a single factor behind wafer costs improvements expected at Canadian. Furthermore, all wafer processing lines have been already transitioned to quasi-mono technology, for use in 400MW of module shipments this year. The other 400MW of high-conversion efficiency modules are planned with Pluto cells and SE (selective emitter) technology.  In March the company reported Pluto cell results achieving conversion of 20.3%, one of the highest in the industry and highest for multicrystalline cell using p-type wafer. According to the company’s news release from May 16^th, Pluto lines currently have a 500MW capacity. Another product, recently announced, uses a thinner frame with less aluminum. Outside of savings in material costs, shipping costs of this new module are expected to deliver 25% in savings over the regular module size.

In conclusion Suntech guided 20% increase in module sales (est. 460MW-SPVI) in Q2 with 3 to 6% gross margins. There was no change made to yearly guidance and the expectations are for 2.1 to 2.5GW of shipments in 2012.