Encircled by Losses, LDK Solar Guides Down the Yearly Revenue

Based on the guidance, only some 60% of newly reached 4.3GW wafer capacity will be utilized this year

---

These are difficult times for the industry but LDK Solar (NYSE: LDK) is particularly beleaguered. The company reported another loss, this time of $1.46 per share, losing over $185M. The combined shipments of wafers, cells and modules in the period were only 318.30MW, a drop of 30% from the prior quarter. The overall revenue reached $200M, a 52% drop sequentially, and for the first time in a single quarter the company was outsold by Renesola (NYSE: SOL). LDK reported negative gross margins of 65%, partly due to a $91M inventory provision against their own polysilicon production and the $5.7M charge to offset countervailing duties for shipments to the US.  LDK’s margins were cause for concern as they remain negative without those provisions.  The module ASP, at $0.80 per watt, contributed to the damage due to its being the lowest among peers. Poor module sales confirm difficulties in breaking into this market segment and recent insurance offered by LDK suggests concerns with staying power in the eyes of the potential customers.    

LDK’s wafer processing costs were at $0.23 per watt, a result of low utilization. The company’s polysilicon costs were high with poly at $42.7 per kg. Low utilization contributed to $0.36 per watt in cell processing; only 50MW of cells were produced from the 1.7GW per year capacity. Operationally, it does not appear that the company is capable of selling above costs.

The emerging financial picture is equally poor.  In only one example of positive turnaround, the company managed to recoup some of the losses accrued in doubtful accounts during Q4. LDK applied recovered funds into general and administrative expenses, turning in an $11M gain.  The company ended Q1 with $135M in cash, a $109M drop quarter over quarter, during which a portion was moved to the pledged deposits.  If nothing changes, LDK will run out of cash by Q4.  LDK’s level of debt reached $3.4B, an increase of $76M from Q4, but overall liabilities had dropped by $48M.

Based on the guidance, only some 60% of newly reached 4.3GW wafer capacity will be utilized this year. There are no details on M2 composition but the company described this new wafer as being capable of reaching above 17% conversion, which lands it in the category of new generation multicrystalline wafers. LDK indicated an ASP premium for M2 in the amount of $0.10 to $0.15 per wafer.

Deficiencies in poly production costs force LDK to idle its capacity in Q2. Instead, wafers will see an increase in shipments to the range of 300 to 350MW and modules will go up to 184MW from 159MW in Q1. Revenue of $220 to $270M for Q2 and $1 to $1.5B for the second half of the year has been guided. The amount is $500M lower than estimates made in Q4. LDK’s checkered accuracy does not instil confidence, but a potential reversal of fortune is seen in cash sales of 270 to 360MW EPC projects, which the company is expected to see as early as the third quarter.  It remains to be seen whether LDK will consider the reorganization efforts executed by many European companies in the past year, including one recently announced by REC of Norway. Many view LDK’s situation as “too big to fail” for China, thus forcing the hand of the provincial and national governments to keep ninterrupted flow of support, reagrdlesss of the operational ineffectuality.