Struggling SolarWorld Posts Q2 results, Blames China for its Troubles

The company claims that the poor EBIT was a direct result of price drops due to dumping, as it had to suffer impairment losses in inventories and advance payments of $41.3M and $99.7M respectively

---

Germany’s leading PV manufacturer of solar wafers and modules, SolarWorld AG (ETR: SWV) has announced the second quarter results, showing a massive quarterly loss of $198M, dropping from a modest $2.2M income in the previous quarter and $12M in Q2 2011. However, considering the $385M loss recorded in Q4 2011, some might even call this an improvement. The company claims that the primary reason behind this is the "price dumping" by its Chinese competitors, which include Suntech Power Holdings Co., Ltd. (ADR)(NYSE:STP) and Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE: YGE).

Furthermore, the business has also announced that its shareholders should expect more losses in the future. "From today's perspective, SolarWorld AG will not generate a positive EBIT in the 2012 fiscal year in light of the aggressive market situation characterized by illegal trade practices," the company said in a statement released on its website. The business recorded an EBIT of -$209.5M, dropping from $50.8M in Q2 2011. The half-yearly EBIT for the current fiscal year was -$176.8M, down from $86.6M in the first half of 2011. Although some analysts had predicted lower EBIT, no estimate was even close to the actual figure released.

The company claims that the poor EBIT was a direct result of price drops due to dumping, as it had to suffer impairment losses in inventories and advance payments of $41.3M and $99.7M respectively. These two sum up to $141M, which is still lower than the negative EBIT of $209.5M.

Following the news, SolarWorld’s shares have fallen by 11% to $1.46.

The loss per share until June 30, 2012, from the year’s beginning was -$1.77, as opposed to earnings per share of $0.25 in the same period last year. Revenues have also dropped slightly from $209M in the previous quarter to the current $208M. Half-yearly revenues stood at $418M, falling from $656M in the previous year’s first half, showing a 36% decline. Total shipments in the second quarter were 187MW, down from 196MW in Q2 2011.

On the innovation front, the company offered a reduction of thickness of the fingers in the solar cell from the current standard of 80 to 90 micrometers, to 30. International Technology Roadmap for PV had predicted this innovation to only be possible by 2020. Therefore, SolarWorld expects to be able to compete, achieving better performance due to more available sunlight, but also through reduction of costs by use-reduction of silver paste. The company also introduced a number of new modules with higher outputs.

In his letter to the shareholders, the company’s CEO Frank Asbeck has blamed the price drop caused by the “Chinese manufacturers” and claims that “something has to be done to fight their illegal dumping practices.”  That has been the main subject of the entire letter, which fails to explain exactly what the company plans to do besides fighting a legal battle. However, the chairman has generously given up his salary and dividend “until the company becomes profitable again.” With the current return-on-equity ratio of -35.7% and no positive EBIT in sight, this might take a long time.