Suntech Releases Preliminary Q2 Results

PV modules accounted for 93% of the earnings, while the rest were from solar systems, cells, silicon wafers and production equipment. ASP was estimated at $0.86 per watt

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Suntech Power Holdings Co., Ltd. (NYSE: STP), a global leader in solar panel production, has announced its preliminary financial results for the second quarter of 2012 with a shipment guidance reduction. The business has achieved a 33% increase in quarterly shipments (507MW est. SPVI). This is translated as a 15% sequential increase in quarterly revenues from $409M to $471M, which was due to better performance in Europe, China, Japan and Australia. PV modules accounted for 93% of the earnings, while the rest were from solar systems, cells, silicon wafers and production equipment. ASP was estimated at $0.86 per watt, higher than any other Chinese solar module manufacturer, but the costs were well above $0.80 per watt excluding provisions.

There is not going to be a positive gross margin for the second quarter, as it will drop from 0.59% in Q1 to a negative 10% in Q2. This was partly due to a $76 million inventory provision, which had a 16% impact on margins. The operating expenses for the second quarter are expected to be $133M, rising from the previous quarter’s $121.6M. They also include a $56M prepayment provision for a supply contract, which is currently under dispute. During this period, the company generated $5M in operating cash flows.

Like its competitors such as Trina Solar Limited (ADR) (NYSE: TSL), Suntech has also reduced the yearly shipment guidance to 1.8GW - 2.0GW from the 2.1GW - 2.5GW announced earlier in Q1 filings. Demand in the third quarter is not expected to rise significantly, while the margin is going to be a “low single digit” number.

About two weeks ago, Suntech appointed its new CEO, Mr. David King, a veteran at the engineering consultant firm Tetra Tech, Inc. (NASDAQ:TTEK); he has been Suntech’s CFO since May 2011. Commenting on the results, King said, “As we are operating in a highly competitive market, it is extremely important to focus on financial and operational discipline. In the second half of this year, we will continue to drive down cost, negotiate better terms with our suppliers, and stringently manage working capital.”

The company in July had revealed that it might have been a victim of a massive $500M fraud. This time, it seems to have landed itself into more trouble in Italy where a local court has filed criminal charges against a fund that is controlled by Suntech. The charges allege that the fund was involved in developing illegal solar farms, which produce 20MW of electricity and came with a price tag of $100M, in order to extract government subsidies.

It has been a trying year for the Chinese solar industry, with the US trade tariff and emerging disputes with the EU amid the falling panel prices. Some support has come from German Chancellor Angela Merkel, who is on a state visit to the country. She said that her country, a leading solar market, will not start a solar trade war with China, while she urged her hosts to address the issues of fair competition. The European Commission will decide on Friday whether to initiate the investigations, but the Chancellor advised China to make concessions if it wants to resolve this matter.