LDK Piling Up Losses; Suntech Cuts Capacity

In order to reach this level of revenue LDK Solar sold land rights and real estate owned by the company

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One of the largest Chinese photovoltaic manufacturers, LDK Solar Co., Ltd (ADR) (NYSE: LDK), has announced its second-quarter results on Monday, reporting a massive loss higher than its revenues. It shipped 316.7MW in wafers and 135.6MW in cells and modules, while earning revenues of $235.4M.  This represents a 17.6% increase over the previous quarter’s $200.1M and a 52% decrease from $499.4M in Q2 2011. The company disclosed ASP of $0.25 for wafers and $0.80 per watt for modules.  In order to reach this level of revenue LDK Solar sold land rights and real estate owned by the company. The direct result of this action was the impairment of $31M of book value, resulting from a difference between a book value and the selling price.

Total production levels were 538.1MT for polysilicon and 90.8MW for cells in Q2. The gross loss has dropped from $131M in Q1 to $92M in Q2, but is a far cry from the gross profit of $11M in the second quarter of 2011. Gross margins have almost halved from a negative 65.5% in Q1 to the current negative 39.1%. Due to a $30.5M impairment loss recorded after the business sold its fixed assets to the Chinese government, the total loss from operations has increased by 27% from $135.8M in Q1 to $172.7M in Q2. Subtracting the effect of impairment loss, the operational loss comes down to $142.2M, still 4.7% higher than the previous quarter’s. The increasing revenue is attributed to the strong wafer sales.

After availing the income tax benefit of $23.7M, LDK reported a net loss of $254.3M, almost 8% higher than the revenues in the same period, which is translated as loss per diluted ADS of $2.00, rising from $1.46 sequentially and $0.62 in the second quarter of 2011. As global prices continue to fall, LDK has performed an inventory write-down of $35.1M.  Commenting on the result, Xiaofeng Peng, chairman and CEO of LDK Solar, said, “Industry-wide competition and demand constraints continued to drive price declines across the entire solar supply chain and negatively impacted our margins and profitability.”

The company has again reduced its guidance down from the previously announced $1.5B –$2.0B to $1.1B - $1.5B. This is a considerable decline from the 2012 guidance given in the beginning of the year of $2.0B - $2.7B. Analysts were expecting it to earn between $1.58B and $2.12B, although it is now clear that LDK is not going to touch the higher end of the estimate. For the third quarter, LDK expects to ship 190MW – 240MW wafers and 140MW – 180MW module shipments, which will result in revenues of $220M – $260M. This means that for 2012, total shipments for wafer and cells will be 0.9GW – 1.2GW and 550MW – 750MW, respectively. Further asset sales are expected. Our sources have also described inventory being exchange for the funds owed to vendors as part of settling non-interest bearing debts. LDK Solar added $143M in debt in Q2, while cash account increased by $80M. The third quarter will be challenging, but the company is hoping that demand in China will start rising in the second half of 2012.

In another development, Suntech Power Holdings Co., Ltd. (ADR) (NYSE: STP) has decided to temporarily reduce its solar cell capacity to 1.8GW, and lay off a small portion of the 1,500 employees in China, due to the fall in demand rising from the U.S tariff hike, EU investigations and the general oversupply in the industry. The company had earlier stated that it is going to reduce operating expenses by 20% in 2012.  The shipment targets have been revised downward to 1.8GW – 2GW.