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5 minutes ago, solarpete said:

So do you think everyone will keep producing at a loss just to maintain market share?

What is the alternative?

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2 hours ago, solarpete said:

So do you think everyone will keep producing at a loss just to maintain market share?

The problem is that the history of the industry shows that companies that "blink" or act rationally become increasingly irrelevant. 

How are those "rational" European manufacturers doing?, or the Japanese? or the American ones doing?  Answer to all three questions is basically, who cares?...

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I'm just wondering if your prognostications are too pessimistic.  JKS just made $1/share in 4Q16, when ASPs collapsed, and they don't see ASPs collapsing further.  If they can make good money in 4Q16, and raise their shipment guidance for 1Q17, I find it hard to believe they anticipate losing money.  Not sure about CSIQ--will have to see what their earnings report shows.

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Pete, perhaps you are right. Jinko had $644M in inventory made at $0.35 per watt,  but I am willing to say it is $0.34. They stated that they have an average of $0.37 to $0.39 for H1. So let's say it is $0.39, both numbers give about 12.8% GM. At 1.9GW the gross profit is $95M. Their Opex was $93M, but they say it is 11% so put $79M there instead. You are working with $16M, that is better than $11M in Q4 but what happens next is important. $11M becomes $20M, because of the tax benefit of $7M and $11M in subsidy income, a figure 5 times higher than one in Q3.

If that goes away, you have zero profit. Jinko is high volume, no cash transaction low ASP seller. It will take only $0.38 average, and they are negative. I do not think they sad they are going to be profitable. Even with their stability in mind, they are looking at the 10 to 15% drop in ASP in H2.

I am open minded it, but we are not expecting Chinese to have miracles in their pocket except perhaps creative accounting to beat Americans with profits while they are writing off $1B in one-quarter?

 

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Good analysis--thanks!

You're right in that JKS didn't say they were going to be profitable--but they didn't say they wouldn't be, either.  They simply follow the rule the other CNs do as well--they guide shipments, but not margins or earnings.  They guided 2GW for Q1 shipments.  I just can't believe they would commit to that large a volume without having run the numbers beforehand.

I see why you are concerned, and I have no firm numbers to refute your logic.  But your conclusion is not that they will definitely not have a profit--it's that they may have none.  I think that's unlikely for two reasons.  First, as you point out, they are a low-ASP seller, so they have experience squeezing profits out of that situation--it's nothing new to them.  Second, I think they'd be crazy to commit to a record shipping volume knowing it will produce no profit.  If they had guided for reduced shipments, I'd be more pessimistic.

In any case, I certainly don't plan to put too many eggs into the JKS basket, and I thank you for the word of caution.  If there's one thing we've all learned over the last few years, it's that you can't be too careful in solar land.

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Hi Pete,

My conclusion used numbers they provided. They are the cost leader indeed among the four companies left, plus JASO. If they come close to zero, everyone else (SPWR and FSLR are) are below. I am pretty sure that JKS and CSIQ will be here for the next peak season. FSLR admittedly but perhaps not what they used to be and SunPower seemingly desperate JV in China is my view.

There is a massive shift of the poly production moving into mono cells. What JKS is doing is essentially transitioning with their expansion. NSP which produces poly cells is closing 1.2GW of production and letting 40% of people go to have 1GW PERC mono cells only.

If that move is factual and I read everyone is doing it, there could be a shortage of high performing modules forming on the horizon by 2018. JKS has been very savvy on understanding markets, so is CSIQ.

Everything above being factual, the market has an appetite to sell solar. We all know this, after years of watching paint dry in first five months of each year, it is all about price negotiation. I still want to buy a manufacturer for a bargain. I have a hole in a bag with PEGI and worry what they can come up with to make it worth it. SO I just sit and wait.

All the best

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Pete,

Going back to the conversation, it looks like PERC mono cells on the spot are at $0.31 this is about $0.06 more than a regular mono cell. Looking a bit closer in their investment in the expansion of particular mono technology, I see some contribution, at least in 25% of the volume planned for 2017 to have the advantage of 2 or 3 cents over the market ASP or perhaps more.

Energytrend is talking about the shortage of this type of cell. Who knows maybe we are looking at bounce for Chinese today because of it.

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Odyd,

Thanks for that info!  Interesting--if I understand you correctly, you're saying JKS will be able to command somewhat higher ASPs in the future due to their shift to PERC mono cells.  So that bodes well for 2018.  Good to know there's a ray of hope out there.

That leaves the concern for 2017.  But ASPs already crashed in 4Q16--and JKS still made a buck a share!  That's why I find it hard to believe they'll have a loss anytime in 2017.  From what I read, ASPs crashed by a significant percentage (20% or more?  I don't remember the exact number, and can't find it quickly).  But JKS profits declined by only 20%, if I read the Yahoo numbers correctly (which I'm not sure of--Yahoo reports a 4Q16 profit of around 80 cents, which is neither the 64c GAAP nor the $1.04 non-GAAP number reported in the earnings release, so I have no idea what Yahoo is looking at).  Even if ASPs decline a further penny or two, that's a much smaller move than what happened in 4Q16.  JKS obviously has the ability to bring their costs down rapidly (else the ASP crash would have caused a much larger drop in profit).  So given their past performance, another small ASP move down should not suddenly wipe out all their profits.

But I completely agree now is not the time to build positions in manufacturers.  Small trading lots, yes, but not large positions for the future.  Still too much uncertainty.

Pete

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Pete,

I think there is some delay between the reported market prices and the time when this prices show up on the balance sheet, as most panels are not sold on the spot market by the big manufacturers but contracts are signed some time in advance.

So the real drop has not effected earnings this time..

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Pete, I think that JKS will be able to sell PERC mono modules at about 3 to 5 cents more per watt than regular modules would get. This can help them with the GM. The 25% of volume or around 2GW, may have about 1 cent impact per ASP average for the year. 

However, this will help not necessarily with profit, but the elimination of loss.

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