Trina Solar Falls in Solar Shakeout
After declining solar product prices left bigwigs First Solar (NAS: FSLR) and JinkoSolar (NYS: JKS) at a low ebb, another company's profits have slid drastically in the third quarter. Trina Solar (NYS: TSL) , which had managed to stay profitable in the midst of weakness in the second quarter, saw itself in the red in the just-concluded quarter, sending its shares down 3% in after-hours trading.
Let's take a closer look at Trina Solar and its plans to combat the downturn.
Revenues for the quarter went down 5% compared with the year-ago period, to $482 million. The drop was more significant (17%) on a sequential-quarter basis. Oversupply in the industry has driven down the prices of solar products an astronomical 60% this year, hurting margins of almost all companies that have released their earnings so far.
Solar players are finding it difficult to sell their products as the major market for solar products, Europe, is undergoing big-time economic stress. Subsidy cuts by Germany and Italy earlier in the year sparked a decline for solar companies and the downtrend has continued ever since. All these factors led China-based Trina to a net loss of $32 million, from a profit of $83 million last year.
Fall from glory
The Chinese solar companies had managed to stay profitable during the second quarter, even though the industry was in distress, but it seems this time there will be a trend reversal. JinkoSolar saw its earnings trimmed by a staggering 72% in the just-concluded quarter and Trina Solar did worse. The company went about pumping up shipments crazily earlier in the year, but now it will cut down 80% of its production in the current quarter as it looks to arrest the decline in margins. This is an intelligent move on management's part, as inventories have shored up a whopping 205% in the quarter.
Trina is now looking to expand so that it can cut down its dependence on the subsidy-driven European market. The company has made an entry into the U.S. and is looking to add new customers to its portfolio in Asia-Pacific, the Middle East, South Africa, and Australia. Only time will tell whether these expansionary policies translate into revenues and profits for the company.
The Foolish bottom line
Times are difficult for the industry in general, but Trina is looking to survive the downturn. Its expansion drive should help when the industry begins to look up, but it's anyone's guess when that'll happen. For now, I'm following Trina from the sidelines and searching for the industry's revival signs.
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At the time this article was published Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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