The Strong Get Stronger in Solar
The divergence of top-tier and bottom-tier suppliers in the solar market has been extremely evident in the first quarter of 2012, and yesterday's earnings announcements showed that divergence again. Yingli Green Energy (NYS: YGE) reported a loss but had a relatively strong gross margin and saw shipments increase quarter over quarter. Hanwha SolarOne, on the other hand, saw shipments fall and gross margin remain negative, and generated an unsustainable quarterly loss.
The strong get stronger
Yingli posted a loss, like everyone else in the industry, but conditions are slowly improving. Shipments jumped 44% sequentially in the first quarter, and revenue reached $500 million. Gross margin was in line withTrina Solar (NYS: TSL) and Canadian Solar (NAS: CSIQ) , two other strong Chinese manufacturers, at 7.8%. Without the newly announced countervailing and anti-dumping duties in the U.S., gross margin for modules would have been 11.5%.
Further improvement will likely depend on how the Chinese government handles weaker companies like Hanwha SolarOne and LDK Solar. Short-term borrowings have propped up these companies, but they can't last long posting negative gross margins.
Hanwha's average module selling price fell to $0.84, an incredibly low number considering where we've come from, but that selling price led to a negative 9.4% gross margin. Operating margin was an incredible negative 27.5%, a hole I doubt the company can crawl out of.
As earnings season continues, JA Solar (NAS: JASO) will be the next to report earnings next week, and I'll be looking for signs of the company joining stronger rivals or slipping along with weaker competition. The company is stuck in the middle, not quite as strong as top-tier suppliers Yingli, Trina, and Suntech, but isn't as weak as LDK or Hanwha SolarOne right now from a balance sheet or branding perspective.
As far as Chinese manufacturers go, Yingli is performing very well when compared to other solar companies. That doesn't mean that it will swing to a profit next quarter, but I would give it a good chance of emerging from the industry when the government decides how it is going to let the weaker chips fall.
At the time this article was published Fool contributorTravis Hoiumdoes not have a position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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