Chinese Solar Good but Not Great in Q4

Chinese solar manufacturers are starting to report earnings and the results are good but not the big improvement some might have expected. According to estimates, China installed 12 GW of solar last year and around half of that was installed in the fourth quarter, indicating that demand was unusually high.  

When combined with strong demand in Japan and the U.S., there were a lot of solar modules shipped, but Chinese manufacturers are still struggling to make a profit. That puts pressure on future prospects because funds will be tight when expansion is needed and may put weaker companies behind competitors.

The numbers from China
Trina Solar
said this morning that fourth-quarter module shipments fell slightly sequentially to 770.1 MW and net revenue fell 4% to $525.6 million. Gross margin was also down slightly to 15.1%, which resulted in a small $9.6 million profit for the fourth quarter.  

JinkoSolar's total shipments increased 13% to 518.9 MW and revenue was up 11.5% to $361.4 million. Gross margin was also up 2.4% to 24.7%, leading to a $27.1 million, or $0.96-per-share profit in the quarter. Financially, this has been one of the strongest Chinese solar companies over the past year and that continued last quarter.  

Yingli Green Energy's PANDA solar module. Image courtesy of Yingli Green Energy.

Yingli Green Energy didn't release full earnings but preliminary numbers show an 11% to 12% increase in module shipments. Gross margins should be between 12% and 13%, which likely means another quarterly loss.  

Progress but little profit
The big takeaway from 2013 was that third- and fourth-quarter revenue and earnings jumped dramatically from the first half of the year, but sequentially the fourth quarter wasn't a big improvement over third quarter numbers. By the look of it, solar module prices aren't going up so companies are going to have to improve costs to regain or grow profits.

These are three of the largest solar manufacturers in the world and they're a guide of what we can expect from other manufacturers across China. The concern long term is that if these companies can't generate strong margins and profits today, how can they compete as manufacturers start investing in the next generation of solar equipment?

The balance sheet at Yingli is most concerning because it probably doesn't have the capacity to take out more debt to invest in new high-efficiency capacity this year or next.

Trina and JinkoSolar are better positioned from a balance sheet standpoint and their profit will help bolster that position in 2014.

Solar is growing rapidly but investors still need to keep a close eye on margins and profits. Weak companies are falling off and the strong are taking share, and that's something that will continue in 2014.

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