Trina Gets Creamed

When Trina Solar (NYSE: TSL  ) announced third-quarter results on Wednesday, investors were clearly not in a thankful mood. The lower-than-expected earnings result prompted Mr. Market to carve 24% out of Trina's market cap.

Most media reports pegged the quarter's shortfall on higher polysilicon costs and lower selling prices, but that's only the case on a year-over-year basis. When companies are growing as rapidly as solar shops like Trina and SunPower (Nasdaq: SPWR  ) , I tend to find sequential comparisons more valuable. Everyone watching this space knows that polysilicon has been playing hard to get in 2007. There's a better explanation for the sharp sell-off.

Sales were pretty solid, up about 10% sequentially, and gross margins improved over last quarter, so we know the issue wasn't about the cost of raw materials or selling prices. We have to look a bit further down the income statement to get the real dish. There's your culprit: Operating margins got gobble-gobbled up by higher overhead and R&D costs. Sure, the business is growing at a decent clip, but a 58% sequential rise in operating expenses? Good gravy!

Granted, First Solar's (Nasdaq: FSLR  ) operating expenses were up almost 50% over the prior quarter, but that flourishing company doubled its revenue. Trina is simply not managing its growth as gracefully.

As far as Trina's exposure to polysilicon goes, it's a bit of a mixed bag. The company has secured about 70% of its supply needs for 2008, as well as some longer-term arrangements, but partners like The Nitol Group have never produced the stuff before -- just one of its key chemical components. Trina also plans to produce its own polysilicon, but the capital outlay is several times the company's cash pile. This need to tap the capital markets is decidedly unappetizing.


Read/Post Comments (0) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 540715, ~/Articles/ArticleHandler.aspx, 11/27/2014 6:09:45 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement