On its third-quarter conference call this week, JA Solar (Nasdaq: JASO ) told us that after the steep declines experienced over the past year or so, "pricing has hit the sweet spot." The photovoltaic-cell maker makes a decent case, thanks to recent strong sequential results.
For the quarter, the Chinese solar-cell market leader shipped 177 megawatts of product -- 100 megawatts more than last quarter. The firm racked up $193 million in revenue, and reported $42 million in operating cash flow. At roughly 30% more than gross profits of $32 million, that cash flow figure is kind of unusual. Rising payables and receivables pretty much canceled each other out this quarter. It looks like the $19 million reduction in prepayments to suppliers largely explains the cash flow surge.
As for that sweet spot, JA said that during September, customer demand exceeded the firm's available capacity by two to three times. Excess demand continues today, with November looking very strong.
These comments are pretty difficult to square with those of General Electric (NYSE: GE ) , which cited "overcapacity levels that are twice demand" in announcing the shutdown of its only solar panel manufacturing facility last week. But JA isn't the first company to talk up the strength of present demand. SunPower (Nasdaq: SPWRA ) (Nasdaq: SPWRB ) , for example, recently spoke about its need to source third party modules to satisfy its own voracious customers.
In my review of First Solar's (Nasdaq: FSLR ) results, I noted that seasonal demand, as well as the race against pending subsidy cuts, is having a powerful impact in Germany. The current dynamics in China, where JA derived 77% of its revenue this quarter, are less clear to me, though the company is clearly benefiting from reduced competition. The small Chinese cell makers are no longer competitive, and JA estimates that some 30% of its orders are going to customers with uncompetitive in-house cell capacity.
So is there a glut in the global solar market or not? If you include all the uncompetitive lines, then that is absolutely the case. As for competitive suppliers of cells and modules (given the current state of subsidization), I'm not as sure. After reports by folks like Suntech Power (NYSE: STP ) and Yingli Green Energy (NYSE: YGE ) , current conditions should become a bit more clear.
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