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At Suntech Power Holdings (NYSE: STP ) , it's up, up, up, but outsiders add a dose of caution.
The Chinese solar manufacturer said during its analyst day on December 6 that shipments of solar modules will come to 2.2 to 2.4 gigawatts in 2011, an increase of 46 percent over shipments of around 1.5 gigawatts in 2010. (The 2010 figure, meanwhile, more than doubled the 700 megawatt mark hit in 2009.) Back in October, Steve Chan, president of Suntech America, predicted shipments for 2011 would come to 2 gigawatts.
Revenue meanwhile, will grow to $3.4 to $3.6 billion in 2011, a 29 percent increase over $2.78 to $2.83 billion expected this year. Gross margins -- a sore point for the company lately -- will increase to the 20 to 22 percent level in 2011 from the 17 percent level this year.
The expansion in part will come from an increase in factory capacity. Suntech currently has 1.8 gigawatts worth of module and cell capacity. In 2011, that will increase to 2.4 gigawatts. The company also announced a joint venture with Wuxi Industrial Development Group and Wuxi New District E&D Group that will build a 1.2 gigawatt cell production facility on Suntech's main campus in Wuxi, China. If all goes as planned, global market share will grow from 11 percent in 2010 to 13 percent in 2011. (In 2009 market share came to 9.5 percent.)
Overall, Wall Street seemed happy with the numbers. Not many other industries or companies are growing in the double-digit realm year after year, after all. Still, necessary caution exists. Aaron Chew of Hapoalim Securities noted that Suntech's calculations are based around a decline in average selling prices of 10 percent or less, a figure Chew predicts average selling prices will decline to 26 percent by the end of the year.
"With a slowdown in Germany and the Czech Republic likely to sap 3 GW of demand in 2011, even strong growth in the U.S., Italy, China, and Japan will likely be just enough to keep the market flat or only slightly up next year," he wrote. Nonetheless, he boosted his price target for the stock from $5 to $6, but also maintained a sell rating.
Lazard analyst wrote: "Suntech continues to see strong demand across all geographic regions, and has currently allocated ~75% of 2011 shipments to its customers. For 1Q 11, STP remains fully allocated, with pricing modestly lower than in 4Q 10. Sales channel diversification (52% EU, 25% APMEA & 22% Americas), brand building through higher bankability, technological differentiation, and after-sales support remain a key focus for the company....Within the domestic China market, STP is continuing to build out project development capabilities, while taking a disciplined view on new project bidding."
Longer term, Shyam Mehta at GTM Research warns that Suntech has a higher cost structure than other Chinese solar makers like Yingli and Trina and a lack of wafer production leaves is subject to market mood swings.
Other things underway at Suntech (from our meetings in October):
-- Suntech is putting an increased emphasis on making its own production equipment. The company had IP scare when developing the equipment for its Pluto line with a third party and decided to pull some equipment manufacturing in-house. The equipment push is based on acquisitions of Kuttler in Germany and a Chinese company.
While the first pieces of equipment are for solar cells, it will also develop module manufacturing equipment to reduce the cost of producing modules in its U.S. facility in Arizona.
-- Although competitors First Solar, SunPower and now Sharp have active internal organizations for developing solar power plants, Suntech will work with third parties. Gemini Solar, a joint venture to develop power plants, has largely been terminated.
-- Panels with Pluto cells (sold under the HiPerforma name) have been shipping in Europe and will come to the U.S. in the second quarter of 2011.
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