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Solar Cost Cuts Remain Difficult in China

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May 18, 2011 | Comments (2)

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Chinese solar leader Trina Solar (NYSE: TSL  ) announced disappointing earnings yesterday, which left its shares in the market trash heap.

Revenue was up 64% from last year to $550.9 million, but the company shipped just 320.4 MW of modules, down from 350.8 MW last quarter and below the forecast of 351 MW. And profitability suffered as well. Earnings per share were just $0.63, well below the $1.00 analysts expected. And margins are on the decline, with in-house margins falling each of the last two quarters to 32.2% this quarter. To keep this in perspective, that's still much better than competitors like JA Solar (Nasdaq: JASO  ) and Canadian Solar (Nasdaq: CSIQ  ) , which are operating in the mid-teen gross margins.

As usual, I am most concerned with cost per watt trends for solar manufacturers because it is the one thing that is firmly in their control. And Trina Solar continues to have problems cutting costs out of its panels. Last quarter, when Trina blew past analyst expectations I warned that rising costs would have a longer lasting effect than a boost in panel prices for the quarter.

Those problems continue today, as cost per watt remained flat from the fourth quarter of 2010 at $1.16 per watt. And more concerning is the fact that non-Si cost per watt has remained virtually flat for the past year.

Solar leaders First Solar (Nasdaq: FSLR  ) and SunPower (Nasdaq: SPWRA  ) both displayed the ability to cut costs over the past year, improving their conditions in the market. Chinese leaders Trina Solar, Yingli Green Energy (NYSE: YGE  ) , and Suntech Power (NYSE: STP  ) have yet to show they can consistently cut costs to keep up.

The leverage that Chinese companies have with low-cost labor only lasts so long, and now it's time to show they can innovate themselves to the next level. This isn't the last quarter that sales prices will decline, and costs will have to fall with them.

Interested in reading more about Trina Solar? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

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Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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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.

  • Report this Comment On May 18, 2011, at 5:52 PM, BigWillieStyles wrote:

    For this reason investors should be buying up BSRC (biosolar) Their product will make an impact on lowering costs for the entire industry. Product in testing now and available this summer

  • Report this Comment On May 18, 2011, at 9:23 PM, ArlHomRob wrote:

    Hi BigWillie, Sounds like you have BSRC stock long enough to be way down. I recall people trying to talk this company up in 2008 and advising of cutting edge technology out soon. A product in testing can't say when or if it will be available. That is why they are in TESTING. I just put in to buy 10,000 shares at asking price of 13.5 cents (not). But I might buy if they actually get something out of TESTING. So far they have just lived up to the BS of their symbol

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