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Is LDK Solar's Outlook for Real?

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The darkness hovering over the solar industry eclipsed yet another player when LDK Solar (NYSE: LDK  ) swung to a second-quarter loss. But even though the company reported wider-than-expected losses, its shares jumped some 6% as management offered a positive outlook for the current quarter. How might the road ahead unfold for LDK?

A look at the quarter
Year over year, revenues for the quarter slid 12% to $499.4 million. However, on a sequential-quarter basis, the decline was a staggering 35%, as LDK had to contend with an abrupt decline in the prices of solar products, triggered by a withdrawal of subsidies in major markets such as Germany and Italy that has also affected peers Suntech Power (NYSE: STP  ) and SunPower (Nasdaq: SPWRA  ) , among others. Weighed down by these issues, LDK swung to an operating loss of $47.9 million in the quarter, from a profit of $78.6 million a year ago.

A look at the books
The balance sheet doesn't look particularly healthy. LDK has total debts of $3.3 billion, of which $2.2 billion is short-term. When compared against LDK's market capitalization of about $880 million, the debt level certainly looks worrying. In comparison, the company's cash and cash equivalents stand at $515.3 million along with short-term bank deposits of $515.3 million -- which doesn't bode too well, either. The company is planning to spin off its polysilicon business to raise money to pay off some of its debt.

Hope of a turnaround
The solar industry's performance has been pretty unimpressive so far this year. However, LDK sees prices stabilizing and shipment volumes improving. The company plans to more than double its module shipments in the ongoing quarter, and it expects the industry to look up in the second half.

LDK has plans to spend around $100 million in the current quarter on expanding its production capabilities. The company is also making its presence felt in emerging markets such as China, India, South Africa, and the Middle East, as well as in Australia. However, we need to wait and watch whether these moves will enable the company to meet its revenue guidance of $630 million to $680 million in the ongoing quarter and beat consensus estimates of $585 million.

The Foolish bottom line
The company is optimistic about its results in the current quarter and expects the gloom over the industry to fade away. But considering the volatility prevalent in the solar industry, investors would be wise to wait till the next quarterly release.

To stay on top of the latest developments at LDK, add it to My Watchlist.

Fool contributor Harsh Chauhan doesn't own any shares in the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (6)

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.

  • Report this Comment On September 06, 2011, at 10:41 AM, dsong wrote:

    Do not worry LDK balance sheet because it is expanding its capacity rapitally.

    Wall street crooks like Johnson Gorden, Dubinsky, Eric Rosenbaum twist the facts to beat china solars eventuall hurt the US solars.

    Solar is the future. It is clean. More important it is free to every one once you buy the equiptment to transfer the solar energy to electricity. It DOES NOT

    need transportation that is particular importment to the remote area of the countries. However, those crooks do not see these advantages of solar.

    Their dirty names will be on the shame wall when solars become more popular energy in the near future.

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