Many solar manufacturers traded sharply higher yesterday after a slew of really terrible earnings reports were released. Demand was down, sales prices were down, and almost every manufacturer is reporting big losses in the face of mounting pressure on the industry.

But the market didn't seem to mind and sent shares higher, leaving this Fool to scratch his head because we saw much of this coming. But before we get to why I think the market is off its rocker, let's get to the numbers for two of the largest industry suppliers, JA Solar (Nasdaq: JASO) and LDK Solar (NYSE: LDK).

The numbers
At JA Solar, total shipments of cells and modules grew 11% sequentially to 445 MW. Revenue, however, was down 7.3% sequentially to $388 million, as average sale prices fell dramatically.

During the quarter, 67% of shipments were solar cells, and 27% of shipments were modules. JA Solar is making a strong effort to expand the number of modules it ships because cell suppliers assume a backseat position to companies' internal production capabilities. It is also important to note that 57% of product was shipped within China and 43% went international, so JA Solar is still very reliant on other Chinese manufacturers.

At LDK Solar, net sales fell 5.5% to $471.9 million, and net loss was $114.5 million, or $0.87 per share. That's 29% of yesterday's closing price for the stock.

LDK is in one of the weaker positions of solar manufacturers supplying others with polysilicon, wafers, and cells, which resulted in major pricing pressure and a negative 3.6% gross margin.

With $2.4 billion in short-term debt, $918 million in inventory, and just $263 million in cash, LDK is still at the top of my list of companies in trouble going forward. They're not nearly as strong as Trina Solar (NYSE: TSL), Yingli Green Energy (NYSE: YGE), or Suntech Power (NYSE: STP), which are top-tier suppliers and don't have to rely on other manufacturers for demand.

Europe's debt is affecting demand
We've heard a lot about Europe's debt problems, and according to management, the debt crisis is making lenders uneasy about handing out loans to solar developers in Europe. With Europe still dominating the world's solar module demand, this is putting even more pressure on prices. And the U.S. isn't helping with complaints about subsidies to Chinese manufacturers.

Dodging U.S. complaints
Both LDK and JA Solar said they may move operations outside of China if the U.S. imposes tariffs on Chinese solar modules. After a group of seven U.S. manufacturers filed a petition with the U.S. Department of Commerce and the International Trade Commission, Chinese manufacturers have been fighting back against allegations that they have an unfair advantage.

We don't know exactly how the U.S. will handle Chinese solar subsidies -- of which LDK Solar is one of the largest recipients -- but I highly doubt that moving operations to another country will solve the problem. Both companies are still largely suppliers, and other manufacturers including U.S.-based SunPower (Nasdaq: SPWR) and First Solar (Nasdaq: FSLR) have established operations outside of China.

The market has lost its mind
Back to these stocks popping yesterday. I think the market was off its rocker for the moment. There may be glimmers of hope from positive management comments, but negative gross margins, high debt levels, and continually falling sale prices aren't a buy sign for low-end suppliers.

I didn't see a lot of positives for JA Solar, and LDK Solar looks to be in really bad shape. There are much better bets out there in the solar space, including my top solar pick, SunPower, which had a positive gross margin last quarter.

I've given LDK Solar a red thumb on My CAPS page because I think this will be the first Chinese manufacturer to fall.

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