Can Hanwha SolarOne Ride on SolarCity's Coattails?

Hanwha SolarOne (NASDAQ: HSOL  ) will release its quarterly report on Tuesday, and investors have bid up the maker of photovoltaic products sharply higher recently. With all the attention that residential solar efforts from SolarCity (NASDAQ: SCTY  ) and SunPower (NASDAQ: SPWR  ) have gotten lately, Hanwha stands to benefit greatly if it can position itself to serve residential-solar installers with its own products rather than those of its competitors.

Like many solar module makers, Hanwha SolarOne is headquartered in China. But the company is actually part of the larger Hanwha Group, a South Korean investment holding company with exposure to engineering, chemicals, and financial services, among other business segments. With the backing of the big conglomerate behind it, can Hanwha SolarOne get past all the competition in the solar industry? Let's take an early look at what's been happening with Hanwha SolarOne over the past quarter and what we're likely to see in its report.

Stats on Hanwha SolarOne

Analyst EPS Estimate

($0.23)

Year-Ago EPS

($0.61)

Projected 2015 EPS

$0.21

Year-Ago Revenue

$153.73 million

Earnings Beats in Past 4 Quarters

2

Source: S&P Capital IQ.

Is it Hanwha SolarOne's turn to shine?
Analysts have grown more optimistic about Hanwha SolarOne's earnings prospects in recent months, narrowing their loss projections for the third quarter and full 2013 year dramatically. The stock has soared, climbing more than 60% since early August.

Hanwha SolarOne has done a good job of picking up key customers in the recent past. One big success came from winning the business of Exelon's (NYSE: EXC  ) Constellation Energy Resources, which has been a key component of Exelon's strategy to diversify beyond its nuclear focus to build more renewable energy capacity. With the huge volumes available in utility-scale solar projects, building such relationships is a key part of Hanwha's overall strategy.

But in its most recent quarterly report in September, Hanwha failed to impress investors with its growth. Solar module shipments rose 40%, leading to a 10% gain in overall revenue. But weak gross margins led to wider operating losses, and future guidance didn't encourage investors about Hanwha's future prospects.

Hanwha SolarOne took a step forward a couple weeks ago that could be the key to its future growth. The company said it would release a solar module that's compatible with installation systems provided by Zep Solar, which has become a leader in the residential-installation industry. SolarCity had announced a deal to acquire Zep Solar earlier in October, making it clear that Hanwha wants to get its foot in the door to try to capture SolarCity's demand for solar modules. Years ago, SolarCity entered a module-supply contract with First Solar (NASDAQ: FSLR  ) to meet its needs, but if Hanwha can gain similar access, it could mean a huge ramp-up in sales if residential solar continues to thrive. SunPower, on the other hand, makes its own modules, making a partnership extremely unlikely.

In the Hanwha SolarOne earnings report, watch to see what the company has to say about the SolarCity-Zep acquisition. The solar industry remains fiercely competitive, but any edge Hanwha can get could give it a leg up on its peers and allow it to survive the shakeout in solar in the years to come.

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