In a previous stage of solarmania, the shares of companies up and down the value chain seemed to press upward in unison. Now this borderline-bubbly market has seen a bit of bifurcation. While the clearestleaders bound higher, the wheels have begun to come off some of the shakier outfits.
I scoffed at Sunergy's 5% gross margin back then, but that figure's looking downright dreamy compared to the latest number. Yesterday, the firm reported a 2.1% gross margin across its product mix. Had Sunergy not sold some precious polysilicon on the side of its core solar cell business, margins would have been even slimmer.
The company naturally reported a loss for the quarter, but here's a perverse little tidbit. If the share count hadn't ballooned by 47% sequentially, its per-share loss would have been quite a bit uglier.
China Sunergy is targeting doubled output in 2008, which could possibly bode well for the bottom line. Of course, that's assuming both that the firm will sign sufficient supply contracts with silicon slingers, and that these suppliers will be able to deliver in quantity and quality alike. On the call, management noted that a good deal of anticipated supply is coming from two start-ups. Contrast that with Suntech Power
The company's base case, which assumes that the polysilicon pours in as expected, pegs gross margin at 4%-5% next year. That's about good enough to hit operating breakeven, in its estimation. Beating this forecast could prove difficult, given that long-term supply deals can require significant up-front deposits. This would likely force the company to issue more shares or debt at a time when cash is pretty tight.
China Sunergy doesn't have the cell efficiency of SunPower