Last time we checked in, Suntech Power's (NYSE: STP ) results were being overshadowed by disappointing guidance. The solar slugger's full-year projection once again held steady, but there were notable changes in the company's disclosure. This time it was the granular details that were left in the shadows.
For competitive reasons, Suntech has decided to no longer report shipment quantities or average sales prices for its modules. This is strange, because pretty much every company in the space reports these figures. It's hard to see how one of the largest companies by volume feels compromised by sharing this basic data.
This guarded reporting makes it a bit harder for all of us to figure out how Suntech managed to raise gross margins to levels that edged out the likes of JA Solar (Nasdaq: JASO ) and SunPower (Nasdaq: SPWR ) . Given that the firm experienced 8% higher silicon costs, the margin expansion is all the more intriguing.
Analysts probed this issue from about seven different angles on the conference call, and ultimately got the answer that price hikes and currency exchange gains contributed about 50/50 to the margin expansion. Higher selling prices are a pure function of demand in the marketplace, which Suntech characterized as "very strong" in the core Spanish market. Spain accounted for about half of total revenue in the quarter. And much like doppelgangers Canadian Solar (Nasdaq: CSIQ ) and Solarfun Power (Nasdaq: SOLF ) , Suntech also benefits by pricing a lot of product in Euros.
Looking ahead to the second half of the year, Suntech is still calling for a drop in spot silicon costs, on the order of 10%-20%. Note that this is for spot market purchases only, not overall silicon costs. For 2009, the company is even more optimistic, and expects a 25% reduction in silicon costs to offset a 5%-10% decline in module prices. Suntech has made equity investments in polysilicon partners Nitol and Hoku Scientific (Nasdaq: HOKU ) , which shows how serious the firm is about being first in line when new supply hits the market.
As for me, I'm a bit of a silicon skeptic, which has me leaning more toward Evergreen Solar (Nasdaq: ESLR ) . Given its size and influence, though, Suntech should come out of the silicon squeeze relatively unscathed.
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