Trimming the Trina

As a standard polysilicon-based solar player, Trina Solar (NYSE: TSL ) has to tough it out while raw material supply is tight. The company was braced for a margin squeeze in the first quarter, but only a pretty small pinch came to pass. That resilience, combined with the company's decision to abandon its upstream integration, would seem to indicate that it's sunset for the silicon shortage. Based on Trina's new guidance, though, that view is looking a bit premature.

But let's start with the good news. Trina shipped about 29.5 megawatts of modules in the first quarter, representing a 23% sequential increase. Cost per watt of $1.76 for silicon and $1.17 for everything else resulted in a gross margin of 25.8%, exceeding guidance of 23%-25%. By the end of the year, Trina aims to reduce its non-silicon cost per watt to $1.05, representing a 10% decline. The firm also expects to slash its per-watt polysilicon usage.

Still, even with these all these incremental cost improvements, Trina stuck to the same 23%-25% gross margin guidance for next quarter. This is the only reason that I can see for the stock's drubbing today. Trina is setting the bar low, and I can't blame it. Even those optimistic on polysilicon supply, such as Suntech Power (NYSE: STP ) , are only looking for a second-half letup. It's just too soon to say "mission accomplished."

Aside from silicon, the conference call touched upon other noteworthy topics. Trina is now certified to sell into the U.S. market, which puts the firm in competition with the likes of SunPower (Nasdaq: SPWR ) , Kyocera (NYSE: KYO ) , and First Solar (Nasdaq: FSLR ) . While countries like Germany and Spain tend to get most of the attention these days, I suggest you keep an eye on the domestic front. This market is dramatically underpenetrated, and Trina should be able to grab a generous slice for itself.

Trina is rated a middling three stars in Motley Fool CAPS. Think it's done getting trimmed? Then rate Trina outperform right here.

More sunny Foolishness:

Germany recently brought some pleasant solar tidings.
We're seeing fat investments in thin-film solar.
Suntech has scored a slew of silicon wafers

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Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.

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