Trina's Italian Job

Trina Solar (NYSE: TSL) may not have had anything earth-shattering to report in its quarterly conference call, but it was a solid outing for the Chinese solar player.

In fact, Trina turned in sequential top-line growth that was downright Olympian. While Yingli Green Energy (NYSE: YGE) set the bar with revenue ratcheting up 25% and SunPower (Nasdaq: SPWR) sales sprinted 40% higher, Trina's top line took a 69% triple jump. Margins were respectable, but declined sequentially because of pricey polysilicon.

Trina continues to foresee a letup in silicon supply tightness. For the balance of 2008, the company expects poly costs on a per-watt basis to hold flat, thanks to both improving silicon efficiencies and supply contracts in hand. Silicon costs in 2009 are expected to drop by around 15%, which would strengthen gross margins even in the face of anticipated module sales price declines.

Trina, along with SunPower, Suntech Power (NYSE: STP) and Canadian Solar (Nasdaq: CSIQ), has relied rather heavily on Spanish solar demand in the recent past. That country is now downshifting dramatically. Whereas Spain accounted for nearly half of revenue in the just completed-quarter, Spain is expected to chip in only 15% of sales in the back half of 2008.

Fortunately, there's plenty of pent-up demand elsewhere, with Italy shaping up to be a particular standout for Trina. Thanks to agreements with the country's leading power company and various solar distributors, Trina's 2009 contracts are about one-third Italian.

The Spanish softening has turned out to be a red herring. I think the continued slump of solar stocks has far more to do with credit market issues. It's a rotten time to be a capital-hungry young company, no matter how bright the demand outlook. In that light, Trina's comments about near-term positive operating cash flow are most welcome. Still, the company remains dependent on debt financing, and fear trumps greed for the time being.

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