As an elder statesman of the solar scene, Suntech Power's (NYSE: STP ) announcements should always be heeded. The firm's second-quarter comments, while perhaps subtler than a rebounding oil price, should nonetheless encourage investors in the solar space.
First, a quick pass through the numbers reveals:
- A middle-of-the-road 24% gross margin, falling a bit below that of Yingli Green Energy (NYSE: YGE ) and a notch above the figure reported by Trina Solar (NYSE: TSL ) .
- Sequential revenue up a bit more than 10% -- comparable to JA Solar (Nasdaq: JASO ) , but slower than less mature competitors like Canadian Solar (Nasdaq: CSIQ ) .
- Days sales outstanding (DSOs) down from 57 days to 41 days, reflecting a strong improvement in cash management.
Suntech's press release also tipped us to other positive developments, such as a secured polysilicon supply of 900 megawatts (MW) for 2009. That amount exceeds the combined total of in-hand contracts and the half-gigawatt's worth of contracts currently being negotiated. Given that Suntech's year-end 2008 cell production capacity target stands at one gigawatt (or 1000 MW), 900 MW worth of polysilicon is very strong coverage.
The news gets even better when we turn to the conference call. Topping Trina's cheery cost outlook, Suntech forecasts a silicon cost slide of about 20%. Combine that with module pricing that's so far holding stronger than most analysts have been anticipating, and 2009 is looking mighty fine.
How did Suntech pull off this polysilicon putsch? Credit is due to the firm's "virtual integration" model, which has drawn a host of silicon suppliers into Suntech's inner circle. Equity investments have seeded various new entrants, while better-established wafer players like ReneSola (NYSE: SOL ) have been happy to hitch themselves to the staunch solar-cell slinger.
Barring unforeseen mechanical misfires, the polysilicon pinch appears poised to peter out. Good luck to those companies firing up their reactors in the forthcoming weeks and months. They hold the key to future cell-maker glee.