What's Missing at JA Solar

I'm increasingly led to believe that when it comes to the solar market, it's not what you know, but whom you know.

In my take on First Solar's (Nasdaq: FSLR  ) startlingly strong first-quarter results, I concluded that the firm's stable base of core European customers accounted for its revenue resilience. One Fool quibbled with my thesis on our First Solar message board, suggesting that "[e]verybody sells to Europe." Look to JA Solar's (Nasdaq: JASO  ) latest results, however, and you see geographic mix playing a very decisive role.

After sucking wind in the fourth quarter, JA Solar acknowledged that Q1 would be even worse. Management wasn't kidding. Revenue plummeted another 76% sequentially, bringing the top line to a paltry $34 million in sales. On the conference call, management stated that sales into China accounted for 77% of revenue in the quarter, versus 60% in Q4. The collapse in Chinese demand hit JA significantly harder than SunPower (Nasdaq: SPWRA  ) , Evergreen Solar (Nasdaq: ESLR  ) , or any other solar company we've heard from. Solarfun Power (Nasdaq: SOLF  ) , a Chinese compatriot, just reported $100 million in sales, mostly stemming from Germany and Portugal.

In addition to a pretty solid liquidity position, JA Solar has an attractive cost structure. For example, its long-term polysilicon contracts are still some 10% lower than the current spot price, which has imploded in recent months. The company just needs to make some connections to move up in the world.

The company does have a friend in BP (NYSE: BP  ) , whose 175-megawatt supply agreement comprises quite a large chunk of JA's entire pipeline. This is exactly the sort of relationship I'm talking about. JA Solar investors should monitor the firm's progress when it comes to signing similar agreements, perhaps once some green shoots emerge in the back half of this year. Only with those contracts in hand can the company seriously start thinking about getting back on the expansion path that it and others like Suntech Power (NYSE: STP  ) have temporarily abandoned.