Putting a Damper on Solarfun

[W]e expect price to decline further throughout the remainder of the year, but we intend to compete strongly in the industry for volume.

-- Terry McCarthy, interim chief financial officer of Solarfun Power (Nasdaq: SOLF  )

This is what solar investors have to look forward to. While margins have recovered for integrated players like Solarfun, Canadian Solar (Nasdaq: CSIQ  ) , and Trina Solar (NYSE: TSL  ) , price competition going forward is going to be intense, and profits are going to be pretty thin.

First Solar (Nasdaq: FSLR  ) alerted us to this fact when the company launched its rebate program in Germany, and Solarfun made the point repeatedly during its conference call about its latest quarterly earnings this week.

So, will Solarfun be able to hang in there? The company says yes, pointing to the fact that it has now renegotiated all of its polysilicon supply contracts. That wasn't a totally seamless process, as evidenced by the $35 million non-cash provision taken against uneconomic supply contracts this quarter. But going forward, Solarfun does appear to have little standing in the way of a low-cost structure.

For me, the scariest thing in the company's financial report was a more than 150% jump in accounts receivable compared with the first quarter, on a revenue increase of just 25%. Management addressed this by pointing to a large percentage of sales made late in the quarter. Days sales outstanding also remain fairly low (though not as low as those at JA Solar (Nasdaq: JASO  ) ), so this probably isn't anything to get too worked up about.

Solarfun is rated a middle-of-the-road three stars by the Motley Fool CAPS community. Think the solar player has what it takes to shine? Then give the company a thumbs-up right over here, along with your reasoning.