Trina Solar Trumps Them All

We've seen a lot of sunny solar reports this season. SunPower (Nasdaq: SPWRA  ) (Nasdaq: SPWRB  ) set a positive tone, which has been carried on by the likes of JA Solar (Nasdaq: JASO  ) , Canadian Solar (Nasdaq: CSIQ  ) , and Yingli Green Energy (NYSE: YGE  ) . Strong results, all, but Trina Solar (NYSE: TSL  ) truly stands out from the crowd this quarter.

Trina is just killing it as a cost leader in the manufacture of solar modules. In the third quarter, the Chinese shop achieved gross margins of 28.5%, well ahead of guidance. Here's how some other solar players weighed in:

Company

Gross Margin %

SunPower

19.1

Yingli Green Energy

20.1

Canadian Solar

16.3

Solarfun Power (Nasdaq: SOLF  )

20.7

All data from company filings.

Trina took its nonsilicon costs down by 3.5% sequentially, reflecting increased manufacturing efficiencies. Silicon costs plummeted an eye-popping 25% sequentially, as long-term contracts were rejiggered in the face of a persistent upstream glut of the raw material.

Prices are of course coming down at the module level as well, but Trina is so far wringing out enough savings to more than offset these declines.

As far as Trina's strategy for 2010, the thinking here is a bit different than what I outlined in my review of Canadian Solar's quarterly report. Both companies are certainly looking to grab market share. Both probably will. The difference is that Trina looks a lot less willing to compete on price. Rather, the company is focusing on brand name, reputation for quality, and customer support. It appears the company has the goods to make this work.

Asked whether the company was worried about all of the capacity expansion being planned by its publicly traded peers, Trina management pointed to the expansion potential afforded by the failure of uncompetitive suppliers. As we've stepped through this season's earnings reports, it's become clearer to me that the overcapacity situation is not as severe as many gloomy analyses had framed it. Many higher-cost manufacturers are not just temporarily idling production lines. They're down for the count, and that takes a lot of pressure off of the supply side of the equation.

Trina has gained tremendously from the solar shakeout. Its multibagger share price performance this year is reflective of that reality.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 20, 2009, at 2:19 AM, kg4lah wrote:

    trina solar trumps them all with their gross margin? first solar's gross margin is 53% almost twice as much as trina's. unless they are talking about polysilicon solar companies.

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