Canadian Solar (Nasdaq: CSIQ ) faced some fears last week by addressing the somewhat shaky outlook for the solar sector in 2010. Later in the week, two more Chinese solar players weighed in on second-half demand, which is the big cloud hanging over the heads of these firms ever since the new German government started moving to more aggressively cut subsidies. The country's feed-in tariff program is what made Germany, a seemingly unlikely candidate, the biggest solar market in the world.
Suntech Power (NYSE: STP ) surprised to the upside on Thursday, reporting quarterly earnings that came in far beyond analyst expectations. As with Trina Solar (NYSE: TSL ) , gross margins fattened as Suntech's cost reductions outpaced modest sales price declines of 3%. The drop in silicon wafer costs was most pronounced, falling 15% from the third quarter. Another major driver of the earnings result was a large pull-in effect from German developers rushing to get ahead of the subsidy cut. This, along with market share gains in places like California, where SunPower's (Nasdaq: SPWRA ) (Nasdaq: SPWRB ) grip is slipping, drove shipment levels up 32%, compared to guidance of just 10%.
In the first quarter of this year, Suntech expects module prices to fall 10% to 15%, mainly driven by the weakening euro. But beyond that, the company said it doesn't see prices needing to fall much further over the course of the year. The company's confidence comes from what it expects to be satisfactory project-level rates of return in Germany (even after factoring in the tariff reduction) and "extremely strong" demand elsewhere in Europe.
Solarfun Power (Nasdaq: SOLF ) followed on Friday with its own report, which was less well received. The company bumped up total shipments by 8% sequentially, which actually understates shipments of proprietary modules. Solarfun's module processing services business, which fashions third-party cells into private label modules, contributed much less to the overall revenue mix this quarter.
Despite moving a lot of product, which should have helped the company burn through higher-cost silicon inventory, gross margins still fell in the quarter. The company is guiding for polysilicon costs to drop to $40 to $45 per kilogram by year's end, so Solarfun's cost structure could improve significantly over the next few quarters. That makes me think last week's sell-off may have been a bit of an overreaction.
On the second-half demand question, Solarfun echoed Suntech, arguing for significant pent-up demand elsewhere in Europe. The U.S. and China are also expected to be bright spots in the back half of the year, which would further cushion the decline in Germany.
Granting that the demand is there, do these other countries have the infrastructure and the manpower to handle a massive influx of modules? The floor is open for Fools "on the ground" to expound.
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