The Sun Is Shining Bright on Yingli Solar

Yesterday, Yingli Green Energy (NYSE: YGE  ) reported strong second quarter earnings continuing a strong first half of 2010 for solar manufacturers. And as usual it wasn't good enough for the market, which knocked the stock down over 4%. But Yingli is going in the right direction heading into a competitive 2011.

Not only was revenue up 81.4% from last year despite a weak Euro, gross margins were up to a record 33.5%. Revenue and gross margin trends in solar tell the story of who is giving up margin for sales and who has pricing power. It appears Yingli is a cut above competitors Sunpower (Nasdaq: SPWRA  ) and First Solar (Nasdaq: FSLR  ) on both counts and is beating Solarfun (Nasdaq: SOLF  ) soundly in gross margin.

Company

Revenue Growth (Y/Y)

Gross Margin

Gross Margin Change (Y/Y)

Yingli

81.4%

33.5%

+15.2%

Solarfun

105.1%

21%

+27.2%

Sunpower

28.4%

22.9%

+9.3%

First Solar

11.8%

48.3%

(8.4%)

Source: Company press releases.

Yingli still can't match First Solar's thin film cost per watt, but improving efficiency is pushing it in the right direction. Yingli's new PANDA line started production on 19% conversion efficiency cells in July. R&D is also working to improve efficiency of multicrystalline silicon cells in collaboration with Innovalight. This shows the advantage of being a cost leader and playing efficiency catch-up as opposed to efficiency leader Sunpower who is trying to play cost catch-up.

As usual, investors were concerned about the outlook for 2011 and pricing in particular. Yingli said on the conference call it has demand for twice as many panels as it can produce but pricing might be down "high single digits". This should partly be attributed to Yingli's focus on maintaining market share in China where prices aren't as high as they currently are in Europe.

While Yingli may not have the growth potential of Solarfun but as a bigger and more established player in the solar market Yingli's risk profile is lower. Considering the market's response Yingli's stock may be stuck for a while but as 2011 comes into focus I expect a bounce as investors become a little less skittish about the future.

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Fool contributor Travis Hoium is long First Solar and Sunpower. First Solar is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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