In solar, the big just keep getting bigger. Yesterday, Suntech Power Holdings (NYSE: STP), the world's largest solar module manufacturer, reported earnings that blew past analysts' estimates again.

Revenue for the fourth quarter rose to $945.1 million, beating estimates of $843.7 million. And earnings of $383.4 million, or $2.02 per share, crushed the $0.18 in earnings per share the company reported a year ago. Blowout numbers, get back to your trading stations, buy, buy, buy. Hold on here, not so fast...

Before you get too excited, let's take this earnings report apart piece by piece. Suntech often touts its position as the largest module producer, and manufacturers across the board have been producing more panels than even they expected, so beating estimates isn't a big surprise. While earnings look great, if we take away $250 million in non-cash equity from its GSF investment, a $50 million revaluation of Glory Silicon investment, and $24 million in equity income from Rietech Solar, the story looks very different.

Those three sources, along with a $1 million equity loss from "other," absorb most of the company's profits and would leave just $61.1 million in net income for regular operations. So in the places where Suntech should be making money, it's barely scraping by with just a 6.5% net margin. Suntech's gross margin and operating margin don't stack up well with leading solar competitors, either.

Company

Production Capacity

Fourth Quarter 2010 Gross Margin*

Fourth Quarter  2010 Operating Margin*

Suntech

1,800 MW

20.0%

10.3%

First Solar (Nasdaq: FSLR)

1,502 MW

48.7%

27.2%

Trina Solar (NYSE: TSL)

1,060 MW

31.4%

22.6%

SunPower (Nasdaq: SPWRA)(Nasdaq: SPWRB)

~600 MW

25.4%

14.4%

*Margin numbers include power plant developments, which generally have lower margins than module production.

Not only is Suntech behind cost leaders First Solar and Trina Solar, but it also has lower margins than high cost, efficiency leader SunPower. Who exactly is it beating in this industry?

We shouldn't entirely discount the "other" sources of income for Suntech, but I'm worried that its core business is falling behind. Further vertical integration should help going forward, but right now there isn't much room for error with margins lagging the rest of the industry.

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