Solar earnings are starting to flood the wires, and they're playing out much like we expected so far: Strong sales and profits during the first quarter but uncertainty heading into the second half of the year has been the theme. First Solar
So let's get caught up on what's been reported in the solar sector this week.
Earnings are solid, but caution reigns supreme
Pricing pressure was already starting to show itself in the first quarter. Sales were down 5.5% sequentially, more than the 2.6% decline in shipments and gross margins fell 1.9% to 17.3%. None of this is shocking as the earnings beat demonstrates, but it shows that we're heading into a year where uncertainty will reign.
Like JA Solar, Canadian Solar has margins that fall well below industry leaders. This quarter, gross margin fell to 14.7% from 17% in the fourth quarter of 2010. Margin level is something investors should watch closely and is a major differentiator between competitors.
A solar flare burning out
Energy Conversion Devices
I warned early this year that Energy Conversion Devices would be a landmine for 2011, and it appears ready to explode. If juggernauts like First Solar, LDK Solar
Other news and notes
Yingli said shipments in the first quarter would be down by "a low teen percentage" sequentially from an expectation of growing shipments by a single-digit percentage. Gross margin will come in slightly behind Trina Solar at 27% to 27.5%.
First Solar added more muscle to its power plant business when it signed a deal with China Power International New Energy Holding Limited. The new partner has 2 GW of projects planned in China by 2020 and will help take some financial burden off First Solar's project development arm.
Foolish bottom line
This quarter, we're starting to see the separation of top tier solar companies and how their superior technology and business plans are paying off for investors. As uncertainty hits Chinese suppliers, First Solar and SunPower have been able to leverage their power plant development units to ease investors' fears of falling demand relative to a rise in supply. First Solar's pop today after its CPINE partnership shows just how much value this holds for investors.
We're also seeing a slight separation between top- and mid-level Chinese suppliers. Trina Solar and Yingli Green Energy may be shipping slightly fewer modules than expected, but their superior margins give them leeway to lower prices in the second half of the year and can still remain profitable if it comes to that. JA Solar and Canadian Solar don't have nearly the margin to do that. If you're going to invest in Chinese solar stocks, I would stick to margin leaders in this tumultuous year.