Suntech Power Holdings (NYSE: STP) is one of the few solar stocks taking positive steps to start 2011. Most competitors are not only reporting weak sales because of low demand in Italy, but margins and profitability are suffering as well. But Suntech Power saw gross margins and operating income both increase sequentially in the first quarter.

Shipments were down 3% sequentially, and with falling solar prices, it's no surprise revenue fell 7.2% to $877.0 million. But gross margins increased 2.8% sequentially to 19% because of continued vertical integration at the solar giant. That puts margins ahead of competitors JA Solar (Nasdaq: JASO) and Canadian Solar (Nasdaq: CSIQ), who until recently led Suntech's margins.

The increased margins are from Suntech's acquisitions of silicon ingot and wafer capacity, which are now fully integrated into operations. One GW of wafer capacity is now available in-house and 1.2 GW should be complete by the end of the year.

Solar leaders First Solar (Nasdaq: FSLR), Trina Solar (NYSE: TSL), and Yingli Green Energy (NYSE: YGE) felt pressure from Europe throughout the quarter. But Suntech looked to China, Japan, and other emerging markets to pick up the slack. Those markets accounted for 30% of Suntech's sales in the quarter. Europe was still a hefty 52%, but diversification is progressing quickly.

This just in
Hot off the press, Suntech has signed a deal with solarhybrid AG, a solar project developer, to supply 190 MW of solar panels to the company in 2011. Most of the demand will come from Germany and a small amount will be sent to Italy and Slovakia. This is nearly 9% of Suntech's projected production for 2011, so this is a major deal for the company.

Foolish bottom line
With other solar manufacturers mostly moving backward this quarter, it is good to see Suntech's strategy playing out as planned. The company will still be under pressure along with the rest of the industry to keep cutting costs, but at least the company is moving in the right direction.

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Fool contributor Travis Hoium owns shares of First Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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