There's a lot going on in solar this week, so I'll skip the pleasantries and get right to it.
Earnings roundup
Yingli Green Energy (NYSE: YGE), JA Solar, and ReneSola (NYSE: SOL) released earnings this week and Suntech Power released preliminary results. Let me tell you, the numbers weren't pretty.
Yingli's revenue fell 1.4% sequentially and 29.4% from a year ago to $488.5 million. Gross margin fell to 4.6% from 7.8% last quarter and 22.1% a year ago. On the bottom line, net loss was $90.2 million, or $0.58 per share. On the balance sheet, the company has $2.1 billion of debt and $882 million in cash.
JA Solar saw revenue rise 12.8% sequentially to $284.4 million and gross margin improved from 2.1% in the first quarter to 4.8% in the second quarter. But net loss was $72.1 million, nearly double what the company lost in the first quarter.
At ReneSola, revenue rose 10.2% to $233.0 million, gross margin was 0.6%, and net loss was $34.8 million, or $0.20 per share. ReneSola is rebounding from negative gross margins in the past and while the numbers still aren't good, there is progress.
Suntech's numbers were a little more scattered considering the company's accusations of fraud against a former partner. According to the preliminary results, revenue rose 15% to about $471 million, gross margin was negative 10%, and management reduced its full-year shipment guidance to 1.8 GW to 2.0 GW. Margins were affected by inventory writedowns, but this has become commonplace so I no longer view it as a one-time event in solar. Next quarter the company expects gross margin in the low single digits, so the challenges will continue.
I'm not sure how long China's banks will allow the industry to keep posting massive losses and low single-digit margins before stopping the flow of capital to these companies. Considering the improvement we saw at First Solar (Nasdaq: FSLR) and SunPower this quarter, it appears that balance sheets matter more than ever, something these manufacturers can't compete on.
Q.Cells finds a buyer
Former dominant solar player Q.Cells has found a buyer -- South Korean firm Hanwha. The company was once the largest solar manufacturer in the world, but like most companies it has faced losses in recent years. This led the company to file for insolvency and eventually the deal with Hanwha.
This isn't Hanwha's first foray into solar. It owns a major stake in Hanwha SolarOne (Nasdaq: HSOL), but this may change the company's outlook on that investment. Q.Cells will give Hanwha a fresh start in solar and give it a better brand in the global market. SolarOne is not considered a top-tier manufacturer, and if Hanwha can produce Q.Cell's modules cost-effectively, it could be a big upgrade for the company.
Two seconds about politics
It's no secret that President Obama is a solar fan but Governor Romney once categorized the industry as an "uncompetitive" source of energy that "make[s] little sense for the consuming public." However, when the governor released his latest plan for energy independence by 2020, the rhetoric against solar was basically gone. In a response from the industry, the Solar Energy Industries Association even had nice things to say about the plan.
Maybe he realized that solar is cost-competitive in many markets, maybe he heard that it is growing faster than any other energy source, or maybe his change of stance was purely political. Whatever caused the change, I see it as an incremental positive for solar investors if Romney is elected. He may not be a solar booster, but if his toned-down approach is any indication, he may not hurt the industry, either.
More news and notes
Here are some other interesting tidbits from this week in solar.
- Canadian Solar (Nasdaq: CSIQ) is making a push into systems like First Solar and SunPower to increase downstream exposure. This week the company announced a contract to build an 18.7 MW system in Canada and also sold a new solar power plant to Stonepeak Infrastructure Partners for $48.4 million.
- If you missed it yesterday, First Solar's shares fell off a cliff after the company announced it was temporarily stopping construction at its Agua Caliente project in Arizona. The company is ahead of schedule and has already met construction milestones, so it will put work on hold until January. The problem for investors is that we don't know if the company artificially moved construction up in the first and second quarters to make revenue and profits look good. For more on this news and a much more detailed discussion about First Solar, check out our premium report found here.
- The U.S. market has provided a lot of the growth for solar in the first half of 2012, but the second half may belong to Asia. New research by Solarbuzz predicts 80% year-over-year growth in the region, highlighted by 5.3 GW of demand in the fourth quarter alone. The company highlights that China has already grown 300% in the second quarter and a new Japanese feed-in tariff with very generous (and unsustainable) rates will boost demand. The bad news -- European demand is expected to collapse just as Asia is picking up.
That's all for this week. Check back regularly to learn more about solar and how to invest in its future. And be sure to check out our premium report on First Solar, which details everything you need to know to make an informed investment decision on the company. The premium report will also include a year of updates so you will be informed on every big move the company makes.
