We're supposed to be seeing progress from the solar industry at this point. First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR) are improving margins and talking about strong long-term markets in the U.S., Japan, and India. But Chinese solar players are posting deteriorating results that should have investors running for the hills.
Earnings crash and burn
Before I get to the quarterly numbers, keep in mind that LDK Solar has $3.9 billion in debt and accounts payable, and now has just $111.9 million in cash. It needs financials to improve quickly, but...
Net sales in the third quarter fell 38.2% from a year ago to $291.5 million, although this was a 23.8% improvement from the second quarter. Gross loss was $32.5 million for a negative gross margin of 11.2%, and net loss was $136.9 million, about the same as the company's market cap.
This follows negative gross margins of 22.7% at Yingli Green Energy (NYSE:YGE), 5.9% at JA Solar (NASDAQ:JASO), and 18% for ReneSola (NYSE:SOL). Chinese solar is simply going bankrupt before our eyes.
What will China do?
The big question hanging over the industry revolves around what China will do with its solar industry. LDK, Yingli, Suntech Power (NASDAQOTH:STPFQ), and others are sitting on tens of billions of dollars of short-term debt from state-owned banks. As sales decline and margins get worse the prospects get worse for everyone in China's solar industry.
To make matters worse, it's a reinforcing cycle once it gets started. Financials get worse, customers begin to question your long-term viability and warranty, which leads to fewer sales and worse financials, and so on.
Foolish bottom line
I wouldn't touch any solar stock from China right now or any time in the near future. U.S. companies are risky as well but at least they have a chance at survival.
Fool contributor Travis Hoium owns shares of SunPower in personal and managed accounts and personally has the following options: long JAN 2015 $7 calls on SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of First Solar. Motley Fool newsletter services recommend First Solar and Suntech Power Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.