There doesn't seem to be a shortage of bad news for LDK Solar (NYSE: LDK) lately. The company defaulted on loans earlier this week, bringing on concerns of a pending insolvency or bankruptcy, and today released some dismal earnings numbers.
LDK isn't reporting first quarter earnings like the rest of the report on the wires; it's reporting results from all the way back in the fourth quarter of 2012. By the look of it, things aren't going well at all for this Chinese solar maker. Sales fell 53.4% sequentially, to $135.9 million, and net loss jumped more than five fold, to $514.7 million.
The downward trend for LDK Solar has been steep, and the red ink has been flowing for well over a year. You can see below that sales have cruised lower over the past year, reaching an unsustainably low level in the fourth quarter.
|
Q4 2011 |
Q1 2012 |
Q2 2012 |
Q3 2012 |
Q4 2012 | |
|---|---|---|---|---|---|
|
Net Sales |
$420.2 million |
$200.1 million |
$235.4 million |
$291.5 million |
$135.9 million |
|
Gross Margin |
-65.5% |
-65.5% |
-39.1% |
-11.2% |
-60.5% |
|
Net Loss |
$564.6 million |
$185.2 million |
$254.3 million |
$136.9 million |
$517.0 million |
Source: Company earnings releases.
What's becoming clearer and clearer every quarter is that balance sheets matter, not just for investors, but also for solar installers. Solar modules come with warranties, sometimes stretching as long as 25 years, and if a customer questions whether a company will be around in only a year or two, they may choose another option. Since Chinese modules vary very little from a performance perspective, the customer may choose a better-capitalized company like JinkoSolar instead of Yingli or LDK, or even move to a U.S. company like First Solar (FSLR +2.65%) or SunPower (SPWR +0.00%). As financial conditions get worse at these companies more and more customers leave and the problems get worse, creating a downward spiral. LDK and Suntech are the poster children for this and are a major reason investors need to stick with quality in solar.
