Earnings season has started in the solar industry, and it looks like we're in for another blowout quarter across the board. Both SunPower (NASDAQ:SPWR) and First Solar crushed their own earnings estimates and raised full-year guidance on strong demand. Here's more on earnings trends and what else we saw from the solar industry this week.
Looking into SunPower's numbers, we can get some clues about pricing in Europe, where prices are starting to improve from rock bottom levels, and Japan, which is a new high-margin market.
SunPower's non-GAAP gross margin in Europe, the Middle East, and Africa was 9.6% last quarter, down just slightly from 9.7% the quarter before. So far, we're seeing positive margins but not a huge improvement, which will hurt companies such as Trina Solar and Yingli Green Energy, which get a lot of sales from Europe.
Japan is a different story. SunPower's non-GAAP gross margin was up to 22.4% from 16.6% only a quarter ago, and we can probably assume similar improvements for companies with exposure there. Canadian Solar (NASDAQ:CSIQ) saw 35.7% of its demand come from Japan last quarter, and it looks like strong sales and margins will continue in the third quarter. Another company to watch is JinkoSolar (NYSE:JKS), which has one of the best balance sheets in Chinese solar and is expanding its reach in China.
Another giant solar project
This week, SunPower and NRG Energy announced the completion and commercial start-up of the California Valley Solar Ranch, known as CVSR, in San Luis Obispo County. This is one of the largest solar projects in the world and at 250 MW used nearly a quarter of the company's module production in a year.
This project completion also brings us closer to the end of an era. Giant projects such as CVSR, covering multiple square miles, were signed in 2009 and earlier but make little sense now. SunPower CEO Tom Werner recently told me that projects in the 50 MW- to 100 MW-size range will replace these giant projects, because they're easier to locate closer to load and easier to integrate with the grid.
Suntech Power stays alive
The never-ending saga around Suntech Power (NYSE:STP) found both a solution to its financial troubles and a potentially disastrous end all in the same week.
On Wednesday, the company announced that it had received an investment letter of intent from Wuxi Guolian Development Group that would infuse at least $150 million into the company. The terms weren't spelled out, but we know that financial restructuring would be a requirement and existing shareholders would be very diluted under the offered deal.
On Thursday, a group of bondholders petitioned in U.S. Bankruptcy Court to take Suntech Power bankrupt involuntarily. Debtholders were due a $541 million payment in March, which they still haven't been paid for. Normally, a company would declare bankruptcy after missing such a payment, but Suntech is based in China and doesn't act as if normal rules apply.
This back and forth could go on for months, and unless you have a seat at the table, I would stay far, far away from this stock. I think bankruptcy is more likely than seeing stockholders have a large stake in a restructured company. At best, this is gambling -- something investors don't need to do now that strong solar companies are improving their fundamentals.