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Source: SunEdison.

Two of the solar industry's largest manufacturers recently reported earnings and they're showing the ups and downs of the solar business today. Trina Solar (NYSE: TSL) said that revenue jumped 39% in its recently completed quarter while net income nearly tripled, but Canadian Solar (NASDAQ: CSIQ) saw very little growth and a huge drop in net income.

The reasons for the differences show some of the opportunities and challenges of being a solar manufacturer today. 

Solar demand remains strong
What's consistent across the solar industry is that demand is very high. Trina Solar shipped 1,231.6 MW in the quarter and Canadian Solar shipped 636.7 MW. Both companies reported fairly stable panel pricing. As the year moves on, we could see panel prices rise on typically strong year-end demand, so the numbers you see below could potentially improve.

 

Trina Solar 

Canadian Solar 

Revenue (Q2)

$722.9 million

+39.2%

$636.7 million

+2.1%

Gross Margin (Q2)

20%

15.2%

Net Income (Q2)

$43.1 million

+174.8%

$17.9 million

-68%

Source: Company earnings releases.

Trina Solar's results were most impressive and cost reductions in manufacturing are outpacing the slow declines in sale prices; 230.9 MW of shipments to the systems business should also allow Trina Solar to increase margins and sales long term.

What's concerning about Canadian Solar's results is that gross margins dropped and net income of $17.9 million includes the windfall profits from a 10 MW project sale in Canada for $53 million. The company has five more projects in Canada to complete and sell in 2015, totaling 71 MW. But once they're out of the pipeline, profits could dry up. That risk shows up in third-quarter guidance, when management expects gross margins of just 12% to 14%. 

Leading the solar charge in China
Both Trina Solar and Canadian Solar can have big swings in earnings from quarter to quarter depending on project timing and panel sale prices. But they're two survivors in an industry that has been ravaged by financial ruin, even for some of China's largest solar manufacturers. As the industry's demand grows, we should see panel prices stabilize and there's potential for margin expansion if the solar industry swings from an oversupplied state to under-supplied in coming years.

The questions I have long term are more around technology or lack of differentiation from competitors. Both companies have built a base on making commodity solar panels, meaning they are beholden to market whims when it comes to pricing. Both are trying to change that, highlighted by Trina Solar's research cell that's 23.1% efficient. But turning that research cell into a cost-effective production product is easier said than done. 

I'm still cautious about Chinese solar stocks and would stick to profitable U.S. competitors given uncertainty in investing there. But it's good for the solar industry to see manufacturing companies making a profit. Long term, healthy manufacturers should lead to better solar products and grow the industry even further.

Travis Hoium has no position in any stocks mentioned, and neither does The Motley Fool. 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.