In my coverage of SunPower's (NASDAQ:SPWRA) (NASDAQ:SPWRB) strong results, I mentioned Suntech Power's (NYSE:STP) earnings preview. That early peek took most of the surprise out of yesterday's proper announcement, but there are still plenty of solar tidbits to sift through here.
To begin with market conditions, Suntech reported some signs of stabilization, including a pickup in orders toward the latter part of the first quarter. Project financing is still difficult, and customers are requesting more lenient credit terms, but projects are indeed moving forward. See SunPower's latest collaboration with General Electric's (NYSE:GE) energy finance arm for one fresh example.
Market weakness has arguably helped Suntech in some ways. Noting a "flight to quality," Suntech says that modules are getting less commoditized as customers scrutinize whether suppliers will survive long enough to back up their product warranties. In a more stark example, the firm shared its understanding that "potentially 50 plus percent of module vendors" in its native China are no longer producing.
We already knew the fourth quarter was horrendous for Suntech, based on the company's comments last time around, so I won't dwell on those dismal results. The first quarter is looking pretty soft as well, with revenue being guided down to the $340 million to $380 million range. At the midpoint, that's about a 13% sequential decline.
Fortunately, polysilicon costs are falling faster than average sales prices (ASPs), so margins should fatten up over the course of 2009. Suntech is having no trouble renegotiating its long-term contracts with suppliers like MEMC Electronic Materials (NYSE:WFR), so it's not merely a matter of spot prices plunging.
Finally, in terms of liquidity, Suntech was aided by a significant recovery of past taxes paid. This cash inflow did a great deal to offset a slowdown in accounts receivable collection. Days sales outstanding pushed out a bit from the third quarter, but they compare very favorably to those of Yingli Green Energy (NYSE:YGE), a company I've got in the penalty box despite its impressive fourth-quarter performance.
As for Suntech, I still have no reason to doubt that this well-established company will be one of the survivors of this shakeout. Still, I would like to see debt levels come down further, and given the low capital spending commitment in place for 2009, that shouldn't be too difficult to achieve.
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