Yesterday, Yingli Green Energy
Let's take a quick look at the numbers. Module shipments rose 72% sequentially, while module revenue rose 46%. Yingli also logged some decent sales on the nascent project side of the business, taking the total revenue gain a bit higher. Basically, Yingli moved a lot more product at a lower price point. This took gross margins to around 18%, which is somewhat lower than the figures reported by Canadian Solar
For the full year, Yingli took its gross margin guidance down from the mid-20% range to a more modest 18% to 20%. So what's happening here? Is Yingli suddenly less cost-competitive? Hardly.
Yingli management made the important point on yesterday's conference call that the company has not significantly written down the value of its inventory or prepayments since the fourth quarter of last year. If it had chosen to write down inventory to spot market levels this quarter, gross margins could have topped 40%. A lot of this margin business is in the accounting, and is not necessarily reflective of economic reality.
When investors sold off the stock yesterday, my guess is that they were reacting to the near-term direction of margins, which is down. That decline is really unavoidable, given the current jostling for market share ahead of the resurgence of demand expected in the years ahead. Yingli's strategy here is quite explicit, and is even causing First Solar
For those worried about margins, Yingli says they'll be better next year. I think Fools shouldn't get too hung up on this or any other number in these reports. The competitive landscape changes far too quickly to expect a smooth progression. Technological advances ought to mark the long-term winners in the space, so keep an eye on the progress of Yingli's Project PANDA.