NEW YORK (
joined the long list of solar companies reaffirming full-year shipment guidance on Wednesday morning, even as it expects only low "single digit growth" of module shipments in the second quarter and said the next few quarters will be a challenging environment for the solar sector.
The shipment guidance from the solar companies during a period of rapid price declines has been one of the main questions to arise from first quarter earnings and outlook. Suntech's main rivals among the largest Chinese solar module manufacturers,
Yingli Green Energy
, are looking for shipment growth of roughly 60% year over year, while Suntech, already the world's largest supplier of solar modules, is guiding to 40% shipment growth. Suntech said it will ship 2.2 gigawatts of solar modules in 2011.
While the Chinese solar companies are taking market share from other solar companies, including higher-cost Western European companies, Wall Street and investors aren't convinced that the
for 2011 can be met. Many year-over-year estimates for the global solar market module demand in 2011 are predicting an essentially flat year, or at best marginal growth.
"Achieving these shipment growth targets is a tall order, and that's why we have the average sales price pressure now," said Pavel Molchanov, analyst at Raymond James. The analyst did add that Suntech commentary on the earnings conference call included an assumption that the Chinese market may be more than 1 gigawatt this year, which would make it a meaningful contributor to global solar demand for the first time. "Suntech could have 10% of that market, and even though average sales prices are lower, at least it's a good example of market growing that two or three years ago was non-existent," Molchanov noted.
Suntech said it expected high single-digit declines in average sales prices in the second quarter, but the primary concern in the solar sector is that to meet these full year shipment targets, there will be a price war in the second half of the year and average sales prices decline more steeply than solar companies expect. At some point, a reduction in average sales prices can stimulate higher-than-anticipated demand, especially in a key market like Germany. However, the lack of visibility into pricing in the second half of the year has made solar investors wary, in light of the aggressive shipment guidance across the sector.
Suntech took down its full-year revenue guidance from a range $3.4 billion to $3.6 billion, to a range of $3.3 billion to $3.5 billion.
Revenue of $877 million in the first quarter was down sequentially from $945.1 million in the fourth quarter of 2010, which Suntech attributed to "a slight decline in shipments, resulting mainly from policy uncertainty in Italy, and a slight decline in the average selling price of PV products as a result of seasonality, particularly in Germany."
Suntech Power did show a continued turnaround in its gross margin profile in the first quarter, after having acquired in-house wafering capacity at the end of last year. In the first quarter, Suntech gross margin was 19%, which was slightly below its previous guidance for 20% gross margin, but up from 16.2% in the fourth quarter 2010. Suntech guided to 19% gross margin in the second quarter. At 19%, Suntech gross margin is improved, but it's also playing catch-up to Trina and Yingli when it comes to lowest cost model. Both Trina and Yingli, by contrast, posted
in the first quarter and said those margin declines to the low 20% range would persist, yet their gross margins would still be above Suntech's 19%, based on their guidance.
"Suntech's margin profile is fairly good directionally compared to peers, but with Trina and Yingli still north of 20%, Suntech is still playing catch up and essentially the lowest in its peer group," Raymond James' Molchanov said. Suntech guided to "high teens" gross margin for the full year.
Suntech Power shares were recently trading down by 2% on Wednesday morning. Trina Solar and Yingli Green Energy shares declined by 2% and 1.2% on Wednesday morning, respectively.
-- Written by Eric Rosenbaum from New York.
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