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Q-Cells suffers sizeable Q1 losses

Falling foul to stagnating quarter one photovoltaic module demand, Q-Cells has reported a "significant" year-on-year sales drop. In response, it has adjusted the production of its cells and modules, and abandoned its guidance. But, while it believes it will recover in the second quarter, the analysts are less certain.

Q-Cells has adjusted the production of its cells and modules to compensate for the weak demand. Image: Q-Cells SE.

The German manufacturer reports that due to weak demand, sales dropped by 46 percent, from €232.3 million in the first quarter of 2010 to €125.1 million in the first quarter of 2011. As with many of its peers, it cited regulatory uncertainties in France, Italy and Germany as the main factors for the decline.

Q-Cells goes on to say that decreasing selling prices, and high prices for solar wafers and silver, also negatively impacted its earnings position.

Consequently, earnings before interest, taxes, depreciation and amortization (EBITDA) fell slightly from €18.8 million in the first quarter of last year to €15.3 million. EBIT also dropped from €-9.3 million to €-10.6 million. Meanwhile, net loss for the period was €-41.1 million in the first quarter of 2011, in comparison to the €-46.4 million achieved in the first quarter of 2010.

In terms of production, the company produced 313 megawatts peak (MWp) of both solar cells and thin film modules. It says that of the 284 MWp solar cells, 163 MWp were produced in its Malaysian plant. The production of thin film solar modules, on the other hand, amounted to 29 MWp, which is an increase of 74 percent in comparison to the first quarter of 2010.

Q-Cells says that it has responded to the weak demand by adjusting its production of solar cells and solar modules, both in the multicrystalline and thin film segments. In a statement, it explains: "The existing flexible production concept with selected international processing partners permits short-term responses to market fluctuations in the module production segment as well."

Negative bottom line

Overall, the company remains positive about 2011. As such, it expects to expand its module production capacity to 700 MWp by the end of the year. "Up to 130 MWp thereof is planned for the fabrication of the high-performance module at the Thalheim site," continues the statement.

It additionally states that the current market situation demonstrates the dependence of the photovoltaics industry on the German, Italian and French markets. "Even though the future markets in North America and Asia are growing steadily, they were unable to compensate for weak demand in Europe during the first quarter," says the statement.

It continues: "As the first quarter of 2011 developed less favorably than in the previous year and the demand situation for the second quarter as well as the second half of 2011 is fraught with great unpredictability, a forecast for 2011 carries considerable uncertainties."

As such, the company says that while it expects to achieve a positive operating income in 2011, it is unable to provide a forecast. Guidance for the year had been for sales of €1.3-1.5 billion, with an EBIT tracking the 2010 level of €82 million.

It adds that its target to achieve the same level of revenues as in the previous year can be reached, "provided that demand increases in the second half of 2011 and production capacities are utilized accordingly".

However, analysts at Jefferies & Company Ltd believe the second quarter will be just as "woeful for Q-Cells and European peers". "The expected revitalization in 2H11 will unlikely be strong enough to prevent a negative bottom line for the company this year," they say.