Canadian Solar on a Q2 roll

For the second quarter (Q2) of 2011, the company managed to increase most areas of its business, both sequentially and year-on year. As such, it has reiterated its full year guidance of shipments of between 1.2 gigawatts (GW) and 1.3 GW.

In terms of Q2, photovoltaic module shipments increased an impressive 58.6 percent from Q2 2010, to reach 287 megawatts (MW) (Q1 2011: 244 MW). This figure does, however, fall short of the company’s original expectations of 295 MW, due to 10.1 MW worth of shipments to an unidentified customer being pushed back to Q3.

While shipment levels increased, the company’s inventory levels also rose. Inventories at the end of Q2 2011 were $436.3 million, compared to $265.4 million at the end of Q1 2011 and $272.1 million at the end of Q4 2010.

In a statement, Canadian Solar explained, "The increase in inventory was primarily due to inventory in transit related to shipments whose title transfers upon receipt instead of upon shipment in addition to higher inventory needed to support the higher level of expected demand for our products. The company reclassified approximately $40.1 million in inventory as other current assets for the first quarter of 2011 given its planned use in EPC projects."

While the percentage of Canadian Solar’s sales to European markets decreased year-on-year, Europe still represented the company’s biggest market. As such, sales to European markets in Q2 2011 accounted for 76.6 percent of revenue (USD$369.1 million), while sales to North America represented 15.2 percent ($73 million), and sales to Asia and others represented 8.2 percent ($39.7 million). This is in comparison to 86.4 percent, 7.4 percent and 6.2 percent, respectively, in Q2 2010.

Interestingly, sales of its photovoltaic modules to Asia dropped from 12.2 percent or $54 million in Q1 2011 to 8.2 percent or $39.7 million in Q2 2011.

Q2 net revenues grew impressively, from $443.4 million in Q1 2011 and $328.7 million in Q2 2010 to reach $481.8 million. At $63.7 million, gross profit for the quarter was also up from Q2 2010 ($44.6 million). It did, however, slightly decrease from Q1 2011, which reaped gross profits of $65.3 million.

Gross margin, meanwhile, decreased both sequentially and year-on-year, from 14.7 percent in Q1 and 13.6 percent in Q2 2010 to 13.2 percent.

The statement continued, "The sequential decline in gross margin was primarily due to the higher level of outside cell purchases required to meet customers’ increased demand requirements in the quarter and lower average selling prices partially offset by lower raw material and manufacturing costs. Year-over-year, gross margin was down slightly as result of lower average selling prices partially offset by lower raw material and manufacturing processing costs."

Q2 operating expenses, on the other hand, grew from $27.6 million in Q2 2010 and $31.3 million in Q1 2011 to hit $38.7 million in Q2 2011.

Operating margin saw a sequential decrease, from 7.7 percent in Q1 2011 to 5.2 percent in Q2 (Q2 2010: 5.2 percent). "The sequential decrease in operating margin was a result of lower gross margin and increase in selling expenses. Year-over-year, operating margins remained unchanged," said the statement.

Furthermore, research and development costs soared, from $1.7 million last year and $2 million last quarter to $4.9 million this quarter. These increases were primarily attributed to Canadian Solar’s efforts to reduce silver paste use and developing its next generation cells.

Positive outlook

Commenting on Canadian Solar’s success, Shawn Qu, chairman and CEO, said, "We achieved impressive shipment growth due to our strategy of building desired capacity, our track record of quality, performance and service, and our increased brand recognition worldwide.

"We are confident we can continue to gain market share, based on continued strength in Germany, Italy, and the U.S., along with a rebound in Japan and the benefit of new regions, including India. We have also seen the market in Canada picking up in the past month.

For Q3, the company says it remains on track. As such, shipments are expected to be in the range of between 350 and 360 MW, with gross margin expected to be between nine and 12 percent. Internal cell and module capacities are additionally expected to reach between 1,300 MW and 2,000 MW, respectively.

Canadian Solar concluded by saying that it remains on track to expand its annualized capacity for modules to two GW by September.