Suntech positive despite Q3 declines

Europe still represents the lion’s share of Suntech’s demand, with Germany its key market. However, the U.K., France, Benelux and Spain are also strong. The Americas, meanwhile, represent 20 percent of Suntech’s business, down from 21 percent in Q2 2011. It is expected that this region will significantly grow in Q4 2011.

The rest of the world constituted the remaining 40 percent of its business activities. Of this, China is said to be a strong growth area, with Suntech believing that the market will grow to two gigawatts(GW) of installed photovoltaic capacity by the end of the year on the back of its recently introduced feed-in tariffs. Shi added that he wouldn’t be surprised to see four GW added in 2012. Japan, India and Thailand are also important markets.

Suntech said that it would be focusing on strengthening both its financial and operational activities going forward. This will include reducing operating expenses by 20 percent in 2012, holding capacity expansion in 2012, and improving working capital by $200 million by the end of 2011. It added that it expects to incur up to $10 million worth of severance expenses in the second half of this year. It did not, however, provide any specific information.

In terms of 2012 capacity, while an expansion will not be seen, the company does expect to maintain its wafer capacity at 1.6 GW, and cell and module production capacity at 2.4 GW.

The financials

At USD$809.8 million, total net revenues for Q3 2011 were slightly up on Q3 2010, which reaped $743.7 million, but sequentially down from Q2, which saw $830.7 million. Cost of revenues was similar, with Q3 2011 showing an increase from the same period last year at $702.0 million (Q3 2010: $610.6 million). However, they were down from the $797 million recorded in Q2 2011.

Unlike many of its peers, at $107.8 million, Suntech did manage to stay in the black with its gross profit, and even improve its figures sequentially, from $33.7 million. The quarter did represent a significant drop on Q3 2010 however, which recorded a gross profit of $133.1 million.

"The gross profit in the second quarter of 2011 was impacted by a $91.9 million write-off of the unamortized cost of warrants previously issued to MEMC in conjunction with a supply agreement, which was terminated in the second quarter of 2011," explained Suntech in a statement released.

Gross margin, on the other hand, grew from 4.1 percent in Q2 2011, to reach 13.3 percent in Q3 2011, but dropped from the 17.9 percent achieved in the same period last year.

In terms of operating expenses, they decreased from $204 million in Q2 2011 to $123.8 million in Q3 2011, but increased from Q3 2010, which saw $70.5 million. The company commented, "Operating expenses in the third quarter included a $17.5 million provision based on a German court ruling on November 16 that Suntech Power Japan Corp. ("SPJC"), formerly known as MSK Japan, had breached a solar cell supply contract with Q-Cells."

Suntech also experienced a $16 million loss from operations in Q3, while operating margin was negative two percent. While a loss, this is positive in comparison to the Q2 2011 loss from operations, which stood at $170.3 million and operating margin of negative 20.5 percent. However, Q3 2010 reaped an income from operations of $62.6 million and operating margin of 8.4 percent.

Looking ahead, Q4 module shipments are expected to decrease 20 percent sequentially. Meanwhile, gross margin should be in the range of between nine and 11 percent.

For the full year 2011, the company has adjusted its revenue guidance downwards from $3.2 billion to $3.4 billion, to between $3 billion to $3.1 billion, and non-GAAP gross margin is expected to be between 11 and 13 percent, excluding the $91.9 million impact of the MEMC warrants. Shipment guidance has also been adjusted, down from an expected 2.2 GW to two GW. Finally, capital expenditure is expected to rise from the previous estimates of $340 million to $360 million, to hit $400 million.