SPWRA Sunpower Corp. (MM)

Solar Panel maker, Suntech Power Holdings Company Ltd. (STP) announced preliminary financial results for its third quarter ending September 30, 2011.

Suntech expects shipments for the third quarter of 2011 to increase by 15% from the second quarter of 2011. Revenues in the third quarter of 2011 are expected to exceed $800 million. Gross margin is expected to be approximately 13%, at the high end of the previously guided range of 11%–13%.

Suntech achieved 2.4 GW of PV cell and module capacity, and 1.2 GW of silicon ingot and wafer capacity as of the end of the second quarter of 2011. Looking forward Suntech plans to expand wafer capacity to 1.6 GW by the end of fiscal 2011. The company will however will maintain its cell and module production capacity at 2.4 GW.

Suntech also announced it has accelerated the implementation of initiatives to optimize its operations and maintain its leading position in the solar industry. While continuing to focus on production efficiency, the initiatives target to reduce operating expenses by at least 20% in fiscal 2012; hold capacity expansion in fiscal 2012; and improve working capital by $200 million by the end of fiscal 2011.

We applaud the initiatives of Suntech in light of the ongoing trend of solar companies citing sluggish demand and high inventory levels, affecting margins. The earlier rush towards vertical integration by individual players for self-reliance in their solar wafer/cell needs, has thrown up a lot of unutilized capacity for the industry.

Looking forward to the near-term, the industry, facing a supply glut owing to higher production in the third quarter of 2011, will reflect on the aftershocks of inflated inventory and underutilization of capacity leading to lower Average Selling Prices. Solar peers of the company like First Solar Inc. (FSLR) and SunPower Corporation (SPWRA) who have already released their third quarter results mirror the trend.

Suntech will report its unaudited financial results for the third quarter of 2011 on Tuesday, November 22, 2011. The Zacks Consensus Estimate for the third quarter of 2011 currently stands at a loss of 21 cents.

Based in Wuxi, China, Suntech Power Holdings Company Ltd. is a solar energy company that designs, develops, manufactures and markets a variety of photovoltaic cells and modules, including a broad range of value-added building-integrated photovoltaics products.

Suntech Power is one of the largest producers of PV solar modules under its proprietary Pluto technology with a geographically-diversified customer base. Other positive factors for Suntech include ongoing expansion programs, higher conversion efficiency through its Pluto technology-enabled modules, subsidy program in China, and improving operating efficiencies. However, apprehensions over rising competition, subsidy cuts in Europe, and financial stability of its customers overshadow the positives.

In the near-term however we assign a Zacks #3 Rank (short-term 'Hold' recommendation) for the stock. Over the longer run, our Neutral recommendation on the stock indicates that it should perform in line with the broader market.

 
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