PV revenues rebound but margins fall in Q2’09, strong Q3’09 outlook for chinese players: YMR

AUSTIN, USA: Young Market Research (YMR) has released the first issue of its Weekly PV Supply Chain Health Report.

This unique report provides its users with all the data and insights released by publicly traded PV supply chain companies in their quarterly earnings reports, stock exchange filings, press releases and conference calls along with unbiased analysis with 24 hours of their earnings calls with historical data back to Q1’07.

The financial and industry data, covering over 100 different metrics, is incorporated into a pivot table which makes comparisons by company, country, technology, level of integration, etc. extremely easy. The results are also aggregated to provide industry and financial metrics and trends on a weighted average.

Analysis is provided in a PowerPoint file which can easily be incorporated into internal presentations. The first issue, covering Q1’07 – Q2’09 results and guidance for Q3’09 and beyond, amounted to over 330 slides covering 25 different companies.Highlights from the first issue include:

Revenues rebound: After falling 44 percent from Q3’08 to Q1’09, revenues rebounded 18 percent Q/Q in Q2’09 to $4.65B as shown in Fig. 1.

Fig. 1: Q1’07 – Q2’09 Revenues for 25 Publicly Traded PV Supply Chain ManufacturersSource: YMR’s PV Supply Chain Health Report. Includes Arise Technologies, Bosch Solar, Canadian Solar, China Sunergy, DelSolar, Energy Conversion Devices, E-Ton Solar, Evergreen Solar, First Solar, Gintech, JA Solar, LDK, MEMC, Motech, Neo Solar Power, Q-Cells, REC, ReneSola, Sanyo, Sharp, Solarfun, SunPower, Suntech, Sunways, Trina Solar and Yingli Green Energy.

However, the gains are not being shared equally by all segments, regions or companies. The cell/module suppliers are growing faster than the polysilicon/wafer suppliers, 18 percent to 5 percent Q/Q in Q2’09, as polysilicon prices fall faster than cell/module prices and cell/module shipments outpace polysilicon/wafer shipments on significant inventory at cell/module suppliers.

Margins continue to decline: Profit margins continued to worsen from Q1’09 to Q2’09 as shown in Fig. 2 on lower prices and the fact that slower than expected demand made it difficult for manufacturers to sell-through their high-priced polysilicon/wafer inventory.

Fig. 2: Q1’07 – Q2’09 PV Supply Chain MarginsSource: YMR’s PV Supply Chain Health Report

Some companies were not able to take advantage of the rapid decline in polysilicon spot prices as they were struck in long-term, fixed price contracts or reduced shipment volumes prevented them from turning over their expensive polysilicon or wafers. Cell/module manufacturers again outperformed polysilicon/wafer suppliers, with gross margins of 19 percent vs. 8 percent, due to large inventory write downs at wafer manufacturers.

North American suppliers grew the fastest and were the most profitable: Unlike all other regions, North American suppliers’ revenues rose from Q3’08 to Q2’09, up 11 percent, including 25 percent Q/Q growth in Q2’09 thanks to First Solar’s cost leadership, rapid capacity growth and high utilization.

In addition, only North American suppliers were profitable when aggregated by region with average gross profits of 38 percent, operating margins of 19 percent and net margins of 17 percent, as shown in Table 1.

Table 1: Q1’07 – Q2’09 Cell/Module Manufacturers; Gross, Operating and Net Margins by RegionSource: YMR’s PV Supply Chain Health Report. Germany includes Bosch Solar, Q-Cells, Sunways and SolarWorld. China includes Canadian Solar, China Sunergy, JA Solar, Solarfun, Suntech, Trina Solar and Yingli. Taiwan includes DelSolar, E-Ton Solar, Gintech, Motech and Neo Solar Power. North America includes Arise, Energy Conversion Devices, Evergreen Solar, First Solar and SunPower.

Chinese manufacturers experienced the largest decline, fastest growth: Chinese cell/module manufacturers experienced the largest declines from Q3’08 to Q1’09, down 61 percent, and experienced the fastest growth in Q2’09, up 32 percent, but are still off 48 percent from their Q3’08 results.

Chinese companies improved their gross margin performance from 10 percent to 16 percent, and had positive operating margins but experienced -8 percent net margins due to write-offs from Solarfun and Yingli. Excluding the charges, all Chinese suppliers had positive operating margins.

German manufacturers lost less ground than Chinese manufacturers with higher gross margins: German manufacturers’ revenues rose 11 percent in Q2’09, but are still off 33 percent from Q3’08, losing less ground than their Chinese competitors.

German companies had the second highest gross margins at 24 percent, but experienced negative operating margins due to write-offs from Bosch Solar and Q-Cells, which experienced a surge in inventories and negative operating profits as the market favors the more vertically integrated companies due to their greater visibility into end market demand and greater control over their cost structure.

All Taiwan suppliers achieved negative operating margins in Q2’09: Taiwan suppliers, which are all cell-only suppliers, had the worst gross and operating performance in both Q1’09 and Q2’09 which is indicative of the lack of leverage cell-only manufacturers have in today’s PV market.

All the Taiwan suppliers experienced negative operating margins in Q2’09. Taiwan manufacturers experienced the smallest revenue increase in Q2’09, up just 1 percent, and are tied with Chinese manufacturers for the largest decline since Q3’08, down 48 percent.

Q3’09 looks to be strongest quarter of the year: Seasonally, Q3’09 looks to be the strongest quarter of the year although the development of the USA and China markets could potentially enable Q4’09 to be just as strong.

Some manufacturers are expecting Q3’09 to be exceptionally strong as a number of projects were deferred from 1H’09 as project developers waited for prices to fall further and at the same time developers are looking to finish projects before the end of the year fearing budget reductions and lower subsidies/feed-in-tariff rates. However, the gains are not expected to be shared evenly.

Chinese companies have brightest outlook: Chinese companies are expecting rapid growth in Q3’09 as seen in Table 2. At these growth rates, some of these manufacturers expect to achieve full utilization.

Table 2: Chinese PV Manufacturers' Q3'09 Shipment Guidance Source: YMR’s PV Supply Chain Health Report.

On the other hand, European companies have a much different outlook and are reducing capacity utilization or taking capacity offline as shown in Table 3 due to excessive inventories from slower than expected 1H’09 demand. Taiwanese companies are hoping to return to profitability in 2H’09.

Table 3: European Manufacturers’ Q3’09 OutlookSource: YMR’s PV Supply Chain Health Report

As their c-Si competitors close the cost gap and to spur demand in a weak financing environment, First Solar implemented a rebate program in Germany which it expects to cost $40-$60M in 2H’09 which along with slower capacity growth implies slower Q/Q growth for the leading North American company.

In addition to balance sheet and income statement data, users of this report will also gain insight into key trends on topics including shipments, production, ASPs, polysilicon costs, wafer costs, silicon to module costs, silicon consumption per watt, wafer thickness, efficiencies, existing and future capacity, capital expenditures, regional shipment trends, company supply chains, company guidance, California market share and much more.

According to YMR President Ross Young: “The Weekly PV Supply Chain Health Report is ideal for industry analysts, financial analysts and anyone in strategic marketing or finance departments within the PV supply chain. It will save its users hundreds if not thousands of hours in tracking and compiling this information freeing them up to make important decisions derived from this report.”