NEW YORK (TheStreet) — Two Chinese solar companies reported positive numbers today. And this fact, set against some disappointing Q3 earnings from European and U.S. competitors, is thrusting the China solar profile into the spotlight。
Indeed, the bifurcation of the market between Chinese companies — which are driving down price, ramping up production and increasing competition worldwide — and the better established players from the West has never been more sharply delineated.
China Sunergy(CSUN Quote), for one, reported better-than-expected revenues of $80.1 million, beating a Street forecast of $70 million and a 14.3% increase over Q2.
The company's outlook of shipments for the fourth quarter caught the attention of analysts. The company expects between 70 MW to 80 MW, bringing the full year to 190 MW to 200 MW, which is at the high end of the previously announced guidance. Shipments in the third quarter of 54.4 MW represented a 31.1% increase sequentially and an increase of 59.5% year-on-year.
"The fourth quarter shipment forecast was the most compelling number," said Paul Clegg, Jefferies cleantech analyst. While analysts typically review shipment guidance from solar management with a healthy dose of skepticism, Clegg said that China Sunergy has the benefit of reporting late in the earnings period, and already has a month-and-a-half of fourth quarter book numbers on which to base guidance, giving him more confidence in the company's near-term projection. "I'm inclined to believe it's correct," he added.
Solarfun Power(SOLF Quote), the other major Chinese solar firm to report earnings today, fell just short of revenue forecasts, posting revenue of $144.6 million, versus a Street estimate of $145.1 million. Its earnings per share of $0.37 cents, however, soared past the Street estimate of $0.15 cents.
Solarfun clearly impressed the market more than China Sunergy; its shares were up 9.6% in mid-afternoon trading, almost double the Sunergy spike of 5.4%. Still, both were outdistanced today by Chinese competitor LDK Solar(LDK Quote), which was up 16% in the early afternoon on news that it had sold a 15% stake in its silicon processing plant.
The rise of the Chinese solar companies in trading today and throughout the earnings period mirrors the rise of the Chinese solar players more generally.
"We are negative on the sector, and I have a sell on China Sunergy, but I came into the earnings season telling people that they should lighten up shorts on Chinese names," Clegg said. Among the negatives, China Sunergy's operating expenses were high, and it is an open question as to how much more it can strip out of that balance sheet item, while gross margins were "a little disappointing", in the Jefferies analyst's opinion.
Soleil Partners analyst Paul Leming adds that while volumes were generally strong in Q3, there was no follow-through on pricing, and for all the strength in shipments there was also an industry-wide downward trend in pricing. "Even with strong volumes, there was not much kick to the bottom line," Leming said。
Still, on a relative basis, wattage may be highest for Chinese names: "Barring a complete reversal in polysilicon prices, which shouldn't happen in near term, there is a bifurcation of the industry in favor of the low cost producers in China, with Western competitors having a much harder time and the Chinese picking up market share," Clegg explained, adding that the Chinese players are operating at a high capacity factor, which is in contrast to the Western solar companies.
It is, of course, not as simple as China versus the rest of world, though analysts note that outside China capital spending has been reduced dramatically throughout the industry. The message from the Chinese companies has been that they stand ready to add capacity as the market warrants in 2010. "Clearly, the Chinese trigger finger remains itchy," Leming said.
In the larger context, then, the outlook for the solar industry is far from burning bright. The oversupply situation, which the Chinese have in large part helped to create, is high on the list of long-term concerns for all solar investors.
And in the immediate future, the lack of visibility in the industry — whether it relates to winter-weather impact or potential changes to a German "feed-in" tariff system that has spurred solar investment — may influence the fortunes of all solar companies, no matter which side of the industry bifurcation they lie on.