SMA Solar Technology AG, the world's biggest maker of solar inverters, slashed full-year targets only days after its chief executive called the outlook challenging, confirming fears the industry bellwether was not immune to falling demand.
Shares in SMA — which said it could not give a reliable forecast for 2012 — fell as much as 12.1 percent to a two-year low and were still down 11.8 percent by 9:36 a.m. EDT, dragging down others in the sector such as Solarworld AG and Q-Cells SE.
SMA said on Monday there had been only a minor recovery in demand since mid-summer, blaming the trend on solar incentive cuts in Germany, the world's biggest solar market, and fallout from the euro zone debt crisis.
"We had expected a stronger momentum with regard to demand," Chief Executive Pierre-Pascal Urbon told Reuters, adding business in the third quarter had not been above last year's levels as previously anticipated.
Inverters play a key part in the solar industry, converting electricity generated from panels into a form which can be fed into an electricity grid.
Urbon had told Reuters on Friday the company's profit target had become challenging but stuck to an operating margin of between 21 and 25 percent for the current year.
SMA — whose biggest competitor is U.S.-based Power One Inc — said it now saw 2011 sales of between 1.5 billion euros ($2.1 billion) and 1.7 billion, against a previous forecast of 1.5 to 1.9 billion.
It sees earnings before interest and tax (EBIT) of 220 million euros to 300 million this year, down from a previous outlook of 315 to 475 million, equal to an EBIT margin of at least 15 percent.
"The guidance cut shows how fierce competition has become in the industry," a trader said.
The industry is still dependent on subsidies because solar power is much more expensive than conventional forms of energy. Demand has been hit by incentive scheme cuts in Germany and Italy, though demand for inverters held up until early this year.
SMA Solar has long been seen as a strong cash generator, treating investors to margins near 30 percent, but concern has grown since it said its margin in the first three months of the year crashed to 5.4 percent from 27.2 percent in the 2010 period.
It ramped up production last year to meet a surge in demand from Germany and Italy, as customers rushed to buy solar panels before governments started to phase out incentives.