Hanwha SolarOne sees massive shipment swing away from Germany to Japan

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Chasing higher margin business in Japan, India and Thailand in the fourth quarter of 2012 resulted in Hanwha SolarOne’s sales in Germany plummetting to only 8% of total sales, down from 39% in the third quarter.

The company has become bullish on business prospects in 2013, guiding over 300MW of module shipments in the first quarter and guided full-year shipments to be between 1.3GW and 1.5GW, effectively at full capacity of over 400MW of production in the second-half of the year.

Bullish guidance and regional shifts

Management defended the bullish forecast in a conference call to discuss financial results, due to the clear sales visibility. Management noted that it already had order commitments in excess of 650MW for the year ahead, with the expectation that Asia-Pacific will be the driving force for sales, with Malaysia, Thailand and Indonesia combined having around 600MW of potential demand this year.

However, the company also expects to generate around 200MW of shipments in China and its project business pipeline in North America has doubled to 400MW.

In China, management said that they had established a separated EPC business that would be responsible for around 20% of first quarter 2013 revenue. 

The company is also bullish on other emerging markets, including South Africa, where it will supply 155MW of modules for PV projects.

Perhaps the most startling development was the regional shift in demand from the third quarter of 2012 to the fourth quarter (see graph 1). Like other tier 1 suppliers, Hanwha SolarOne was able to start cherry picking orders due to tightening supply, foregoing low-margin business in Europe but specifically in Germany for higher margin business in Asia Pacific, notably Japan. There was nearly a 20 euro cent per watt disparity between the former and the latter.

Japan accounted for 20% of Q4 2012 sales, which totalled US$134.4 million on shipments of 198.9MW. Japan was not singled out in Q3 2012 regional sales breakout.

In contrast and inline with previous geographical splits, Germany accounted for 39% of sales in Q3 2012. However, this figure plummeted to only 8% of sales in Q4 2012.

The company also experienced a regional shift due to emerging markets such as Greece (16%), Thailand (8%) and India (6%) of Q4 2012 sales. The Asia Pacific regional sales continued to grow, accounting for 49% of total shipments in Q4.

Production update

Management noted in the call that utilization rates reached approximately 68% in Q4 2012, yet due to the clear order visibility, utilization rates in Q1 2013 would be around the 75% mark, equating to quarterly module production of approximately 300MW.

Management expects the utilization rate to reach around 100% in the second quarter (400MW), remaining at that level throughout the year.

Following the likes of Yingli Green and Canadian Solar, the company does not plan to add new capacity in 2013 and said that capital spending would be around US$50 million this year. Such low-levels would suggest the majority of spending is equipment and facility maintenance based.

However, management noted that it would continue to automate back-end module assembly steps as part of quality control and headcount reduction efforts in those steps.

Production costs were said to have US$0.64/W in Q4 2012, supported by material cost reductions and higher utilization rates. Production cost reductions in 2013 are focused on higher cell efficiencies, lower material costs and improved process technology and automation.

Management said that non-processing costs in 2012 were between US$0.52/W and US$0.53/W, with the expectation of reducing these to mid-US$0.40/W range by the end of the year.

Full-year results

Hanwha SolarOne reported total net revenue of US$590.4 million in 2012, a 42.7% decline from 2011.

PV module shipments, including module processing services, reached 829.8MW, a decrease of only 1.7% from 844.4MW in 2011, primarily due to continued ASP declines.

The company recorded total non-cash charges of US$104.3 million, including US$52.3 million from inventory write-down and a regular provision for obsolescence.
The company also recorded a US$37.9 million charge from provisions for advance payments associated with long-term supply contracts US$14.1 million) from provisions for doubtful debt of accounts receivable.

Hanwha SolarOne reported a gross loss of US$52.2 million and a net loss of US$250.9 million for 2012. Operating margin was negative 32.1%, compared with negative 17.1% in 2011.

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