The latest quarterly research report by IMS Research has found that as PV module suppliers have dropped their prices by around 15% over the last six weeks, gross margins have seen a 25% decline over the last six months. Citing a highly competitive price period, IMS acknowledged that many suppliers have been forced into a price war and since they have been unable to reduce their costs at the same rate they are dropping their prices, the gross margins have consequently suffered.
Over the last few months oversupply has burdened the industry to quickly try to find ways that will reduce inventory. IMS stated that the average crystalline PV module prices hovered close to US$1.80/W during the Q1 2011, but as the market has changed over the last few months, prices have tumbled leaving the same PV modules to be priced below US$1.40/W.
“Vertically integrated Chinese Tier-1 suppliers of crystalline PV modules have some of the most competitive cost structures in a wide field of manufacturers, and had been producing with gross margins in the high twenties in 2010,” commented Sam Wilkinson, senior market analyst at IMS Research. “Margins have already fallen from their peak in Q3’10. Current pricing levels are putting huge pressure on these suppliers’ margins; we believe their average gross margins could fall below 20% by Q3’11, with Tier-2 suppliers’ margins even lower.”
The research report noted that swift reduction in the cell and wafer prices have helped offset waning PV module prices and the impact on suppliers’ margins. Nevertheless, contract prices have remained fairly stable even though polysilicon spot prices have dropped by over 30% since the end of 2010. As the average prices drop at a slower rate and average polysilicon prices continue to remain above US$50/kg, downstream suppliers have had a tougher time lowering their costs.
IMS Research hypothesizes that the total gross profit produced by global PV module suppliers averaged around US$2.5 billion per quarter throughout 2010 and deteriorated by nearly 40% during Q1 and Q2 2011 because of diminished margins and dwindling shipments. However, the research organization is looking for demand to pick up again in the second half of 2011, which should lead to suppliers seeing their profits recover. The research team additionally expects for total PV module supplier gross profit to grow in Q3 and Q4 of 2011.