JA Solar cuts capacity as business flat-lines

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JA Solar’s strategy of shifting sales from solar cells to modules has been achieved but at the cost of flat-lining business that started in 2011 and is expected to continue in 2013.

Despite reporting 500MW of shipments in the fourth quarter of 2012, compared to 418MW shipped in the third quarter of 2012, total shipments were 1.7GW, an increase of only 0.4% from 1.69GW in 2011.

Baofang Jin, executive chairman and CEO of JA Solar said: “2012 was another challenging year for the solar sector as industry-wide overcapacity continued to put downward pressure on ASP and margins. In response, we have been readjusting and optimising our business to ensure we maintain our market-leading position. In the fourth quarter, shipments exceeded the top end of our prior guidance, largely due to a better-than-expected performance across key growth markets. The proportion of modules, including module tolling, in our overall product mix increased to 64.4% of total shipments and 70.1% of revenue by the fourth quarter.”

However, the company guided total shipments in 2013 to be in the range of 1.7GW to 1.9GW, with emphasis of emerging markets such as Japan and China.

Anti-dumping threats in the EU are expected to dampen shipment growth overall as management noted module shipments to Europe were down on a consecutive quarterly basis that would continue for the “foreseeable future”.

Loss making

JA Solar reported fourth quarter 2012 net revenue of US$268.1 million. Gross margin was negative 4.6%, compared with negative 5.9% in the third quarter of 2012. The operating loss was US$88.2 million, compared to an operating loss of US$101.3 million in the third quarter of 2012. Net loss for the fourth quarter was US$102.4 million, compared with a net loss of US$59.6 million in the third quarter of 2012.

Total gross loss for the full-year 2012 was US$8.7 million, compared with a gross income of US$74.0 million in 2011. Operating loss in fiscal year 2012 was US$240.1 million, compared with operating loss of US$67.5 million in 2011.

The company noted that total long-term bank borrowings were US$632.2 million, with US$297 million due for repayment in one year. The total face value of outstanding convertible notes due in 2013 were said to be US$116.6 million, which management said in a conference call to discuss financial results that resources had already been ring-fenced to comply with the bond repayment.

Its rival Suntech is currently fighting bankruptcy proceedings after defaulting on repayment of a US$541 million bond.

JA Solar said it had cash and cash equivalents of US$486.6 million and total working capital of US$193.6 million.

“Moving into 2013, we remain focused on cost reduction and stringent cash management, while maintaining our leadership position in technology through continued R&D efforts and manufacturing process optimization,” added Jin.

Production capacity restructuring

With flat-lining shipments and a need to preserve cash, management noted that it had retired 300MW of solar cell production capacity and 300MW of module production capacity in the fourth quarter of 2012. Total solar cell capacity is claimed to be 2.5GW in 2013, while module capacity is said to be 1.8GW.

Before the capacity cuts, JA Solar had an annual solar cell production capacity of 2.8GW, while module production capacity stood at 2.1GW. Wafer production remained unchanged in 2012 at 1GW.

The company did not say at which production locations the capacity cuts had occurred.

Capital expenditure in the fourth quarter of 2012 was reported to be US$9.8 million and full-year spending of US$84.5 million. Spending in 2013 was not expected to be much different than last year.

Although R&D efforts and manufacturing process optimisation were mentioned as areas to support further cost reductions, polysilicon pricing was the only problem as management thought it was not possible to guide polysilicon price movements due to the Chinese government investigation and possible tariffs that could be imposed.

Markets and money

JA Solar noted that emphasis on emerging markets were key to both shipment guidance and improving margins in 2013. Shipments to China and Japan, which offer improved margins compared to the highly competitive pricing environment in Europe, would be a key focus as well as plans to recoup shipment losses in the US. Management said expected to increase US module shipments by 50% in 2013, though shipments were coming off from low levels in 2012.

Management reiterated that selective customer acquisitions in important emerging markets would also be a key strategy in 2013, avoiding low priced business to support margin restoration and potentially a return to full-year profitability.

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