As the largest merchant solar cell producer, JA Solar continues to be impacted by rapidly declining prices as overcapacity continues throughout the supply chain. Emphasis has therefore shifted to module production and shipments, though a return to profitability remains a distant goal. First quarter shipments, which included cells and modules, exceeded guidance at 366MW, while revenue reached US$254.4 million, down 17.7% from the prior quarter and 56%, year-on-year. Net loss for the quarter was US$39.8 million.
Management spent much of the conference call with financial analysts to discuss first quarter results detailing strong demand for both cells and modules – primarily along the lines previously taken by Suntech that a ‘flight to quality’ and solid financial footing were key customer draw-ins at a time of upheaval and uncertainty for the PV industry.
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However, analysts found it more difficult to extract real metrics from JA Solar management, especially in relation to manufacturing costs and near-term financials as a return to profitability remained elusive and a Convertible Bond, valued at US$220 million, was due May 2013.
Financials
JA Solar reported revenue US$254.4 million, a 17.7% sequential decline. Gross profit was US$5.3 million, while the gross margin including a small provision for potential countervailing, anti-dumping duties was 2.1%, compared with 0.5% gross margin in the fourth quarter of 2011. Excluding the provision for the US duties, gross margin would have been 3.2%, according to the company.
However, the company continued to make losses, posting an operating loss of US$25.3 million, compared with a loss of US$77.4 million in the fourth quarter of 2011. Net loss was US$39.8 million.
Total operating expenses in the first quarter was US$38.5 million, a sequential decrease of US$78.9 million from the prior quarter. However, OpEx was viewed by analysts in the call as relatively high, equating to 9.4% of total revenue and needed to be lowered.
A sign of the financial times carried through to days of sales outstanding, which stood at 82 days at the end of the first quarter, compared with 58 days at the end of the prior quarter.
Total inventories at the end of the first quarter stood at US$189.4 million compared to US$116 million at the end of the previous quarter. Inventory turnover days were 67 compared with 34 days in the fourth quarter of 2011.
ASPs
JA Solar management revealed under questions from analysts that its ASP declined 18% quarter-on-quarter. The company said that the ASP decline mostly took place towards the end of the first quarter and was primarily due to module ASPs. In respect to solar cells, ASPs were said to have relatively flat with low single-digit percentage decrease.
Management said that solar cells accounted for 57.4% of shipments, cell and module tolling accounted for 4.4% and modules accounted for 38.2% of shipments in the first quarter.
In terms of geographic breakdown, approximately 47.4% of shipments were to China and approximately 52.6% to overseas markets, which included European sales accounting for 32.4% of revenue and the rest of the world, including the US and Japan, accounted for 20%.
Manufacturing update
Management noted in the call that it was impacted by unidentified high cost inventory in the first quarter that skewered manufacturing costs. Excluding this factor, management said that overall manufacturing costs were in the high US$0.60 to US$0.70 range.
The company said it was expecting costs to be reduced on both module and cell levels and towards the US$0.60 range in the second half of the year for modules. JA Solar doesn’t supply data on actual cell manufacturing costs for competitive reasons.
JA Solar said that it had achieved manufacturing cost reductions in the quarter, notably from improvements in production efficiency and better supply chain management.
However, Dr. Peng Fang, CEO of JA Solar, highlighted that it was now working with a new silver paste supplier that provided a 10% lower pricing, while changes in the metallization process had also helped reduce silver paste consumption on a per watt basis, while increasing cell efficiency.
With module capacity ramping, Dr. Fang noted that improved economies of scale were also supporting cost reductions. Management declined to reveal the silver paste supplier, but said that it was using both international and domestic suppliers.
According to CFO, Min Cao, JA Solar had achieved 19.2% cell conversion efficiencies for its SECIUM, high-efficiency mono-crystalline cells and 18.5% on its multicrystalline, MAPLE cells.
Cao also said that commercial volume production incorporating Metal Wrap Through (MWT) technology was possible and expected an important milestone to be announced soon regarding its technology roadmap to 20% commercial cell efficiencies.
According to Jeffries equity analyst, Jesse Pichel in a research note to investors, JA Solar had an estimated blended wafer cost of US$0.53/W, a wafer processing cost of US$0.18/W and a cell processing cost of US$0.24/W.
Business Outlook
For the second quarter of 2012, JA Solar expects total cell and module shipments to be between 420MW and 440MW. The company reiterated full year guidance of 1.8GW to 2GW.
Management expects 50% of revenue in 2012 to come from module sales as emerging markets' demand increases. Japan was singled out as a key growth market in 2012 and claimed it was leading the pack in shipments.
