LDK Solar halting capacity expansions to focus on cost reduction to strengthen balance sheet

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Having only recently made revisions to third quarter 2011 guidance, LDK Solar’s primary results of revenue and shipments appeared to sneak past the higher range of lowered guidance. Rapidly declining prices for wafers and modules meant an inventory write-down of US$47.3 million, a loss from operations of US$77.1 million, a net loss of US$114.5 million and a negative gross margin of 3.6%, just a fraction over the lower range margin guidance of 3.5%. Emphasis on the call was cost reduction and balance sheet strengthening, resulting in an end to capacity expansion in the near-term.

“During the third quarter, our business was impacted by the continued downturn in the solar industry,” stated Xiaofeng Peng, Chairman and CEO of LDK Solar.  “Weak market demand and rapidly declining average selling prices throughout the solar supply chain resulted in shipment volumes and revenues lower than what we previously anticipated. While we continue to believe that the significant opportunities to meet global energy needs with solar power will drive long-term market growth, in the near-term we expect challenging conditions in the solar industry to continue. As such, we remain focused on strengthening our balance sheet, increasing our operating efficiencies and improving our cost structure,” added Peng.

LDK Solar reported net sales for the third quarter of US$471.9 million, down from previous guidance of between US$630 – US$680 million and sales of US$499.4 million for the second quarter of fiscal 2011.

The company reported wafer shipments of 292.5MW and module shipments of 192.1MW, up significantly from 79.4MW in the second quarter of 2011. The average selling price for wafers was US$0.50 per watt in the third quarter of 2011, while the average selling price for modules was US$1.24 per watt. Gross margin for its module business increased to negative 3.7% in the third quarter from negative 31.7% in the second quarter of 2011.

LDK Solar said it produced approximately 296MW of solar cells and approximately 2,883MT of polysilicon. Gross margin for its polysilicon business increased in the third quarter to 40.3% from 34.0% in the second quarter of 2011.

Operating margin was negative 16.3% compared to negative 9.6% in the second quarter of fiscal 2011. LDK Solar ended the third quarter with US$262.6 million in cash and cash equivalents and US$605.6 million in short-term pledged bank deposits.

Manufacturing update

Management highlighted in the conference call that cost reductions were at the heart of improving the balance sheet. With previous capacity expansion plans completed, management noted that it wasn’t planning further expansions in the near future and would minimize capital expenditure requirements until market demand dictated.

LDK Solar said in the call that its wafer conversion cost was US$0.21 per watt at the end of the third quarter and was targeting to reach US$0.18 per watt over the next few quarters.

“Instead of going on strictly lower cost, we are focusing on delivering high quality wafers to our customers. In this highly competitive marketplace, our focus on quality will influence to retain our long-term loyal customer base,” noted Xingxue Tong, president, chief operating officer in the call.

“Our module processing cost in the third quarter was US$0.30 per watt, added Tong. “We have targeted to work on new goal reducing the module conversion cost to as low as US$0.26 per watt over the next few quarters.”

Tong also noted that LDK had achieved a solar cell processing cost of US$0.17 per watt during the third quarter of 2011 and was targeting as low as US$0.15 per watt over the next few quarters.

Dr. Yuepeng Wan, chief technology officer highlighted that its ‘quasi-mono’ ingot/wafer program had already reached a capacity of 400MW, producing mono-like wafers with cell efficiencies as high as 18.5%, though didn’t provide average levels and quantities.

Module processing costs were said to have in the region of US$0.70 per watt with in-house full costs at about US$0.80-US$0.90 per watt. The company said it was aiming for about US$0.80 in the near-term.

Polysilicon production capacity reached 17,000MT, which means LDK is in full production. The company noted that polysilicon inventory at the end of the third quarter was approximately 1,995MT at an average cost of approximately US$38.5 per kilogram. The average cost of polysilicon consumed was US$55.3 per kilogram in the third quarter of 2011.


Fourth quarter sales were guided between US$440 million and US$520 million. LDK Solar guided fourth quarter wafer shipments between 200MW and 270MW and module shipments between 180MW and 270MW, highlighting the continued collapse in wafer demand due to overcapacity and customers continuing to reduce utilization rates as inventory build concerns remain entering into a 2012 seasonally weak demand first quarter.

In contrast, guided wide range module shipments near the end of the quarter indicated demand could be higher than the third quarter, though still below original guidance levels for the third quarter.

Fiscal 2011 revenue was guided in the range of US$2.20 billion to US$2.25 billion and gross margins between 9% and 12%.

Total wafer shipments in 2011 are expected to be in the range of 1.55GW-1.65GW with wafer capacity reaching 3.8GW. In 2011, module shipments are expected to be between 550MW and 650MW. 

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