LDK Solar reports massive quarterly loss; sales evaporating fast

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Updated: LDK Solar took a massive hit in the fourth quarter of 2012, reporting net losses of US$517 million.

Customers would seem to have deserted the wafer and module supplier in waves as it struggles to stay afloat and avoid the bankruptcy fate of bigger rival, Suntech Wuxi.

LDK Solar reported total sales in the fourth quarter of 2012 of only US$135.9 million, compared to US$291.5 million for the third quarter of fiscal 2012, almost half the figure guided (US$230 million) when it reported prior quarter results at the beginning of December, 2012.

Operating margin for the fourth quarter was negative 300.8% compared to negative 26.0% in the third quarter of 2012.

Far worse is management guidance that sales are expected to be in the range of US$80 million to US$100 million for the first quarter of 2013. This contrasts with LDK Solar’s peak quarterly revenue of almost US$1 billion, achieved in the fourth quarter of 2010, but at half the level achieved in the same quarter of 2012.

The company ended the fourth quarter of 2012 with US$98.3 million in cash and cash equivalents and US$167.2 million in short-term pledged bank deposits.

LDK Solar is expected to hold a conference call to discuss results later today.


The company reported shipments of only 184.7MW of wafers, 69.1MW of cells and modules in the fourth quarter. However, supporting the continued collapse in revenue, management guided first quarter 2013, solar cell and module shipments to be between only 30MW and 40MW. However, due to its shift to higher quality wafer technology, wafer shipments would increase to be between 260MW and 270MW.

The problem that LDK Solar has been facing over the last year is low wafer manufacturing utilization rates, which sank to 20% in the fourth quarter of 2012, according to management in the conference call to discuss financial results.

As a result, wafer production costs have remained static, despite cost reduction strategies and the implementation of processing innovations designed to reduce production costs such as larger ingot sizes and silicon carbide slurry recycling advances.

The blame game

Management reiterated in the call comments from its financial statement that it blamed the company’s financial position on industry issues such as overcapacity and weak pricing. 

“Our business continued to be affected by the significant challenges that remained pervasive throughout the solar industry,” stated Xingxue Tong, President and CEO of LDK Solar in a press release.  “Our fourth quarter results reflect the industry-wide overcapacity and resulting pressure to ASP's and margins.  Amidst these challenging market conditions, we are dedicated to working closely with our stakeholders and the relevant governmental agencies to adapt our strategy to position LDK Solar for recovery and long-term growth.”

Financial woes

Remarkably, management gave no indication in the call that the dire financial position the company was in could lead to bankruptcy or major restructuring.

Management said that it’s RMB 2 billion of China-based loans and lines of credit were not a risk, noting that it expected to have agreements in place to roll-over the debts.

However, the bond default in the US is expected to lead to some of the note holders proceeding with bankruptcy filings, once due time under the agreements expires in the typical 60-days from default. LDK Solar said that it was willing and able to come to revised terms with bondholders, having secured agreements with several of the bondholders that included half the debt in cash and the rest converted to a loan that was said to be for around 6-months.

LDK Solar also noted that it was still expected to receive a loan from China Development Bank (CDB) valued at around US$71 million to be used for the technical upgrades at its three polysilicon plants (total capacity 17,000MT per annum).

Interestingly, LDK Solar announced back in January, 2013 that it had secured the CDB loan.

However, management noted that the upgrade work to make the polysilicon plants commercially competitive would keep the sites off-line for the next four to six months.

Manufacturing update

The fire sale of its solar cell facility via its subsidiary, LDK Solar High-Tech (Hefei) Co, confirmed the company’s goal of streamlining manufacturing operations to significantly reduce its cash burn rate.

Although the Hefei solar cell plant had been claimed to have a nameplate capacity of 2.2GW, industry observers believe the facility had less than half this figure of actual production tools installed.

Management did confirm that with the sale of the Hefei solar cell plant to a subsidiary of the Hefei City government for a nominal US$19.4 million, LDK Solar retained 240MW of solar cell production at its Xinyu facility.

Extremely low utilization rates meant the company declined to provide solar cell production costs in the call.

Module production nameplate capacity was said to have been 1.5GW at the end of the year.

Capital expenditure in the fourth quarter was said to have been around US$9.5 million, allocated primarily to wafer production cost reductions.

Management noted that it still retained a workforce of close to 10,000 (9,485), down from around 13,500 in the previous quarter.

“In 2013, we are focused on emerging solar markets in China, Africa, India and the United States.  We believe these markets represent the strongest growth potential.  We will also continue to focus on improving our cost structure by further driving down production costs and tightly managing our operating expenses,” added Tong.

The company claimed in the call that demand from these markets would support the company gradually increasing factory utilization rates, perhaps as high as 70% by year-end.

Due to its financial position and market conditions, management declined to provide full-year guidance. 

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