Investment bank Jeffries International expects significant inventory write-offs at Q-Cells in its second quarter financial report due to massive inventory levels, said to reach €585 million or about half of Q-Cells' expected revenue for the full year. The significant inventory build is due to the weak market demand seen in the first half of the year and average selling prices falling by as much as 40% since the beginning of 2011.
Jeffries' equity analyst Gerard Reid said in a research note to investors that Q-Cells could face inventory write-offs of over €60 million in the current quarter and was concerned that the PV manufacturer still had production capacity of 500MW in Germany, but was ‘unviable’ due to legacy equipment.
Reid noted that Q-Cells faces a serious manufacturing dilemma as the analyst argued that the capacity needed to be shut down. However, this could prove difficult due to previous grants received from the German government.
The Jeffries analyst was also critical of Q-Cells' brand image, market positioning and distribution reach in Europe, especially when compared to rival Solarworld.
According to the investor note; “Q-Cells is executing on a pipeline of highly profitable large scale projects but this market is drying up. Rooftops is the place to be in Europe and Q-Cells does not have the brand, positioning and distribution power of Solarworld. Given these challenges, we do not believe Q-Cells can be profitable in its current situation next year and we are reducing our 2012 estimates significantly. This puts us well below the Street which is at €1.42bn for revenues and €66.4m for EBIT.”