ReneSola cuts capital spending: withdraws full year financial guidance as margins evaporate

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A key low-cost wafer supplier, ReneSola produced weakening financial results across all key metrics for the second quarter of 2011. Shipments, revenue and margins were impacted by weak demand and declining prices due to overcapacity in the PV supply chain. ReneSola reported solar product (wafers & module) shipments of 295.5MW, compared to 330.4MW in Q1 2011. Revenue was US$249.3 million, a decrease of 30.6% from US$359.2 million in Q1 2011, while gross margin was 18.4%, compared to 28.2% in the previous quarter. Guidance for the third quarter was characterised by increased product shipments but weaker revenue and declining gross margins.

“Both wafer and module prices fell faster than expected in the second quarter as European subsidy cuts weakened demand and led to oversupply in the industry,” remarked, Xianshou Li, ReneSola's chief executive officer. “Although this affected both our top and bottom lines, we were able to maintain a gross margin of 18.4% with our industry-low wafer processing costs and growing in-house polysilicon production.”

Capital expenditure plans

Due to the continued challenging business conditions, ReneSola is cutting its capital spending plans for the year from US$$350 million to US$270 million. Only US$22.8 million was spent on CapEx in Q2 and US$54.8 million in 1H 2011.

However, ReneSola expects to expand wafer production capacity from 1.3GW in the second quarter to 2.0GW by the end of the year. Focus is on expanding its higher quality ‘Virtus’ wafer production and migrating all production lines to the new type of wafer by the end of the year. The company is retaining 200MW of monocrystalline wafer production.

ReneSola management noted in a conference call to discuss second quarter financial results that Virtus wafer demand remains strong and that utilization remains at almost 100%. Although the migration to Virtus wafers has slightly raised wafer processing costs in the quarter, costs were said to start declining and expected wafer processing cost to decrease to US$0.19 per watt by the end of 2011.

In total, ReneSola is targeting a 25% reduction in wafer processing costs, which are expected to be achieved by the cost savings made from in-house slurry recycling and in-house wire saw manufacturing, recently announced, as well as from an overall reduction in the set-up costs and migration to the Virtus wafers. Management noted, under questions from financial analysts that they had spent US$40 million to establish in-house wire saw manufacturing. 

PV module expansion plans

One of victims of its reduced capital spending plans could be plans previously outlined to expand module production from 400MW to 600MW in 2011. Weak module demand and declining shipments have led ReneSola to delay the decision to expand capacity. However, management noted that a decision could be made near the end of the year, should the market conditions improve.

ReneSola reported solar module shipments of 65MW in the second quarter, down 25.2% quarter-over-quarter. Module ASPs followed the general industry downward trend, with average module ASPs in the quarter reported as US$1.53/W.

To boost module sales, ReneSola said it would increase its sales force and specifically target the Chinese market. Management noted in the call that it expected PV installations in China to grow rapidly in 2012, forecasting installations could be in the range of 3-5GW. However, module prices would have to be in the range of US$1.0/W next year, down 10% from prices needed to attractive for project developers in China.

Polysilicon capacity expansion plans

ReneSola expects to spend a significant portion of its remaining CapEx on increasing its in-house polysilicon production from the current 3,000MT to 8,500 MT by the end of Q2 2012.

Management noted that upon completion of the expansion it would bring them closer to complete vertical integration in the upstream segment, and would account for almost 100% of their polysilicon needs.

As a key aspect to retaining its low-cost wafer position, average polysilicon production costs are expected to be under US$40/kg in Q3 2011, and are targeting to reduce that to US$35/kg by the end of 2011.

However, In Q3 2011, the company expects polysilicon production to decrease to between 600MT and 700MT as a result of temporary electricity shortages from government-sponsored infrastructure upgrades and facility improvements.

In Q2 2011, ReneSola reported polysilicon production reached approximately 787MT, an increase from approximately 750MT in Q1 2011.

Guidance

ReneSola said that it expects total solar wafer and module shipments to be in the range of 330 MW to 350 MW, revenues to be in the range of US$220 million to US$240 million and gross profit margin to be in the range of 6% to 8%. However, full-year guidance was withdrawn.

With gross margins falling from a high of 30.9% in the fourth quarter of 2010 to just 6-8% in the third quarter, ReneSola management said in the call that margins would return to more normal levels when polysilicon prices fell to an expected US$35/kg next year.
 

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