A greater than expected loss was the only surprise on Suntech Power releasing third quarter results having recently revised quarterly guidance. Suntech posted a net loss of US$116.4 million in the quarter on the back of US$809.8 million in revenue, a 2.5% decrease from the previous quarter. Total PV shipments increased approximately 16% from the prior quarter. Suntech expects PV shipments to decrease by approximately 20% in the fourth quarter with gross margin declining from 13% to between 9%-11% in the fourth quarter.
Suntech said it expects to ship at least 2GW of solar products and generate revenues of between US$3.0 billion-US$3.1 billion for the full-year, down from previous guidance of 2.2GW in shipments and US$3.2-US$3.4 billion. Shipments in the fourth quarter are expected to decline more than 20%, with most shipments undertaken early in the quarter.
“Looking forward, we expect excess capacity to fuel strong competition and consolidation in the next two to three quarters,” noted Dr. Shi, Suntech's chairman and CEO. “This will be challenging for all solar companies. Through this period, we will accelerate initiatives to strengthen our financial and operational discipline and streamline our organization. These include reducing operating expenses by 20% in 2012, holding capacity expansion in 2012, and improving working capital by $200 million by the end of 2011.”
Suntech noted that it expected to incur charges of approximately US$10 million of severance expenses in the second half of 2011.
“At the same time, we also recognize that the near-term challenges create opportunities, and we are excited by the prospects for the solar industry. Lower cost will drive significant growth in demand, especially for utility-scale solar projects. With Suntech's brand, bankability and well-established channels to market, we are confident that we will be well positioned to supply this next wave of solar growth,” added Dr. Shi.
Suntech reported third quarter total net revenues of US$809.8 million, compared to US$830.7 million in the second quarter of 2011 and US$743.7 million in the third quarter of 2010. The sequential decline in revenues was said to be due to continued ASP declines, which was partially offset by an increase in module shipments.
Operating expenses for the third quarter of 2011 decreased to US$123.8 million, which represented 15.3% of revenues, compared to US$204.0 million, or 24.6% of revenues, in the second quarter of 2011, and US$70.5 million, or 9.5% of revenues, in the third quarter of 2010.
However, operating expenses in the third quarter included a US$17.5 million provision due to a German court ruling on November 16 that Suntech Power Japan, formerly known as MSK Japan, had breached a solar cell supply contract with Q-Cells. Suntech said it was reviewing the judgment and would file an appeal.
Manufacturing
Suntech confirmed that it had achieved its target wafer capacity of 1.6GW in the third quarter, closing the gap on module capacity of 2.4GW. However, Suntech noted in the conference call to discuss results that it would be holding capacity at current levels in 2012 to minimize capital expenditures.
In the third quarter of 2011, capital expenditures totalled US$80.8 million, compared to US$119.9 million in the second quarter of 2011.
Suntech noted that full-year 2011 capital expenditures are expected to be approximately US$400 million, compared to previous guidance of US$340 million to US$360 million.
A slow down in production utilization is to be carried-out in fourth quarter through at least the first quarter of 2012, which will support inventory burn. However, this will lead to slightly higher non-silicon costs on lower utilization levels, though management stressed that non-silicon costs were at US$0.74 per watt, inline with the lowest cost producers.
Capex cut
With management expecting weak demand in Europe due to seasonality and FiT reductions, while battling overcapacity, capital expenditures in 2012 are planned to cover maintenance requirements only. Management guided capex in the range of US$105-US$150 million.
