Suntech reiterates 2011 shipment target of 2.2GW



Updated: There were no obvious surprises in Suntech’s first-quarter financial results. Total net revenues were US$877.0 million, a decline of 7.2%, while shipments were only down 3.1% sequentially, but increased 62.9% year-over-year. In line with other major PV module manufacturers, Suntech noted the weak demand scenario in Italy due to the FiT review and overall challenging environment and pricing pressure. Suntech reiterated that it expected to ship 2.2GW of modules in 2011, but due to pricing pressure, the top end of its revenue guidance was reduced by US$100 million to a range of US$3.3 billion to US$3.5 billion.

“The first quarter of 2011 was a solid quarter that demonstrated the resilience of Suntech's business model under challenging market conditions,” commented Dr. Zhengrong Shi, chairman and CEO. “Despite a slight sequential decline in our shipments related to policy uncertainty in Italy, a long winter in Germany and first-quarter seasonality, we improved our gross margin from the fourth quarter and continued to diversify our sales across global markets. These outcomes reflect our ongoing efforts to enhance our competitiveness, mitigate policy risk, and position Suntech to increase our share in high-growth emerging markets. In particular, we were pleased to see greater demand in the Chinese solar market during the first quarter.”

Suntech reported gross profit of US$166.9 million and gross margin of 19.0%, one percentage point below previous guidance. Gross profit in the fourth quarter was US$153.4 million, with a gross margin of 16.2%. The company noted that the sequential increase in gross margin was primarily due to the lower cost of in-house silicon wafers used in production.

Income from operations was US$94.5 million for the first quarter of 2011, compared to US$90.2 million in the fourth quarter of 2010 and US$63.5 million in the first quarter of 2010.

Suntech also noted that it had reached 2.2GW of PV cell and module capacity by the end of the first quarter. Silicon ingot and wafer capacity had reached 1GW at the end of the first quarter.

Guidance for the second quarter sees shipments increasing only in the low single-digit range; some of Suntech's rivals have guided shipments to pick up strongly.

Suntech expects cell and module production capacity to reach 2.4GW by the end of the second-quarter 2011, of which 600MW of PV cell capacity will be owned and operated by a joint venture.

The company also noted that it expected to reach 1.2GW of installed wafer capacity by the end of 2011. Capital expenditure targets are to be maintained in the range of US$250 million to US$270 million.

Conference call updates
Shi noted in the conference call to discuss first-quarter results that its Pluto technology-based modules were now ramping to meaningful capacity. The executive said that it expects to ship 200MW of Pluto modules this year, with shipments already being made into Europe and shipments to the US expected to commence in the second half of 2011.
Andrew Beebe, Suntech’s chief commercial officer, noted that demand in Europe had been slower than expected so far this year, especially in Germany. Beebe said that Suntech didn’t expect the European market would pick up until the second half of the year. 
However, since the FiT review in Italy, demand has picked up but emphasis for growth was being concentrated in the North American market and emerging markets in Asia, according to Beebe. He noted that the company would be expanding its dealer network in the US this year, and had also expanded to a three work shifts at its module plant in Arizona.
However, module ASPs are expected to remain under pressure this year and could fall a further ‘high single-digit’ amount. ASPs have generally fallen about 10% so far this year, according to market research firms. 
Shi responded to analyst question on production utilization rates, noting that the utilization rate in Q1 was around 85% and that it was expected that to increase in Q2 to about 90%.

A spike in production costs were attributed to the rising price of silver paste and exchange rate fluctuations.

Shi also noted that polysilicon costs in the quarter were US$60/kg, and that a further decline in prices was expected going forward, though he did not provide a price cost range for the decline. Suntech has many long-term contracts for polysilicon. Wafer prices have dropped even faster, according to the company head. These cost reductions are expected to support margins despite ASP pressure.

Japan market was about 4% of revenue down from expectations. New policies should have significant impact on installations in 2012 onwards.
Later in the call, Shi responded to an analyst's question on what the polysilicon prices could decline to by the end of the year. Shi said that Suntech’s blended poly cost would be in the range of US$45/kg.
Module inventory levels had been a problem primarily in Europe but since Italy agreed a new FiT, inventory was moving out and in Germany customers were already increasing orders, he said. 

Shi also noted that 20MW of Pluto modules had been produced in Q1 and that the ramp was being helped by the slow demand overall for modules in the first quarter.

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