Suntech’s PV shipments reached 2,096MW in 2011; but fall 30% in Q1 on inventory issues

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Suntech Power met its recently released preliminary revenue and shipment guidance for its fourth quarter and full-year financial results. However, the company guided first-quarter shipments to be down by 30% compared to the prior quarter and gross margin guidance to be in the range of 3% to 6%. The company said that the decline was due to lower-than-expected inventory levels as it exited 2011 and seasonal weakness in demand. It expects 2012 shipments to be in the range of 2.1GW to 2.5GW, compared to shipments of 2.096GW in 2011.

The guided shipment decline comes as a surprise. Although Suntech does not provide quarterly shipment figures, PV-Tech estimated that shipments in the first quarter of 2011 reached approximately 514MW. Seasonal factors would typically make up for around 10–15% of declines.

Management noted in a conference call to discuss financial results that a combination of stronger-than-expected demand in the fourth quarter and factors surrounding Chinese New Year meant lower production levels and depleted inventory. These resulted in the significant decline in anticipated first-quarter shipment levels.

Therefore, the rush to meet demand in Germany and the US in the fourth quarter would seem to have significantly depleted inventory within the supply chain, while production at its Chinese facilities was insufficient to adequately refurbish stock depletion in the third and fourth quarters for first-quarter demand, whether or not it had been as weak as it turned out to be.

However, inventory levels only decreased 7% from the third quarter to the fourth quarter. Inventory declined to 516.5MW in the fourth quarter from 558.2MW in the third quarter of 2011.

A key factor in the declining first-quarter 2012 shipments would seem to suggest that factory utilization rates were significantly lower than nameplate capacity over the second half of 2011.

In the conference call, Dr. Zhengrong Shi, Suntech's chairman and CEO, said that factory utilization rates were targeted to reach only 80% by the end of 2012, despite management pointing to pent-up demand in both Europe and the US from the fourth quarter of last year. 

Low utilization rates also impacted cost reduction strategies over the last few quarters, as blended cost per watt had flattened at approximately US$0.74. Management guided flat production costs in Q1 but would accelerate in subsequent quarters to reach a targeted US$0.64/W by year-end.

Suntech noted that in the fourth quarter, 19% of shipments went to ROW, while 38% went to Europe and the biggest shipments of 43% went to the US. Management said that demand in the US was due to the rush to beat tax changes on installations.

Management guided that after the weak shipment levels in the first quarter it would increase shipments sequentially from the second quarter onwards in 2012.

Pluto shipments

High-efficiency modules using Suntech’s Pluto cell technology reached shipments of 120MW in 2011, according to management. Dr Shi noted in the call that he expected shipments to reach 800MW in 2012, with between 100 and 120MW shipped in the first quarter.


Capital spending has been the key victim for many PV manufacturers in 2011, as capacity expansions were curtailed and businesses reverted to cash preservation instead. With a rapid capacity expansion phase over several years, Suntech would seem to be taking a breather, guiding spending in 2012 to be in the range of US$120–150 million, compared to CapEx of US$366.8 million in 2011.

Spending in 2012 was said to be targeting equipment upgrades in the cell and module sectors. However, with a significant capacity installed base, equipment maintenance would be expected to be a key user of funds in 2012. Not surprisingly, Suntech is not expecting to add manufacturing capacity in 2012. Total capacity stood at 2,400MW in 2011.

Quarterly financial results

Suntech reported fourth-quarter 2011 total net revenues of US$629.0 million, a decrease of 22% from US$809.8 million in the third quarter of 2011 and a decrease of 33% from US$945.1 million in the fourth quarter of 2010. The sequential decrease of revenues was said to be due to a decline in shipments and a decline in the average selling price of its PV products.

Gross profit in the quarter was US$62.3 million with gross margin declining to 9.9% compared to US$107.8 million and 13.3%, respectively, in the third quarter of 2011. Net loss was US$136.9 million.

Full-year financial results

In 2011, Suntech reported total net revenues of US$3,146.6 million, compared with US$2,901.9 million in 2010. The year-over-year increase was primarily due to a 33.3% increase in shipments of PV products, which was offset by a decline in the average selling prices.

Gross profit was US$386.6 million and gross margin of 12.3% compared to gross profit of US$543.1 million and gross margin of 18.7% for the full year 2010.

As previously guided, Suntech’s gross profit was impacted by a US$91.9 million write-off of the unamortized cost of warrants previously issued to MEMC as part of wafer supply agreements. The company also reported a non-GAAP gross profit of US$478.5 million and non-GAAP gross margin of 15.2%.

“Looking into 2012, we expect excess capacity and further policy adjustments in Europe and the U.S. will result in a sustained period of intense competition in the solar industry,” commented Dr. Shi. “In this context, our top priorities are to continue to drive down our production cost, invest in channel development and bring to market the most competitive product offerings. These actions will help us maintain our position as the leading supplier of solar products.”

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