UPDATE 5-LDK Solar 4th-qtr results miss estimates, stock falls

Tue Mar 30, 2010 5:13pm EDT

* Margins fall in quarter ended Dec. 31

* Sees higher selling prices later this year

* Shares close down nearly 8 percent (Adds analysts' comments, background, bylines)

By Steve James and Dana Ford

NEW YORK/LOS ANGELES, March 30 (Reuters) - China's LDK Solar Co's LDK.N fourth-quarter earnings disappointed investors as high-cost polysilicon inventories and lower prices squeezed margins, and its shares fell almost 8 percent.

The world's largest maker of polysilicon wafers said average selling prices were down last year, but had picked up this year. It expects first-quarter average selling prices to be similar to fourth-quarter levels but then sequentially higher in the second quarter.

A glut in solar cells and modules slashed prices by about 40 percent last year, though a recent rebound in demand ahead of expected subsidy cuts in Germany has boosted sales for many producers of renewable energy systems.

Analysts have expressed concerns that plans to cut incentives in Germany, the world's largest solar market, in the second half of this year could drag prices down.

For the fourth quarter ended Dec. 31, LDK's gross margins fell to 9.9 percent from 20.1 percent in the third quarter, lagging Wall Street's expectations for 16.1 percent, according to Thomson Reuters I/B/E/S.

"Many investors may have been overly bullish after seeing positive results from other solar companies," said Hendi Susanto, an analyst with Gabelli & Co.

He said investors needed to differentiate between the various players and that LDK, based in Xinyu, China, still had to digest roughly two quarters of inventories of polysilicon .

The solar wafer maker is working to produce its own polysilicon to reduce costs.

The company said its 1,000 metric ton (MT) plant was producing near capacity and that it had ramped up operations for the first 5,000 MT of its 15,000 MT plant in the quarter.

"We expect profitability to gradually improve in 2010, as LDK works down its high-cost inventory and ramps up internal silicon production," Sanjay Shrestha, an alternative energy analyst at Lazard Capital Markets, said in a research note.

MARGIN PRESSURE

The company said it expects better gross margins in the next few quarters, adding that first-quarter margins would likely be up sequentially. Earlier this month, LDK forecast gross margins of 15 percent to 20 percent for 2010. Wall Street is expecting margins of about 14.5 percent, according to Thomson Reuters I/B/E/S. [ID:nLDE62B0FQ]

Despite the squeeze, analysts said they did not think LDK margin results were likely to spread across the sector.

"I don't think that this is indicative of the industry overall because companies that are not engaged in ramping up internal polysilicon capacity can take advantage of what is at the moment a relatively abundant supply at reasonable prices," said Rob Stone, an analyst with Cowen & Co, which does not currently rate LDK.

"This isn't a bellwether situation," he added.

LDK said it expects first-quarter wafer shipments of between 370 megawatts (MW) to 400 MW, up from the 340.4 MW it shipped in the fourth quarter.

The company also said it expects first-quarter revenue of between $310 million and $330 million, the mid-point of which is above analysts' consensus estimates of $315.6 million.

LDK reported a net loss of 7 cents per American depository share (ADS), compared with a net loss of $1.25 per ADS, last year. Excluding items, the company earned 3 cents per ADS, compared with analyst expectations of a profit of 12 cents, according to Thomson Reuters I/B/E/S.

Sales fell 27 percent to $304.6 million, but topped analysts' average estimate of $301.1 million.

LDK shares closed down 55 cents, or 7.8 percent at $6.50 on Tuesday. They touched a low of $6.35 earlier in the session, making the stock one of the top losers on the NYSE. (Reporting by Dana Ford in Los Angeles and Steve James in New York; Additional reporting by Adveith Nair in Bangalore; Editing by Gunna Dickson)