Euro darkens Suntech Power margins, shares wane

NEW YORK/LOS ANGELES (Reuters) - Top Chinese solar panel maker Suntech Power Holdings Co Ltd (STP.N) reported narrower quarterly margins on Thursday, and fears of a weakening euro drove its shares down 4 percent.

Suntech, which made 68 percent of its first-quarter sales in Europe, said the decline in the euro versus the U.S. dollar cost it $24.5 million in the first quarter. The maker of photovoltaic (PV) panels said its foreign exchange loss could widen in the current quarter.

Currency fluctuations narrowed gross margins in the first quarter to 19.5 percent from 23.8 percent in the fourth quarter, the company said.

Germany, the world's No. 1 solar market, is set to cut solar subsidies in July. Uncertainty surrounding the cuts, combined with a relatively weak euro and concerns about the health of European markets, has dragged down most solar stocks despite a recovery in demand.

On a conference call after its results, Suntech said it has implemented measures to minimize the risk of further currency fluctuation.

Executives said Suntech could have a foreign exchange loss as high as $30 million in the second quarter, which was higher than Raymond James analyst Pavel Molchanov said the market was expecting.

"For now, Europe is the overwhelmingly majority of PV demand, which means a weak euro is inherently negative for virtually every PV manufacturer that's based outside Europe," Molchanov said about demand for photovoltaic equipment, which turns sunlight into electricity.

But Suntech may be better-positioned than some of its rivals, he added.

"Suntech's level of exposure to Europe is not especially high compared to some of its competitors," he said. "It's not just Suntech."

The company's production capacity reached 1.2 gigawatts of modules by the end of the first quarter, and it is on target to reach 1.4 GW later this year, Chairman and Chief Executive Zhengrong Shi said on the conference call.

However, Suntech said it would delay expansion of its thin-film manufacturing capacity in Shanghai, even as it increased its full-year shipment target to more than 1.3 GW from the 1.25 GW it had previously expected.

Second-quarter shipments would see single digit percentage growth, and gross margins would be in the high teens, the company said.

Net income in the first quarter rose to $20.7 million, or 11 cents per share, matching the consensus estimate from Thomson Reuters I/B/E/S. A year earlier, net income was $1.8 million, or 1 cent per share.

First-quarter revenue rose 86 percent to $588 million, in line with an estimate Suntech made in May.

After the call with analysts, Janney Capital cut its fair value estimate for SunTech to $12.50 from $15 a share and kept its neutral rating on the stock. Wedbush also cut is target price to $7 from $8 and maintained its underperform rating on the company's shares.

Shares of Suntech fell 4.01 percent to $9.34 after an initial 3 percent rise in pre-market trade. The stock has dropped some 45 percent since January.

(Reporting by Matt Daily in New York and Dana Ford in Los Angeles; Editing by Derek Caney, Dave Zimmerman, Leslie Gevirtz)