Solar results to spotlight Italy turmoil, costs
LOS ANGELES/FRANKFURT (Reuters) - For solar panel makers, rising raw material costs and a looming cut in government support for solar power in Italy are likely to upstage first-quarter numbers, when the world's largest solar companies begin reporting their quarterly results next week.
For months, investors have fretted about an expected change in solar energy incentives in Italy, a market that exploded last year due to generous government support.
Those concerns caused share prices in the industry to nosedive last year, with the WilderHill New Energy Global Innovation index .NEX of alternative energy stocks dropping 14.6 percent in 2010.
In 2011, however, the index is up more than 7 percent, in part because Italian demand for solar held up until recently.
"It's not going to be Armageddon this quarter," said Morningstar analyst Stephen Simko. "Next quarter will be the real telltale sign of where the industry is."
First Solar (FSLR.O), the world's largest solar company by market value, will kick off the earnings onslaught on May 3, followed by Norway's Renewable Energy Corp (REC.OL) and U.S. solar wafer maker MEMC Electronic Materials Inc WFR.N a day later. China's Trina Solar (TSL.N) and U.S. panel maker SunPower Corp SPWRA.O will report the following week.
Chinese solar company LDK Solar Co Ltd (LDK.N), for instance, on Tuesday cut its first-quarter revenue forecast.
German companies Phoenix Solar AG (PS4G.DE) and Q-Cells SE QCEG.DE have already warned that business was hit by harsh winter weather in the first three months of the year, traditionally the industry's weakest quarter.
The Italian market has slowed in anticipation of the government's decision -- expected any day now -- about a new solar subsidy scheme to begin in June.
As a result, price declines on solar panels have accelerated, and investors are eager to hear how companies plan to react to a softening of demand in Italy, analysts said.
"People are going to be very concerned with geographical diversification," Gleacher & Co analyst John Hardy said, adding that U.S. solar project developers such as First Solar, SunPower and MEMC would benefit from the Italian turmoil as lower prices on solar panels helps the United States absorb shipments that might have gone to Europe.
But as prices on panels drop, many in the industry are also grappling with a dramatic increase in the price of silver paste, which is used to manufacture solar cells.
To make matters worse, prices on the industry's primary raw material -- polysilicon -- have only recently retreated from their recent highs.
"Costs going up and (module) prices coming down, even if expected, argues for a pretty tough margin landscape in the first quarter and second quarter," said Baird analyst Michael Horwitz.
Moreover, companies with large exposure to Germany, the industry's biggest market, struggled during the first quarter with cold weather that made it more difficult to install solar systems.
"First-quarter results of solar companies will be very weak. This is mainly due to three reasons: the harsh winter (in Germany), uncertainty about solar regulation in Italy and companies that are delaying installations as they await a better pricing environment," said Colm O'Connor, fund manager at KBC Asset Management.
However, O'Connor, who manages the 58 million-euro KBC Eco Fund Alternative Energy A0B6LFX.TG fund, said the second quarter should be much stronger in the German market, due to cuts in subsidies in the second half.
Germany, which is expected to have installed a record 7 gigawatts (GW) of solar power in 2010, will see a decline in new capacity this year due to cuts in so called feed-in tariffs, the sector's life-line as long as solar power costs more than conventional forms of energy.
Analysts expect domestic companies to suffer most from the demand drop in Germany, due to their high sales exposure, while those with a higher share in foreign markets will be bit less.
(Graphic by Vincent Flasseur in London)
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