UPDATE 2-SMA Solar to cut more costs ahead of dire 2013

Thu Nov 8, 2012 5:45am EST

* Still sees decline in 2013 sales, cannot rule out loss

* Q3 sales 363 mln euros, vs 347 mln forecast

* Q3 EBIT 32.3 mln euros, vs 30 mln forecast

* Shares up 3.2 percent (Recasts, adds detail on trade war, analyst comment)

By Christoph Steitz

FRANKFURT, Nov 8 (Reuters) - SMA Solar, Germany's No. 1 solar group, said it was to cut costs further given that margins may evaporate next year because of falling subsidies for solar power.

SMA, the world's largest maker of solar inverters - a key component in solar installations, said on Thursday it would further cut the price of inverters by slashing production costs and purchasing prices.

Long hailed as one of the industry's last investor darlings, the group finally succumbed in mid-October to a crisis caused by oversupply, growing competition from Asia, and lower subsidies, saying it could post a loss and would cut 450 jobs.

On Wednesday, it repeated it could not rule out a loss next year due to falling subsidies in key markets on which the industry depends while solar power costs more than conventional energy sources.

Germany and Italy, the two largest markets for solar products, were both expected to halve next year, while other markets, such as China, could double, according to data from industry association EPIA.

SMA chief executive Pierre-Pascal Urbon told Reuters in September China had been largely sealed off to western solar companies, making it impossible for the group to set up a profitable business in the world's No.2 economy.

"With much (...) demand coming from areas outside SMA's traditional customer base, competition will be more intense, pricing lower and costs higher," Citi analyst Jason Channell said.

TRADE WAR

The solar industry has been gripped by a trade war, in which western companies says Chinese peers have practiced price dumping and receiving illegal state subsidies, driving European peers out of business.

SMA has seen margins dwindle over the past three years, from about 27 percent in 2010 to an expected 8-10 percent this year.

That pressure on margins saw German engineer Siemens pull the plug on solar activities which, it said, led to a 250 million euros ($319 million) hit in its fiscal fourth quarter.

On Thursday, the European Union launched an investigation into alleged state subsidies for Chinese solar panel makers, after China earlier this week lodged a complaint with the World Trade Organisation.

SMA shares were up 2.4 percent at 1045 GMT, with traders pointing to a small relief rally following slightly better than expected third-quarter operating profit, that reached 32.3 million euros, compared with a forecast for 30 million in a Reuters poll.

Since mid-October, when SMA said it could post a loss next year, its shares have lost more than a third of their value.

Along with conglomerates such as French group Schneider Electric, SMA's main competitors include U.S. rival Power One Inc, unlisted players such as Fronius and Kaco from Germany, and a myriad of small Asian players. ($1 = 0.7840 euro) (Editing by Dan Lalor)