UPDATE 3-Low-margin cells weigh on JA Solar's outlook
* Sees 3rd-quarter shipment of 450 MW to 470 MW
* 2nd-quarter shipments 463.7 MW
* 2nd-quarter net loss $0.58 per ADS vs $1.91 per ADS
* Shares fall 7 pct
By Kanika Sikka and Garima Goel
Aug 29 (Reuters) - China-based JA Solar Holdings Co Ltd's muted forecast provided little hope of ending its string of losses as a large chunk of its sales still come from low-margin solar cells.
JA Solar's shares fell as much as 7 percent on Thursday after the company forecast nearly flat shipments for the third quarter, failing to meet lofty expectations set by its rivals.
Unlike rivals, JA Solar is heavily dependant on making solar cells. Cells accounted for about 45 percent of the company's total second quarter shipments of 463.7 megawatt (MW).
Cells, which are strung together to make solar panels, fetch low prices and demand has weakened as most solar firms are producing them in-house to reduce costs. Panels, on the other hand, are more profitable.
"JA Solar's business includes the outsourcing of solar cells, which is further down the supply chain and remains an unprofitable arena," said S&P Capital IQ analyst Angelo Zino, who has a "buy" rating on the stock.
Several Chinese solar companies have said that selling prices for panels are beginning to stabilize, after having plummeted more than 60 percent in the past two years.
Growing demand for solar panels, particularly in Japan, has brightened prospects for these companies.
JinkoSolar Holding Co Ltd swung to a profit after seven quarters of loss in the second quarter. Canadian Solar expects to post a full-year profit, while Trina Solar Ltd also aims to turn profitable this year.
Chinese solar producers, including JA Solar, also benefited in the second quarter as they sold more in Europe ahead of restrictions on Chinese exports, but sales have eased in the current quarter.
Analysts said the company's shipment outlook was nearly flat primarily due to reduced demand from Europe, which is aiming to cap Chinese imports of solar products at 7 gigawatt per year.
"We're not going to be seeing any notable profitability improvement in the second half (at JA Solar)," said Arete Research analyst Jim Fontanelli.
The company is not expected to turn profitable at least until the end of 2014, according to Thomson Reuters I/B/E/S data.
JA Solar said it expects to ship 450 megawatt (MW) to 470 MW of solar products in the third quarter. Shipments rose 11 percent to 463.7 MW in the second quarter, primarily on Japanese demand.
Gross margin rose to 8.1 percent, from 4.8 percent. However its costs rose about 18 percent in the quarter, compared with a 22 percent fall at JinkoSolar.
"It does not look like we are going to see any kind of gross margin improvements (at JA Solar) in the third quarter," said Fontanelli.
The company's net loss narrowed to $21.6 million, or 58 cents per American depositary share (ADS) in the second quarter, from $72.1 million, or $1.91 per ADS, a year earlier.
Revenue fell 12 percent to $258.1 million.
JA Solar is also looking to expand in the business of building solar power plants to make up for market share losses in Europe, traditionally its largest market.
Analysts, however, are skeptical of the strategy as most of the company's project development is in China, where prices for solar products are among the lowest in the world.
Shares were trading down 5 percent at $7.54 on the Nasdaq.
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