UPDATE 2-Trina Solar earnings up; margin fears hit shares

(Adds details on margins, silicon, updates share price, adds byline)

By Matt Daily

NEW YORK, June 6 (Reuters) - Trina Solar Ltd (TSL.N), a maker of solar power products, said on Friday its quarterly earnings more than doubled, beating Wall Street expectations, but warned that rising silicon costs could narrow its profit margins in the current quarter.

The company, whose shares slumped nearly 10 percent, said costs for silicon, the material Trina uses to convert sunlight into electricity in its solar cells, would rise by 5 percent to 10 percent in the second quarter.

Tight supplies of silicon have crimped expansion of the fast-growing solar sector for the past year, and rising costs are expected to pressure margins across the industry until new silicon production capacity comes on line late this year.

Trina posted gross margin of 25.8 percent, up from the previous year but off the 27.2 percent in the fourth quarter. Operating margin for the first quarter rose to 16.7 percent, up from 10.5 percent a year ago and 16 percent in the fourth quarter.

On top of hiring costs and stock-based compensation charges, the rising silicon costs could shrink margins by about 3 percentage points in the second quarter, it said, with gross margins forecast between 23 percent to 25 percent and operating margins between 13.5 percent to 15.5 percent.

Trina has contracts to buy 95 percent of the silicon it needs to meet its 2008 production of 200 to 210 megawatts of solar modules, and about 60 percent to 65 percent of 2009's expected production of 360 to 400 megawatts. One megawatt is enough to power about 850 homes.

NET INCOME JUMP

First-quarter net income was $12.9 million, or 51 cents per American Depositary share (ADS), compared with $4.8 million, or 22 cents per ADS, a year earlier, and revenue nearly tripled to $120.7 million.

Analysts' average forecast was for earnings of 49 cents per share on revenue of $117.2 million, according to Reuters Estimates.

The company, based in Changzhou, China, said net revenue for the second quarter would be $169 million to $177 million as it expects to ship 43-45 megawatts of photovoltaic modules.

Full-year net revenue is expected to be $770 million to $808 million.

Trina shares fell to a low at $44.67 per ADS, down 10 percent, before slightly recovering to trade down 7.5 percent at $45.93 on the New York Stock Exchange. Shares are down 15 percent so far this year. (Reporting by Matt Daily, editing by John Wallace and Derek Caney)