UPDATE 2-Suntech earnings beat forecasts, output to grow

(Adds details, CEO comments, byline; updates share rise)

By Matt Daily

NEW YORK, May 22 (Reuters) - Suntech Power Holdings Co Ltd (STP.N) posted higher-than-expected quarterly earnings Thursday on robust demand for renewable energy sources, and said plans to raise its output of solar cells remain on track.

First-quarter net income was $55.8 million, or 33 cents per share, compared with $26.09 million, or 16 cents per share, a year earlier. Revenue rose 76 percent to $434.5 million.

Analysts were expecting earnings of 28 cents per share before special items, on revenue of $376.3 million, according to Reuters Estimates.

Suntech's production capacity of photovoltaic cells, which turn sunlight into electricity, jumped to 540 megawatts at the end of the quarter, up 50 percent from a year earlier, and is on track to reach 1 gigawatt by the end of the year.

One megawatt is enough power to supply about 850 homes.

Gross margin in the quarter widened to 22.2 percent from 19 percent a year earlier.

SILICON COSTS UP, RELIEF SEEN

That margin improved from 20.8 percent in the fourth quarter as higher selling prices for its products and gains from the strength in the euro offset an 8 percent increase in Suntech's polysilicon costs, Zhengrong Shi, chairman and chief executive, told a conference call.

Polysilicon is key material inside most photovoltaic solar cells, and shortages of the material have sent its prices up nearly 10-fold in recent years.

However, new capacity to produce the material will begin coming on line later this year, easing the tightness and bringing down prices on the spot market by 10 percent to 20 percent from the current $400 to $500 per kilogram, Suntech said.

"For sure, there will be competition among the suppliers," Shi told Reuters in an interview, adding that long-term contract prices -- which are well below spot prices -- would likely start to move lower, bottoming out eventually at between $30 and $40 per kilogram.

Suntech, based in San Francisco and Wuxi, China, said it expects second-quarter revenue of $430 million to $440 million, and it reiterated its full-year revenue forecast of $1.9 billion to $2.1 billion.

Shipments of solar modules, which are made up of solar cells, are expected to total 530 megawatts this year, up from 364 megawatts in 2007.

Virtually all of this year's production has already been sold, the company said, and margins should remain near current levels as both selling prices and the cost of polysilicon ease.