(Corrects First Solar earnings date in paragraph 9)
* Solar market likely bottomed in second quarter
* Module prices have slid about 25 percent this year
* Price declines will spur demand in second half of 2011
By Nichola Groom and Christoph Steitz
LOS ANGELES/FRANKFURT, July 29 Solar investors
should brace themselves for some downright dreadful
second-quarter earnings reports in the coming weeks, though the
rest of the year may provide some relief to battered solar
stocks as panel prices stabilize and profit margins recover.
The solar market likely bottomed in the second quarter
after pullbacks in subsidies in No. 2 solar market Italy
stalled development of projects there this spring, creating an
oversupply of solar panels in the market and sparking a more
than 20 percent drop in prices.
"It's going to be probably the most challenging quarter
we've seen in the space since the financial crisis," Kaufman
Bros analyst Jeff Bencik said. "Volumes are starting to pick
back up, but we have pricing declines of 25 to 30 percent
across the supply chain."
Solar power relies on government subsidies to compete with
electricity generated by fossil fuels such as coal and natural
gas. In general, drops in the price of solar power are a good
thing for the subsidy-dependent industry -- but manufacturers
struggle if they can't cut costs at a similar rate.
Solar modules cost about $1.80 per watt in the first
quarter, and are now selling for $1.40 per watt or less.
That drop has taken a big toll on manufacturers' profit
margins and sent their stocks into a tailspin.
To see an interactive graphic comparing solar companies,
click here: r.reuters.com/vej82s
Gross margins for photovoltaic module manufacturers have
fallen by 25 percent in the last six months, according to
research firm IMS Research.
The solar earnings season will kick off in earnest with
reports from U.S. wafer maker MEMC Electronic Materials Inc
WFR.N and U.S. solar manufacturing equipment maker GT Solar
SOLR.O on Aug. 3, followed by the world's most valuable solar
company, First Solar Inc (FSLR.O), a day later.
Many German solar companies, including SolarWorld
SWVG.DE, Centrotherm CTNG.DE, Phoenix Solar (PS4G.DE) and
SMA Solar (S92G.DE), are scheduled to release results the week
of Aug. 8.
But some big solar players -- including U.S.-based SunPower
Corp SPWRA.O and China's Renesola Ltd (SOL.N) -- have already
warned of weak results in the second quarter. [ID:nN1E76O1PL]
Germany's Q-Cells SEQCEG.DE, which will report results
August 12, has also said that demand remained weak during the
second three months of the year, while Norway's Renewable
Energy Corporation (REC.OL) last week was hit by a $1.16
billion impairment, due to under-used factories.
The industry turmoil has also weighed on share prices. The
MAC Solar Energy index .SUNIDX is down 27 percent since the
beginning of the second quarter.
Many expect solar companies' fortunes to improve in the
second half of the year as lower prices on panels unleash a new
wave of demand.
Solar inverter maker Power-One, for instance, said on
Thursday that its sales in the third quarter would benefit from
increased sales to rising markets in North America and Asia as
well as an improved market in Germany.[ID:nN1E76R1UA]
SunPower's announcement this week also indicated that
demand was strong, as the company said its revenue would be at
the high end of a previously forecasted range, despite
Increased demand should help stem the rapid drop in prices
that has crippled the industry in recent months.
"A lot of companies are seeing volume increases, which is
the good news," said Jon Sigurdsen, fund manager at DnB NOR
unit Carlson in Oslo. "Very recently a lot of companies have
said prices are stabilizing."
Overall, outlooks for the rest of the year should be
positive, analysts said, but warned about another round of
subsidy cuts in 2012.
"The next cut in feed-in tariffs in January 2012 is just
around the corner," said Michael Tappeiner, an analyst at
Unicredit in Munich. "It'll remain very tight for the sector
The question is whether investors will dive into the beaten
down sector and pick up solar stocks at bargain prices now that
the worst of 2011 is over.
"Do investors play that rally again as they have in the
last few years, knowing that it's a little flash in the pan? Or
do they say, 'You know what? It's a waste of my time,'" Baird
analyst Michael Horwitz said, adding that he expects to see
some German and minor Chinese solar players go out of business
"You can't have 20 players in every part of the value
chain," he said.
(Reporting by Nichola Groom in Los Angeles and Christoph
Steitz in Frankfurt; editing by Gunna Dickson)