FRANKFURT SMA Solar, Germany's top solar company by market value, expects its operating margin to drop next year as it warned that falling subsidies for solar power could cause the market to shrink.
Demand for solar products has been spiking in Germany ahead of expected subsidy cuts there, prompting SMA Solar to raise its 2010 outlook for the second time since July. Rivals Q-Cells and Centrotherm also hiked their sales forecasts last month.
More countries, such as Italy and the Czech Republic, may also withdraw the support to the sector, dealing a further blow to the industry.
Experts are currently divided over the question whether the market will grow or shrink.
SMA, too, said that while 2011 could see a growth of up to 20 percent, the company could not rule out a slump of 10 percent if subsidy cuts bite harder than expected.
The industry association EPIA expects the global photovoltaic (PV) market to drop by up to 15 percent in 2011.
The world's largest maker of solar inverters -- a key component for solar systems that converts direct current generated from solar modules into alternating current -- also hiked its 2010 outlook, citing strong demand in Germany, southern Europe and the United States.
SMA said it now saw 2010 sales of 1.7-1.9 billion euros ($2.2-2.5 billion), up from a previous outlook of 1.5-1.8 billion which it had given in July.
The company also gave its first outlook for next year, saying it expects sales of 1.5-1.9 billion euros and a margin before interest and tax (EBIT) of 21-25 percent, which would be lower than the 26.5-28.5 percent expected for this year.
According to analysts polled by Thomson Reuters I/B/E/S, the company is likely to post full-year sales of 1.74 billion euros this year and 1.65 billion in 2011.
"While the 2011 guidance implies a sharp deceleration from 2010, we believe the fact that it has been provided already, coupled with SMA's historical conservatism, should set a floor to the market's 2011 expectations," Bryan, Garnier & Co analyst Ben Lynch wrote.
Shares in the company, which are down 4.7 percent year to date, were down 1.7 percent 1233 GMT, underperforming a 0.2 percent drop in the FTSE cleantech index.
SMA, which competes with smaller rivals, such as Fronius and Kaco, but also with big conglomerates, such as Siemens and Schneider Electric, said it would keep its market share of more than 40 percent this year.
(Editing by Michael Shields and Louise Heavens)