FRANKFURT Germany's top solar companies took advantage of booming demand in the first half of the year, as large cuts in subsidies in the world's biggest solar market approach, leaving them vulnerable to high costs and weak prices.
The country's solar elite on Tuesday joined peers from Asia and the U.S. in releasing mostly better-than-expected results, as customers bring orders forward to take advantage of German subsidies before they are cut in July.
Industry experts remain cautious on the long-term prospects of Germany's top players that produce at high costs, while Asian peers eat away market share at high speed.
"We all know that demand is strong and quite frankly, I was expecting the German players to exceed expectations," said Jon Sigurdsen, renewable fund manager at DnB Nor's Carlson.
"But the real question is how the supply-demand picture will look like and how they will continue to slash costs to keep up with the competition. Here, little color was provided."
Once spoiling investors with lavish returns, the solar sector is in the process of consolidation as governments cap support for the subsidy-dependent industry to move it closer to being economically independent.
Plans by the German government to cut so-called feed-in tariffs, which emerged in January, have caused solar stocks around the world to tumble. The tariffs are the sector's support until there is grid parity -- the point at which solar power costs the same as fossil-fuel generated power.
As customers pile in to take advantage of the subsidies before they get slashed, analysts fear the booming demand for modules could lead to oversupply in the second half of the year and increase pricing pressure.
European players are already struggling to digest the price slump that saw prices for modules and cells drop by up to 50 percent while low-cost Asian players are eating away market share.
"I am quite optimistic for business in the second half of the year," Nedim Cen, the 44-year-old chief executive of Q-Cells, the world's No.4 solar cell maker, said during a conference call. "But I'm concerned that further price decreases could kick in in 2011."
Andreas Haenel, chief executive of solar wholesaler Phoenix Solar, also hit a cautious note, saying he expected a drop in demand for solar products in the third quarter, when sector subsidy cuts in Germany become effective.
Analysts noted too, that Q-Cells, Centrotherm, Phoenix Solar and SolarWorld only kept but did not raise their 2010 outlooks, unlike some of their U.S. and Chinese peers.
Shares in SolarWorld, Germany's biggest solar company by sales, dropped 6.5 percent while Centrotherm's stock fell by 3.7 percent. Q-Cells shares were 1.3 percent lower while Phoenix Solar shares gained 0.5 percent.
Fears about the loss of subsidies also hit Spain where last week Renovalia postponed its IPO.
"None of the companies changed their 2010 guidance, despite better-than-expected worldwide demand trends in the first half of 2010, mostly due to ongoing uncertainties around the impact of second-half German feed-in tariff cuts," Bryan, Garnier & Co analyst Ben Lynch wrote in a note.
In contrast, Chinese peer LDK posted better-than-expected first-quarter results on Monday and forecast stronger than expected second-quarter revenue, chiming with JA Solar, which in April raised its first-quarter sales forecast and is due to release results later in the day.
(Editing by Karen Foster and Elaine Hardcastle)