February 19, 2010 / 1:00 PM / in 9 years

UPDATE 3-Canadian Solar shares slide on dim margin view

* Sees Q4 gross margins in the mid-teens

* Says falling ASPs, defective equipment hurt margins

* Sees Q4 shipments above prior view

* Shares fall as much as 17 pct (Adds analyst comment, detail, updates share movement)

BANGALORE, Feb 19 (Reuters) - Chinese solar-cell maker Canadian Solar Inc (CSIQ.O) cut its fourth-quarter gross margin view citing faulty equipment and a dip in prices, sending its shares down as much as 17 percent.

The company said margins were hurt by higher processing costs and lower yields, and due to defective production equipment at its new ingot and wafer plant. It was in the process of correcting these issues with the equipment vendor.

Canadian Solar now expects fourth-quarter gross margins in the mid-teens, compared with its prior view of high-teens, on a percentage basis.

“If this production issue is not resolved soon, CSIQ may have to buy third-party wafers/cells to fill module orders, which would eat into gross margins,” Oppenheimer analyst Gary Hsueh said in a note to clients. “Our 2010 estimates remain unchanged for now.”

The analyst, however, said this appeared to be an isolated incident, and maintained his “outperform” rating, citing the company’s “compelling” earnings power.

The clearing and revaluing of aged solar cell inventory, partly caused by a dip in module average selling prices (ASP) in December last also hurt margins, Canadian Solar said.

This comes just a day after the lowest-cost photovoltaic solar manufacturer, First Solar Inc (FSLR.O) reported a dip in profit margins. [ID:nN18198393]

Canadian Solar, however, joined a growing list of Chinese solar companies to have signalled a pick-up in demand, and said it expects quarterly shipments to come in above prior estimates of about 128 megawatt (MW) to 138 MW.

Demand for solar power products has rebounded after a difficult 2009, when the global credit crisis dried up financing for new projects and panel prices plummeted.

Chinese players such as Canadian Solar, JA Solar Holdings Co Ltd JASO.O, Suntech Power Holdings Co Ltd STP.N and Trina Solar Ltd TSL.N have seized on this rise in demand, turning their low-cost structures into sales, and several plan to boost production capacity in 2010.

Canadian Solar shares fell 17 percent to $20.61, before recouping some losses to trade down 14 percent at $21.20 in midday trade Friday. They were among the top percentage losers on Nasdaq. (Reporting by Adveith Nair in Bangalore; Editing by Aradhana Aravindan, Savio D’Souza, Ratul Ray Chaudhuri)

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