Tuesday, August 18, 2009

Wall Street Sycophants Praise Trina Solar's Performance



Chairman and CEO Jifan Gao of Trina Solar (TSL-$27.10) optimistically told analysts on its second-quarter earnings call that he believed market confidence was returning to the photovoltaic sector and expected gross margin to stabilize going forward. Overlooked by the Wall Street sycophants in their effusive praise, however, was the admission by chief financial officer Terry Wang that profitability going forward remained dependent on the solar company cutting manufacturing costs greater than sequential declines being experienced in average selling prices (ASPs).

For the third quarter of 2009, the Company expects to ship between 90 MW to 110 MW of PV modules. The Company believes gross margin for the third quarter of 2009 will likely be between 23.5 percent and 26.5 percent, up from 22 percent in the prior year period.

The company expects a reduction of its non-silicon manufacturing costs to $0.73 per watt in the third-quarter, down from $0.85 per watt last year. Management believes it is on track to achieve additional cost-savings of 15 percent to 20 percent cost reduction by the end of 2009, helped by process improvements in manufacturing (reductions in cycle time and consumable materials), scale benefits (from consolidation of its supplier chain), and technology (increases in cell and module conversions).

Although Trina is to be complimented for manufacturing cost controls, bullish optimism on gross margin assumes stabilization of average selling prices, which fell year-on-year 81.6% to $2.32 per watt. Wang admitted on the call that third and fourth-quarter ASP will sequentially decline an additional 10 percent to 15 percent and 10 percent to 12 percent, respectively.

Like most solar companies, Trina remains dependent on Italy, Germany, and Spain for its top-line growth. Given uncertainty on the sustainability of feed-in-tariff quotas in Europe and limited visibility on growth prospects in China and the U.S., the 10Q Detective opines that competitive production ramp-ups will likely intensify ASP declines. Consequently, overall profitability level improvements at Trina are unlikely in 2010, and investors—and analysts—might want to hold off on that round of applause for Trina.

Editor David J Phillips holds a short interest position in Trina Solar. The 10Q Detective has a Full Disclosure Policy.

1 comment:

Drew said...

Yeah, you are screwed with your short position.

If you do your homework right, you'd see that tsl's expense, especially with lower poly price will out pace asp decline...