SolarFun (SOLF) Reports Another Steep Loss, Sees Gradual Improvement

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01:40:04 pm on March 25, 2009

These solar earnings reports really aren’t a surprise anymore.  Just more of the same – global economic weakness, credit difficulties, plummeting raw material prices, an inventory glut and so on.  From here it’s just a matter of demand picking up to offset the weakness in the cost of the finished product.  The important thing to remember is that solar stocks will begin rising long before that equation comes into balance.  We’ve seen a good pop in solars along with the rest of the market, but I’m not chasing this rally.  It’s important to get in on a the pull backs and I think the next significant pull back offers and extremely compelling entry for a long term entry into the solars. Anyway, back to the SOLF earnings. 

The company reported another sharp Q4 loss of US$1.14, but taking out the inventory write downs the loss was .40/share.  All in all a rough quarter and the 2nd straight quarterly loss.  Revenues for the quarter came in at $164.6 million which was just a touch ahead of estimates and represents a 22% bump over the year ago quarter.

Business continued to be centered in Europe, with Germany accounting for 57%, France 19%, Switzerland 10%, and Portugal 9% of net revenue in this quarter. Spain accounted for only 2% of net revenue in this quarter.

Harold Hoskens, CEO of SOLF, commented, “.. the industry is in a transition from a polysilicon supply-driven environment, to a demand-driven environment, and currently demand has been affected by the global economic situation. We see that module prices have declined at the same time as the cost of polysilicon, with the cost of polysilicon falling somewhat faster than module prices.  ..  As we head into the coming year, we will continue to focus diligently on maintaining liquidity, strengthening customer relationships and expanding our geographic footprint, adjusting our raw material costs to reflect the current environment, and enhancing the efficiency and consistency of our manufacturing capabilities, including leveraging our vertical integration strategy.”

Looking ahead the company isn’t offering specific guidance to the unpredictable nature of the current environment.  However, generally the company expects the 1st quarter (which is just about behind us) to be the weakest with a gradual improvement throughout the year.

Harold Hoskens concluded, “We believe the year 2009 will remain challenging, particularly during the first half, but we remain confident in the long-term promise of PV solar energy and the competitive positioning of Solarfun. A better operating environment is on the horizon; supply/demand imbalances for modules are being reset, raw material costs and inventories are being adjusted to reflect real time costs, and customers are becoming more optimistic as we enter the second quarter.”

After a big run up into earnings, SOLF is failing at the 50 day moving average and down over 10% today with significant sell volume.  However, I think the March lows was the bottom for SOLF as it most likely will be for several solar players.

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