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LDK Posts Steep Loss Amid Mounting Industry Pressure

China's LDK Solar, a producer of polysilicon, wafers, cells and modules, has reported a steep quarterly loss that underscores the dramatic industry-wide shift that has occurred in the past year.

In a weaker-than-expected fiscal first quarter statement posted Tuesday, LDK reported a net loss of $185.2 million, or a loss of $1.46 per diluted American depository share (ADS). During the same period a year ago, the company posted a net income of $135.4 million, or a $0.95 gain per diluted ADS. Net sales for the first quarter were $200.1 million, far below the $766.3 million generated during the same period last year.

In the first quarter of 2012, LDK shipped more than 164 megawatts (MW) of wafers and nearly 154 MW of cells and modules. The company also produced more than 1,900 metric tons (MT) of polysilicon and more than 51 MW of cells during the period.

The company also lowered its outlook for both the current quarter and fiscal 2012. According to its statement, LDK estimates its second quarter to shape up like this: Revenue between $220 million and $270 million; wafer shipments between 140 and 180 MW; polysilicon production between 520 and 570 MT and cell production between 80 and 100 MW. The company projects its fiscal 2012 revenue to be between $1.5 billion and $2 billion, a sharp drop from its April projection of between $2 billion and $2.7 billion.

“Industry-wide overcapacity continued and drove price declines across the entire solar supply chain, which significantly reduced our revenue and negatively impacted our margins,” said LDK Solar Chairman and CEO Xiaofeng Peng in a press release. “While we expect to see continued challenging conditions in the solar industry in the near-term, we anticipate that some markets such as China will begin to see improved demand as the year progresses. We firmly believe that lower PV system costs will drive adoption of solar power and long-term market growth.”

LDK’s recent struggles are not unique in an industry that has seen continued installation growth fueled by oversupply and a plummeting drop in prices.

According to a industry-wide report released by IHS Research on Tuesday, average gross profits for PV module makers fell to nine cents per watt during the first quarter of 2012. A year ago, that industry average stood at a healthy 39 cents while in early 2009, that margin hovered around $1.75 per watt. And the nine cent margin may not represent the bottom. The researcher group predicts that slimming margin will fall to just seven cents per watt by the end of the year, putting even greater strain on suppliers.

The reason for this increasingly unsustainable margin pressure is the disconnect between the cost to produce PV module and the price at which they’re selling. According to IHS, gross profits industry-wide in the first quarter of 2012 fell below $500 million for the first time since 2008 — a 75 percent drop since the same period last year. As recently as the fourth quarter of 2010, industry profits were around $3 billion. And while average crystalline PV module prices fell 67 cents per watt last year, average costs per watt didn’t keep up, falling instead by 42 cents.

“Profit margins have been the victim as suppliers have been forced to engage in a fierce price war and have reduced prices faster than they have been able to reduce their costs,” wrote IMS Senior Market Analyst Sam Wilkinson. “High inventory levels, weak demand and reduced government support for PV have all contributed to a rapid downward spiral for PV module prices.” 

But Wilkinson said margins should stabilize around 9 percent by the second half of the year, mostly behind declines in polysilicon prices, which because of long-term contracts have not fallen at the same rate as module prices.

Lead image: Dollar Bill With a Belt via Shutterstock.

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