Trina chops 3Q and FY11 outlooks, confirms German softness

Trina Solar now says solar module shipments in 3Q11 will be about 25% lower than before due to project problems in Europe, and margins will take a hit on inventory write-downs — confirming fears of persistent market softness, analysts say.

November 3, 2011 – Trina Solar now says solar module shipments in 3Q11 will be about 25% lower than before due to project problems in Europe, and margins will take a hit on inventory write-downs.

Giving a peek at some 3Q11 numbers about three weeks early (full official stats come Nov. 21), the company now says 3Q11 module shipments will be 372-375MW, vs. previous guidance of 480-520MW, citing “a deflationary pricing environment” for some customers’ European projects, according to chairman/CEO Jifan Gao. The company now says full-year 2011 shipments will be roughly 1.4GW, about -20% below previous guidance of 1.75-1.8GW.

Gross margins also took a hit in the quarter-ended-Sept.30, according to the company, which projects 10%-11% overall gross margins (vs. mid-to-high-teens guidance). That includes a $19M noncash inventory writedown. Gross margins tied to Trina’s wafer and module production are seen in-line with expectations of 18%-19%.

Despite the setbacks, Gao said he is “encouraged by the prospects of demand growth in emerging PV markets within the Americas, Asia and Africa.” He also cited improvements in manufacturing efficiencies and cost structures, e.g. renegotiating some poly-Si and material supply deals.

Analysts’ Take

Given current industry trends, TSL’s downgrade of shipments and margins should come as no surprise. “Ongoing uncertainty with regard to pricing has many buyers waiting on better pricing,” and low-and-likely-going-lower poly-Si prices are only making it worse, points out Citi’s Tim Arcuri in a research note. “The combination of buyers holding off on purchases and suppliers slow to lower production, inventories remain stubbornly high and lengthen the ultimate time for recovery,” he says.

Deutsche Bank’s Vishal Shah thinks the module shipment slowdown is worse than most had expected (flattish), and confirms doubts about both a German end-market upswing and any relief for supply chains into 4Q11. “German distributors had overordered in anticipation of a pick-up and Q4 order cancellations are likely as companies look to reduce inventory ahead of seasonally weak Q1,” he writes. Moreover, Tier 1 underutilization is a red flag for other major players (he points to FSLR which officially reports on 11/3 after preannouncing its own soft numbers last week).

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