Friday, November 19, 2010

Can Suntech Break Through The Clouds

Although there are plenty of arguments and controversies about whether solar energy can stand on its own two feet, without government subsidies and inducements, there is no credible debate that the industry is real and growing. In addition to the sizable First Solar (Nasdaq:FSLR), there is a host of billion-dollar babies like Suntech Power (NYSE:STP), JA Solar (Nasdaq:JASO), Trina Solar (NYSE:TSL), and Yingli (NYSE:YGE) all vying for commercial superiority and Wall Street favor.

With this latest earnings report from Suntech, however, it may be time to wonder whether this significant player is making the best moves for the long-term interests of its shareholders.

A Partly Cloudy Third Quarter 

On one hand, Suntech clearly had a solid third quarter - revenue jumped 57% from last year, and 19% on a sequential basis. Although that number was reasonably well ahead of the average analyst estimate, it was nevertheless below the highest numbers in the range. Suntech's top line also highlights one of the primary challenges of this sector - shipments over 25% sequentially (and more than doubled from the year-ago level), but ASPs continue to head lower with some dispatch. That leaves all of these companies on a very challenging course - if they cannot continue to post strong shipment growth and keep production costs in check, they will find themselves on a gigantic hamster wheel. (For more, see Spotlight On The Solar Industry.)

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