Hanwha SolarOne Posts Fifth Consecutive Quarter Of Declining Shipments

Jun. 1.12 | About: Hanwha Q (HQCL)

After a hard landing in Q4 2011 and heavy losses, Hanwha SolarOne's (HSOL) Q1 had seen somewhat bittersweet results. Hanwha lost $48 million in Q1, which translated to a $0.57 loss per share. The revenue was a 62% drop from the same period last year, on the module shipments of 160.7MW. In 2011, Hanwha shipped 248MW in the first quarter and the volume of shipments has been dropping ever since. During the quarter modules were sold at an ASP of $0.84 per watt, with blended COGS at $0.92 per watt. Recognizing the condition of selling at below cost, the management of the company decided to limit the exposure to the U.S. with only 5% of the shipments destined for this market, down from 33% in Q4. The company has plans to return to the U.S. with modules assembled on the Taiwanese cells. There is also a consideration to review South Korean cell manufacturers in order to circumvent duties. Q2 guidance estimates shipments in the area of 200 to 240MW of modules. This will be the first volume increase in over a year.

During the period factory utilization was only at 50%, but Hanwha has given a bit of hope by serving a set of new processing costs. While, as previously mentioned, the blended cost per watt was at $0.92, apparently the self-made wafers allowed the company to achieve a non-polysilicon cost of only $0.62 per watt, where low utilization added $0.02. Tier 1 companies like Trina (NYSE:TSL) and Yingli (NYSE:YGE) struggled with poly cost above $30 or even $40 per kg, but Hanwha has paid $27 per kg on average in Q1, translating this to $0.16 per watt. Summing up, at least internally, the company looks like it is part of the front row of the Chinese companies, having all-in costs at $0.78 per watt without a utilization penalty. This rate beats Trina's $0.79 and Yingli's $0.83.

An interesting phenomenon is taking place during Q1. Companies that in the past followed Trina and Yingli efficiencies are suddenly offering better manufacturing costs. Renesola (NYSE:SOL) announced all-in costs at $0.74 per watt. This number was also matched by Canadian Solar (NASDAQ:CSIQ). Now Hanwha has moved ahead. The connective tissue of this revelation seems to be rooted in the cost of polysilicon. Canadian Solar vested its business success in the low-priced wafer from GCL Poly, evading the hurdle of dealing with poly altogether. Renesola seeks its edge by producing its own polysilicon. At $30 per kg Renesola lacks a competitive edge with costs above ASP, but by placing the same poly in its own modules the company holds a significant advantage over Yingli, procuring poly at $47 per kg, and over Trina with $38 per kg (5.5 g/watt). The fact that smaller businesses can obtain better pricing, like in the case of Hanwha, is also remarkable. It means that when it comes to the poly, apparently "Wal-Mart" size organizations are at a disadvantage, negating purchasing power derived from economies of scale.

For now, despite declaring high efficiencies, neither Hanwha nor Renesola delivered positive margins during the first quarter. It remains to be seen when and how close the internal costs will materialize in the income statements, a circumstance amplified by constantly moving parts in this vibrant industry.

Disclosure: I am long TSL, YGE.