JA Solar Holdings Co., Ltd. (NASDAQ: JASO), the Chinese solar company, reported a loss of 37 cents per American Depository Share (NYSE:ADS) and now everyone seems to think it didn't achieve anything during the quarter. After earnings became public, JASO shares plummeted about 11 percent. The fall came about because JASO dashed the hopes of investors. The argument was that other solar companies have been outperforming expectations and that industry leaders are now posting profits. I will briefly show you two things that suggest that JA Solar has a bright future.
Revenue for the quarter went up 7.2 percent year-over-year to $287.3 million. Gross margin was 11.3 percent, compared with gross margin of 5.9 percent in the same quarter a year ago. Non-GAAP net loss per diluted ADS dipped to 37 cents from 59 cents in the second quarter.
The first thing to note is that JASO has been cutting down on its cost of sales, which has ended up improving the company's gross margin. In addition, the company has been doing a good job of reducing its operating expenses. During the third quarter, JASO cut down its cost of sales by over 6 percent year-over-year. Moreover, this (reduction of cost of sales) has been the trend for at least one year. Continuing in this direction would mean that JA Solar is able to keep more of its revenues as profit, which is the aim of any business.
Comparing JA Solar with one of its close competitors in the Chinese solar industry, Trina Solar Limited (NYSE: TSL), emphasizes just how effective JA Solar is. Trina Solar's cost of sales has been on the rise. Since the second quarter, Trina Solar's cost of sales has increased by over a hundred percent. In addition, while JA Solar have been cutting down its operating expenses, Trina Solar's operating expenses have been increasing.
During the third quarter, JASO's total shipments were 500.2 megawatts ("MW"), comfortably beating the company's previous guidance of 470 MW. That the company was able to gain entry into new markets was a driving factor for the impressive shipment. You can see this in the fact that the company's reliance on China has reduced significantly, albeit it was able to grow its topline.
Comparing the revenue that JA Solar generated from selling 500.2 MW with what its competitors generated per megawatt suggests that JA Solar's products are more avoidable. Trina Solar generated $548.4 million by shipping 775 MW during the third quarter, meaning that each MW generated about $707,978.31 on the average. Canadian Solar Inc. (NASDAQ: CSIQ), another competitor, generated $490.9 million by shipping 478 MW, working out to be about $1.03 million per megawatt on average.
In the case of JA Solar, each megawatt went for about $574,370.25 on the average. This, in the end, could mean that JA Solar is more able to penetrate into new markets than its competitors, which would invariably lead to larger market share.