Solar company gross margins:
All data from company reports or latest guidance.
What this means:
1. Margin compression has been severe in 2Q11. This list just includes Tier 1 big companies. In addition, there is a long list of Tier 2 and Tier 3 companies, whose results are worse than anything on this list. Current industry conditions cannot continue for more than 1 or 2 more quarters. Capacity is being taken out, companies are going bankrupt. Single-digit or negative gross margins for many companies are going to bring a dead halt to their expansion plans. Credit conditions are tightening all over the world, including in China. Companies dependent on borrowing or secondary stock offerings, are in serious trouble, especially if their debt is mostly short-term.
2. The ranking of companies for full-year 2010, is close to the rankings in 1Q11 and 2Q11. That is, the good companies stay good (relatively), and the bad companies stay bad. Well-managed companies perform better (again, relatively), no matter what industry or macro conditions are. This should tell us, who the survivors are going to be, in this industry.
3. Gross margin results from a combination of many variables, only some of which are publicly known. Buying or making polysilicon cheaply, low cost manufacturing, brand premium pricing (if any), and maintaining 100% capacity utilization are important.
4. LDK, which had surprisingly high margins in 1Q11, missed their guidance by a mile. Their awful 2Q11 results, match their awful balance sheet.
5. SPWRA is showing that low manufacturing costs trump high solar conversion efficiency, in this industry. They keep talking about their "brand name" and "high quality", and the Chinese keep taking market share. SPWRA is on the same road as Q-Cells: a dead end.
6. JKS had higher margins than TSL or YGE for 2Q11, but lower for 2010, because they buy their poly in the spot market. This is a risky strategy, which works well when poly prices are falling, like now. But, at other times in the past (and probably in the future), it won't work. This is not a sustainable advantage.
7. FSLR doesn't need to buy wafers, as they use a different technology (CaTe), than all the others (who use c-Si). As poly and wafer prices decrease for the c-Si companies, FSLR's advantage (in manufacturing costs per watt) also decreases. For now, FSLR is so far ahead in manufacturing costs, I confidently predict they will still be at the top of the gross margin rankings, in 3Q11 and 4Q11. This is definitely something to watch, though, long-term.
8. There doesn't seem to be any "economies of scale". JKS, with less than half of STP's revenues in 2Q11, has gross margins far better. Big isn't better.
9. Experience also doesn't matter. If anything, the longer a company has existed, the worse it does. STP is doing worse than its younger Chinese rivals. All the European companies aren't even on my list. They are the oldest in the industry, and most of them are dying. Older isn't better.
10. Once the solar industry gets through this painful phase, we'll see a few survivors dominating the industry. Poly and panel prices will stabilize, at prices low enough to cause a big increase in demand. The survivors will be vertically integrated, sell globally, have manufacturing capacity measured in gigawatts/year, low manufacturing costs, and access to cheap capital.
disclosure: I am long FSLR, YGE, TSL, JKS
Disclosure: I am long FSLR, YGE, TSL, JKS.
Additional disclosure: I am an individual investor, with no connection to the securities industry or the solar industry. All the numbers in my article come from company quarterly reports, or most recent company guidance.