Trina Solar: First Solar Won’t Be Low-Cost Leader for Long

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Includes: FSLR, JASO, LDK, SOL, TSL
by: Greentech Media

By Ucilia Wang

For Trina Solar (NYSE:TSL), it won't be long before its solar panel manufacturing costs will fall enough to become comparable to the industry low-cost leader, First Solar (NASDAQ:FSLR).

"Next year, our cost reduction roadmap will allow us to compete with First Solar in the balance of system level, so that module wise we will compete with them some time next year," said Terry Wang, Trina's chief financial officer, in a conference call to discuss the company's earnings late Monday.

Wang's comment came as the company returned to profit in the second quarter. Trina posted a net income of $18.9 million, or 71 cents per American depositary share, on $150 million in revenue. The Chinese company posted a loss of $10.6 million, or 42 cents per share, on a revenue of $132.1 million for the first quarter; and a net income of $17.1 million, or 68 cents per share, on a revenue of $204.2 million for the second quarter of 2008.

Trina posted much better quarterly financial figures than other Chinese solar companies over the past week. JA Solar (NASDAQ:JASO) and ReneSola (NYSE:SOL) delivered mixed results while LDK Solar (NYSE:LDK) performed poorly.

Trina makes solar panels using its own silicon cells. Silicon solar panels dominate the market today. Tempe, Ariz.-based First Solar makes cadmium-telluride panels and has grown quickly to become one of the top 10 (and only non-silicon) panel makers in the world.

First Solar has long prided itself on being able to keep its manufacturing costs low. The company lowered its production costs to $0.87 per watt in the second quarter from $0.93 per watt in the first quarter of this year. It expects to reach $0.65 to $0.70 per watt by 2012.

Its silicon competitors, in general, aren't able to compete on the pricing alone. Silicon panels are able to convert more of the sunlight that strikes them into electricity than cadmium-telluride panels. As a result, silicon panels are more suitable for rooftop installations, where space is a constraint.

First Solar has enjoyed a cost advantage partly because the price of silicon has historically been high. But silicon pricing has dropped significantly, as much as 50 percent for long-term contracts, over the past year.

The financial market crisis has made it difficult for developers to line up financing for solar power projects. Spain, which added a few gigawatts of solar in 2008 alone, now has a 500-megawatt cap for 2009. All these forces have led to an oversupply of silicon panels.

To fend off the silicon competitors, particularly those from China, First Solar plans to give out rebates to customers who do business in Germany, its largest market. The customers would get the rebates after an installation is complete.