Suntech Earnings Preview: Retrospective Tariff Could Hurt Results

by Trefis Team
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Trefis
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Suntech Power
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Chinese player Suntech Power (NYSE:STP) will come out with its Q1 results on May 23rd. The company, which is already struggling with the industry downturn, could be hit further by the retrospective 31.22% tariff imposed by the U.S. Department on Commerce on May 18th. [1] The duties will also cover Chinese imports by the company over the past 90 days and hence will be imposed on its last quarter’s sales as well. Chinese solar players, which are already hit by the falling demand in 2012 and weak margins, could also see panel sales in the U.S. decline because of the steep tariffs in the future, which could undermine their price competitiveness over players like First Solar (NASDAQ:FSLR). Global sales volumes for the past quarter could be held up by the demand from German installers looking to beat the drastic reduction in government support.

We will be revising our $3.54 price estimate for Suntech Power, which is at a 60% premium to its current market price.

Click here for our full analysis of Suntech Power.


U.S. sales

According to the latest ruling from the Department of Commerce, U.S. customs agents will collect a deposit on solar equipment made in China over the past 90 days. [1] Suntech, which already has a manufacturing facility in Arizona, has criticized the ruling for not taking into account the competitive nature of the industry. According to Bloomberg estimates, the tariffs could push up the prices of Chinese panels to about $1.11 /watt, making them 17% costlier than spot prices of non-Chinese modules. Suntech and its competitors are already under pressure as global sales for panels are set to drop in 2012, with a subsidy pull-back in major European markets. The companies have been counting on strong growth in emerging markets such as China to push up sales.

Suntech has indicated that it would be looking at ways to work around the tariffs that target panels and cells manufactured in the U.S. The company has manufacturing facilities outside the U.S. and could look at the possibility of subcontracting U.S. orders to manufacturers in Taiwan to avoid tariffs. Chinese companies could also choose to focus on other emerging markets like Japan to lower their exposure to the American market. It is estimated that Chinese players sell 20% of their equipment in the U.S. Local sales in China could provide Suntech with some respite from increasingly challenging industry conditions.

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Notes:
  1. U.S. Solar Tariffs on Chinese Cells May Boost Prices, Bloomberg [] []
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