Suntech Recovers on Volumes, Margins Stabilize

STP: Suntech Power Suntech Power  each representing One Ordinary Share) logo
Suntech Power Suntech Power each representing One Ordinary Share)

Suntech Power (NYSE:STP) announced its Q3 results few days back posting a 36% Y-o-Y growth in shipments as low prices spurred demand. However, revenues grew more slowly, increasing by 8.9% over the same quarter last year. Gross margin stood at 13% which was at the higher end of the guidance. [1] Suntech cautioned investors that the tough industry conditions would continue for the next couple of quarters as the industry continues to battle with overcapacity. Chinese solar module manufacturers such as Suntech and Trina Solar (NYSE:TSL) have the advantage of low manufacturing costs expected to help them survive the industry shake out.

Our price estimate for Suntech remains at $4.43 as the effects of declined capital expenditure estimates and deteriorated cash position of the firm cancelled each other.

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Demand from new markets

Suntech has stated that demand from European countries continued to underpin its shipment volumes in Q3 despite the declining government subsidies. [1] Volumes were also helped from American and Chinese demand. PV module demand from China increased as the government introduced a feed in tariff program to boost solar power generation. Other markets in the Asia Pacific region also contributed to the growth in volumes. Demand from the utility sector is expected to be the major contributor to future growth. Suntech expects its geographically diversified sales channel and its established brand name to provide it with sufficient differentiation in the present market.

Efficient operations key

Keeping in mind the intense price competition in the solar industry, Suntech is looking to improve its operating margins to boost results. Module prices have been under intense pressure over the last couple of quarters and the oversupply in the industry is expected to further pull down prices over the future. In order to compete effectively in such a market, Suntech has announced plans to consolidate its financial and operating disciplines over the next few quarters. The company said that it would look to cut operating costs by 20%, reduce working capital by $200 million and stall capacity expansion plans till 2012 to meet its goals. [1]

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  1. Suntech Reports Third Quarter 2011 Financial Results, Suntech [] [] []