Tuesday, June 7, 2011

LDK Solar Co. (NYSE: LDK): Q1 Earnings Preview 2011

LDK Solar Co.Ltd. (NYSE: LDK),the world's largest maker of multicrystalline wafers, is scheduled to release its first quarter earnings after the closing bell on Tuesday, May 7, 2011. Analysts, on average, expect the company to report earnings of 86 cents per share on revenue of $769.45 million. In the year ago quarter, the company reported earnings of 6 cents per share on revenue of $347.55 million.

LDK Solar Co., Ltd., through its subsidiaries, engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People's Republic of China and internationally. The company offers multicrystalline solar wafers between 180 and 220 microns in thickness.

LDK is a low-cost producer, with polysilicon production costs down in recent years from $58 per kilogram to around $40 per kilogram, with a target of $30 to $35 by the end of 2011. LDK is also the world’s largest wafer producer, with more than 3 gigawatts of m

In the preceding fourth quarter, the Xinyu City, China-based company's net income was $145.2 million or $1.09 per ADS, compared to a net loss of $24.3 million or $0.22 per ADS in the previous year. Revenue  jumped to $920.9 million from $304.6 million in the same quarter last year. Analysts, on average, expected the company to report earnings of $0.90 per share on revenue of $870.55 million.

The company has stuck to its financial forecasts for the year despite declining prices for its solar products and pressure on the industry in Europe.. For the first quarter of 2011, LDK Solar reiterated its guidance of revenue in the range of $745 to $755 million, wafer shipments of 625 to 635 megawatts (MW), module shipments of 109 MW to 114 MW, in-house polysilicon production of 2,450 MT to 2,470 MT, in-house cell production between 44 MW and 46 MW, and gross margin between 30.0% and 31.0%.

LDK Solar also reiterated its 2011 guidance of revenue in the range of $3.5 to $3.7 billion, gross margins between 24% and 29%, wafer shipments to be between 2.7 and 2.9 GW, module shipments to be between 800 and 900 MW, polysilicon production to be between 10,000 and 11,000 MT, and in-house cell production to be between 500 and 600 MW.

In April, the company announced a business investment of about $40 million to establish a new manufacturing plant in Nanchang City, Jiangxi Province. The company said this new manufacturing facility would have capacity to supply two million two-inch equivalent pieces of sapphire wafers per year and be positioned to capture the growing opportunities in the LED industry. Also, the company reported a $35 million investment to establish a new manufacturing line to produce silane gas in its Mahong Plant in Xinyu City, Jiangxi Province to supply up to 2,000 MT of silane gas to meet the growing demand from the semiconductor, solar and flat panel display industries. The company expects to begin construction of this new plant in the third quarter and to achieve mechanical completion in the first quarter of 2012. Commercial production is being planned to commence in the second quarter of 2012.

Solar industry as a whole has benefited from continued strong demand thanks to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. Companies involved in the production of semiconductors used in solar panels have enjoyed a positive quarter. Many have experienced rising shipments over the last few quarters, resulting in a sequence of record quarters. The world is becoming increasingly environmentally conscious. Both commercial and private demand for solar power is rising. Solar options are becoming more attractive as more governments provide better options for buildings producing solar power to feed into and out of the grid as required. US President Barack Obama has called for 80 percent of the nation's electricity to come from clean sources by 2035. Meanwhile, China has doubled its target for installed photovoltaic power capacity over the next five years to 10 gigawatt by 2015. The government has also raised its installed solar capacity target for 2020 to 50 GW, up from the previous goal of 20 GW.

Thanks to better cost advantages, Chinese solar module maker have grabbed more market share from their international competitors. Local solar companies have also benefited from China's well-developed supply chain, cheap electricity, supportive policies and even low environmental standards.

However, the solar industry relies on government incentives to make electricity created by the sun competitive with sources such as coal and natural gas. Many governments, particularly in Europe, have implemented generous subsidies for solar power in recent years as they seek to reduce their reliance on fossil fuels and combat climate change. Late in February, German lawmakers passed a law, cutting solar power subsidies by up to 15 percent from this summer, six months ahead of schedule, dealing a blow to the world's biggest photovoltaic market. Similarly, Italy’s government recently approved a decree that reduces incentives to solar projects. The Italian solar market became the second-largest in Europe following Germany last year after the government offered the highest feed-in tariffs in the region.

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