NEW YORK (Dow Jones)--Solar companies have joined the ranks of those whose business forecasting has been thrown off course by the marked weakening of the world economy.
Just weeks ago, module maker Suntech Power Holdings Co. (STP) executives claimed their company would come out of the credit crisis unscathed, but last week the company slashed its revenue outlook and said module prices would drop. Likewise, panel manufacturer SunPower Corp. (SPWRA) raised its guidance in mid-October, only to cut it again in early November.
(This story also appeared in Clean Technology Insight, a daily newsletter and information service published by Dow Jones & Co.)
The companies say they have been surprised by a rally in the dollar, and Suntech said customers backed off on purchases.
In the third week of October when Suntech and a multitude of other solar companies converged on San Diego for the annual Solar Power International exhibit and conference, the module companies gave a clearly glowing outlook, based on their demand expectations.
"U.S. customers were incredibly bullish, giving indications for orders," said Steven Chan, Suntech's chief business development officer, in an interview with Clean Technology Insight last week. "Within two weeks we thought we would have a high number of U.S. orders, but we didn't."
He said that, apparently, U.S. customers decided to see how the balance of supply and demand, and therefore module prices, would settle in Europe before committing at a given price. At the same time, the deals that Suntech ended up signing in the past four weeks were at lower prices. "Demand is weaker, that really hit us pretty hard," Chan said.
As recently as three weeks before the earnings came out, Suntech executives told Clean Technology Insight that demand for their solar modules was high and prices would decline "at most" 10% in 2009. Last week the company reversed course, projecting average sales price declines for its modules in 2009 of 17% in the fourth quarter of 2008 and 22% to 25% next year, according to comments by Amy Yi Zhang, Suntech's chief financial officer, on a call with analysts on Thursday.
Suntech also reduced its quarterly and full-year projections. It now expects $1.85 billion to $1.87 billion in revenue for the full year, down from previous projections of $2.05 billion to $2.15 billion.
In SunPower's case, the company raised its guidance Oct. 16, saying that it would earn $405 million to $435 million in revenue for the fourth quarter of 2008. But two weeks down the line, on Nov. 4, SunPower revised these estimates, forecasting total revenue of $388 million to $418 million.
Suntech and SunPower both say the appreciation of the dollar is a major factor behind the weaker outlook because they sell primarily in Europe but report in dollars.
Chan said the company's previous forecast of a 10% module price decline "didn't take into account the forex impact. People [in the company] weren't super clear when they were communicating this point to external people," he said.
SunPower's head of public policy Julie Blunden wrote in an email that "guidance on our earnings call has not changed except for the forex impact we announced."
As to why the company didn't respond quicker to the dollar gains, Blunden wrote that "the dollar had gained somewhat in the first two weeks [of October], but had stabilized before our call and then strengthened substantially the following week." She wrote: "Our guidance at the time reflected our expectations given the state of the currencies relative to each other at the time of earnings."
The current trend in the dollar goes back to Sept. 22, when the euro was at $1.4780. It then declined steadily to Oct. 6, before beginning another sharp descent on Oct. 16. It hit its most-recent low Oct. 27, at $1.2395 and has seen back-and-forth trading since.
Asked whether the company has seen similar scale-backs on orders such as those that affected Suntech, Blunden said in an email: "Our demand outlook remains strong."
While Suntech and SunPower executives in mid-October brushed off the economic downturn's effect on their companies, project financiers were already talking about the poor prospects for renewable energy finance. For example, Matt Cheney, chief executive of MMA Renewable Ventures, which created a joint venture to finance and develop solar projects in the U.S. with Suntech, said at the San Diego conference that the situation in the financing world was dire and that the economic downturn was pressing both project finance and commercial customer demand. |
