Some Good and Bad in Solar Earnings

Chinese solar manufacturers have started a flood of earnings reports, and so far they aren't pretty, not that we should be surprised. Today I'll highlight one of China's leaders, Trina Solar (NYSE: TSL  ) , but check back tomorrow for my take on LDK Solar (NYSE: LDK  ) , JA Solar (Nasdaq: JASO  ) , Suntech Power (NYSE: STP  ) , and more.

Trina updated guidance a few weeks ago, so many of the numbers weren't a huge surprise. Shipments were down 6.6% quarter over quarter to 370.1 megawatts and revenue fell 16.8% over the same period to $481.9 million. In-house margins were reasonable at 18.3%, but overall margins fell to 10.8%.

Trina provides some of the best information about costs in the industry, and a look at its sale prices and costs show just how dramatically the industry is changing. In the table below, I show how nonsilicon manufacturing costs, polysilicon costs, and average sales prices have changed over the past year.

�	Q3 2010	Q4 2010	Q1 2011	Q2 2011	Q3 2011
Non-Si Cost	$0.73	$0.74	$0.73	$0.73	$0.65
Si Cost	$0.35	$0.42	$0.43	$0.43	$0.37
Total Module Cost	$1.08	$1.16	$1.16	$1.16	$1.08
Average Sale Price	$1.73	$1.82	$1.71	$1.46	$1.25

Source: Trina Solar investor relations.

As you can see, sale prices have fallen off a cliff and until this quarter costs weren't keeping pace. But Trina did take steps to lower nonsilicon costs an impressive $0.08 per watt this quarter.

It is important to note that the polysilicon prices quoted above are in-house blended costs and wouldn't benefit from the dramatic drop in polysilicon prices recently.

A little perspective
You can look at these results in a number of ways depending on your perspective. Falling sale prices will bring down the overall cost to install solar, which is good for the industry as a whole, even though it hurts manufacturers right now. I also see the numbers coming out of China as a sign that U.S.-based manufacturers are staying a step ahead. SunPower's (Nasdaq: SPWR  ) 11.4% gross margin and First Solar's (Nasdaq: FSLR  ) 37.7% gross margin look much better in light of a 10.8% margin at Trina Solar, one of China's leaders.

The rough quarter will continue and a shakeout is still coming, but I stick to my conviction that SunPower and First Solar are going to be two of the long-term winners.

Interested in reading more about Trina Solar? Click here to add it to My Watchlist to find all of our Foolish analysis on this stock.