Market Insight

Top PV module suppliers' guidance ratifies 2016 shipments but not revenues - IHS Markit Insight

September 06, 2016

Edurne Zoco Edurne Zoco Research Director, Solar & Energy Storage

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Financial results for Asian PV module manufacturers in the second quarter of 2016 have been broadly positive both in terms of shipments and gross margin. However, the picture anticipated for the second half of 2016 looks significantly less optimistic. Although leading Asian manufacturers have not lowered their FY 2016 shipment guidance, some of them, by contrast, have already announced a lower FY 2016 gross margin guidance. Other top manufacturers have opted to not disclose any financial guidance for the second half of 2016, raising further speculation amongst the industry about their outlook.

Canadian Solar guided to a 1-3% decline in gross margin in Q3 2016 whilst Yingli Solar announced a 4-6% decline in gross margin. In the case of Yingli Solar, the company has also announced that its Q3 shipments could be 50% lower than in Q2 due to the significant decline in downstream project development in China.

Weaker demand in China in the second half will trigger a lower demand for OEM module services, with great impact for tier 2 manufacturers sales in China. For this reason, Chinese manufacturers, have been steadily strengthening their presence in the Indian solar market in the last year and shipments to India are expected to increase in coming months due to weaker demand in China and solar boom expected in India in 2017, intensified by sharply declining global ASPs.

At this moment, three of the largest global module manufacturers in terms of shipments in 2015, Trina Solar, Jinko Solar, and Hanwha QCELLS,  have not provided any indication of either revenues or gross margin guidance for the second half of the year. This could be a clear indication that manufacturers are already facing a very competitive market environment with module oversupply and price erosion both in China as well as outside of China that is affecting revenues and gross margins along the module supply chain from Q3 2016.  Our PV Integrated Market Tracker estimates that module ASPs in China dropped by 15% in Q3 and at the same time, module ASPs have also dropped since Q2 16 in the US market and are is expected to further decline at least in the next three quarters.

The significant decline in gross margin projected in the second half of 2016 will not only affect large Asian players but also most Western companies. In this vein, SunPower announced during its Q2 2016 investor call that it expects its FY2016 gross margin to be in the 9.5%-11% range - much lower than its earlier guidance of 14-16% and setting alarms bells ringing amongst investors. At this moment, First Solar is the only company that has ratified to its investors an unchanged FY 2016 guidance for both shipments and revenues, expecting to maintain an average gross margin of 18%-19% this year. 

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