LDK Solar (NYSE: LDK) on Monday posted a second-quarter income that tripled from the previous quarter and grew more than fivefold from the year-ago quarter.
The company reported a net income of $149.5 million, or $1.29 per share, up from $49.8 million, or 45 cents per share, in the first quarter and $28.7 million, or 29 cents per share, in the second quarter of last year
Quarterly net sales more than quadrupled to $441.7 million from $99.1 million last year.
Analysts had expected earnings of 42 cents per share on revenue of $282 million, according to StreetInsider.com.
The company raised its revenue guidance for the full year to between $1.65 billion and $1.75 billion, based on shipments of between 750 megawatts and 770 megawatts worth of wafers. LDK in May already raised its forecast to between $1.08 billion to $1.18 billion from the $960 million to $1 billion it had predicted in January (see LDK 2008 Guidance: Higher Revenues, Lower Margins.
In a conference call, Nick Sarno, LDK’s head of manufacturing, said the company’s wafer capacity expanded faster than it had expected in the second quarter, reaching a total capacity of 880 megawatts by the end of June.
The company said it shipped 191.7 megawatts worth of wafers – 60.8 percent more than in the first quarter, and said its average selling price increased 10 percent to $2.42, further boosting revenue.
The income also included $5.8 million in foreign-currency gains and a gain of $60 million, or 50 cents per share, from a re-valuation of prepaid contracts.
LDK reported earnings after market close Monday. Shares grew 20.52 percent to $40.06 per share in recent after-hours trading.
The company on Monday also projected that it will ship between 210 megawatts and 220 megawatts of wafers in the third quarter, bringing quarterly revenue to between $486 million and $496 million.
But investors are unlikely to be happy with slipping margins. LDK reported that its gross margin fell to 25.4 percent from 27.7 percent in the first quarter and from 35.2 percent in the second quarter of 2007.
The margins aren’t surprising, however. In May, the company had warned investors to expect margins of between 23 and 28 percent for the year (see LDK Warns Investors of Tightening Margins). Previously, the company had forecast margins in the range of 26 to 31 percent.
In a conference call, LDK said it expects its margins to continue to slip in the third quarter to around 23 percent, then to improve again in the fourth quarter based on its own production ofsolar-grade silicon.
The company said its production would begin “shortly,” and forecast production of between 100 and 350 metric tons of polysilicon from its first plant, expected to reach a capacity of 1,000 metric tons by December, this year.
Its second polysilicon plant is expected to reach a capacity of 6,000 metric tons at the end of 2008 and a capacity of 15,000 metric tons once it is ultimately completed, Sarno said. All together, the company expects its total polysilicon capacity to reach 7,000 metric tons by the end of this year and 16,000 tons by the end of 2009.
LDK said it also has secured more than all of the polysilicon it needs for its increased wafer production this year, and plans to increase its wafer capacity to 1.2 gigawatts by the end of this year, 2.2 gigawatts by the end of 2009 and 3.2 gigawatts by the end of 2010, according to the company.
“We’re very proud that we continue to execute one of the steepest ramps in our industry,” Sarno said, adding that the polysilicon facilities remain on schedule.
In answer to concerns that solar demand could drop, CEO Xiaofeng Peng said LDK’s expansion is being driven by customer demand, as LDK has a backlog of more than 12 gigawatts of wafer orders.
He added that the Spanish subsidy isn’t a major concern because LDK’s customers are so spread out, with 33 percent of sales going to customers in China, 34 percent going elsewhere in the Asia Pacific region, 29 percent headed to Europe and 4 percent to North America.
The company is working to secure additional silicon supplies, he said.
In addition, Sarno said LDK has made “considerable progress” in reducing the grams of silicon it uses per watt. The company uses 6 grams to 7 grams per watt, compared with between 6 grams and 8 grams per watt last quarter, Peng said. “It’s closer to 6 grams per watt now, much improved from last quarter,” he said.
The company is working to make bigger ingots and use thinner wires to cut the ingots, thereby reducing the silicon lost in the process.
Last month, it announced a deal with JYT Corp., a competitor to its supplier GT Solar, to buy silicon ingot furnaces capable of producing up to 800 kilograms of ingots at the same time (see GT Solar Sinks on LDK News).
Some industry insiders had questioned whether the news signaled a breakdown in relations between LDK and GT Solar, as LDK made the announcement the day after GT’s IPO.
An announcement by Coughlin Stoia Geller Rudman & Robbins, which has filed a class-action lawsuit against GT Solar, referenced delays in the delivery of production equipment to LDK (see GT Solar IPO Attracts Class-Action Suits).
Peng said the company still plans to buy equipment, including furnaces, from GT Solar.
“Definitely we would negotiate further opportunities to buy more equipment from them,” he said. “We have many orders. … [GT Solar is] sill a very important supplier for LDK.”
While LDK hasn’t yet tested the 800-kilogram ingot production, Sarno said the company expects an increase in yield of about 5 percent based on the larger ingot.
Jesse Pichel, a financial analyst with Piper Jaffray, asked whether LDK’s guidance of 1.2 gigawatts of capacity at the end of the year is conservative, considering it has already reached 880 megawatts of capacity.
“We have confidence we can reach 1.2 gigawatts at the moment,” Peng said. “This is a reasonable number. We have to consider polysilicon, training employees and equipment delivery. Normal delivery of equipment for wafer equipment takes eight to 10 months, even 12 months.”
The company also said Monday it has begun selling wafers made from upgraded metallurgical silicon, or UMG, in the second quarter. The Nova wafers made up “a small quantity” of sales in the second quarter, but Peng said it expects to increase production of the wafers in the third and fourth quarters.
Meanwhile, Timminco, a UMG company based in Toronto, on Monday posted second-quarter sales of C$63.3 million ($59.2 million), up 49.3 percent from C$42.4 million ($39.6 million) in the year-ago period.
The company, which trades under the ticker “TIM” on the Toronto Stock Exchange, reported a net loss of C$7 million ($6.5 million), or 7 Canadian cents (7 cents) per share, compared with a net loss of C$1.5 million ($1.4 million), or 2 Canadian cents (2 cents) per share, from the second quarter in 2007.
The higher loss came from a C$9.8 million ($9.2 million) charge associated with the previously announced closure of its magnesium plant in Haley, Ontario (see Solar Silicon Might Benefit From Timminco Factory Closure). The plant closure is expected to save the company up to $5 million ($4.7 million).
Excluding the charge, Timminco posted a net income of C$2.8 million ($2.6 million), or 3 Canadian cents (3 cents) per share.
Timminco CEO Heinz C. Schimmelbusch said the company’s schedule for increasing its metallurgical silicon production has been delayed by a quarter as it continues to deal with contamination issues.
Metallurgical silicon is a less pure but cheaper variety of the pure silicon used to make most of the solar cells today. Solar cells made with metallurgical silicon aren’t as efficient at converting sunlight as those made with pure silicon. But companies such as Timminco and others believe in developing refining technologies that can make metallurgical silicon a good alternative to pure silicon.
Aside from Canadian Solar, Q-Cells and CaliSolar, the company said it has one unnamed buyer, which it declined to disclose, that has been buying UMG silicon from it since January. In July, Timminco announced a deal with the same unnamed leading manufacturer of solar wafers, and said it would begin shipping silicon to the customer during that month.
In a conference call Monday, Schimmelbusch declined to comment on whether the unnamed buyer was LDK.
Timminco’s shares dropped 5.7 percent before closing at C$19.97 ($18.67) per share Monday. The company issued the earnings after the market closed.
The company invested C$11.6 million ($10.8 million) in expanding its silicon production during the second quarter. For the six months of this year, Timminco spent C$28.9 million ($27 million) in capital expenditure, including C$26.1 million ($24.4 million) for building a new silicon manufacturing plant in Becancour, Quebec.
CORRECTION: An earlier version of this story misspelled the name of LDK CEO Xiaofeng Peng.