Bad news from Q-Cells spreads through solar supply chain

Shares of Thalheim, Germany's Q-Cells (XETRA: QCE.DE) closed down 18.6 percent today at €22.22 upon news that the leading solar cell maker was revising forecasts through the end of 2009.

The impact was felt across the solar industry, pushing stocks down and leaving deals throughout the supply chain in question.

Q-Cells said it was surprised in the first week of December by half of its customers delaying or canceling orders, leaving it with inventory it couldn't place elsewhere. Additionally, analysts and leading companies such as Suntech Power Holdings say there will be an oversupply of solar next year, in part thanks to new Chinese manufacturers.

Early Tuesday morning, Q-Cells cut its 2008 sales outlook by 9 percent to €1.2 billion ($1.6 billion) and earnings before interest and tax by 21.1 percent to €205 million. The company said it would cut back production for the remainder of the year, producing 570 megawatts-peak of cells, instead of the planned 585 MWp.

For 2009, the company backtracked on the previous forecast of €2.25 billion in sales, saying sales could be as low as €1.75 billion.

Q-Cells officials' revised estimates are a stark change from a month ago when the company upgraded its expectations, but the new estimates are in line with other solar manufacturers squeezed by reduced demand and a forecasted oversupply, said Ian Tharp, senior analyst of cleantech and renewable energy with Toronto-based Dundee Capital Markets.

"This shouldn't have come as a surprise," Tharp told the Cleantech Group. "Q-Cells has fallen in line with what other companies' expectations are of the market in 2009."

San Jose, Calif.-based SunPower (Nasdaq: SPWR), Chinese solar wafer maker ReneSola (NYSE: SOL) and German solar module manufacturer Solon (XETRA: SOO1.DE) have all lowered forecasts in recent weeks (see Dollar's strength hurts SunPower). SunPower shares dropped 4.1 percent today, while ReneSola dropped 4.2 percent and Solon shares were down 2.76 percent.

"You can look at Q-Cells as a good barometer on the health of the solar industry," Tharp said.

The impact of Q-Cells' announcement was felt throughout the sector. Wuxi, China-based Suntech (NYSE: STP), the world's biggest module manufacturer, saw its shares drop 12.4 percent, while fellow Chinese solar companies LDK Solar (NYSE: LDK) fell 4.8 percent and Trina Solar (NYSE: TSL) was down 6.4 percent.

The crunch is likely to be felt in Canada, too, Tharp said.

Dundee Capital Markets says Q-Cells is the largest customer for Timminco (TSX: TIM) and is expected to buy about 40 percent of the company's upgraded metallurgical silicon in 2009 (see Q-Cells in new silicon supply contract, raises outlook). Dundee projects that Q-Cells will maintain its demand for Timminco's silicon but will ask for lower prices. 

"You can expect some sharing of the pain with [Q-Cells'] sell-purchasers and suppliers," Tharp said.

Timminco's shares were down 7.7 percent today.

Another company at risk of lowered earnings is Waterloo, Ontario-based Arise Technologies (TSX: APV), which could also see customers decreasing or delaying orders, and feel pressure to drop prices, Tharp said. Arise's shares were down 11.7 percent today.

However, the news from Q-Cells could mean lower prices for Burnaby, British Columbia-based solar module manufacturer Day4 Energy (TSX: DFE), Tharp said. Q-Cells is Day4 Energy's largest cell supplier.

Still, the company's shares were down 12.3 percent at the close of trading.