Suntech Power (STP) Reports Outstanding Results

Suntech Power (STP) follows First Solar's (FSLR) lead and also reports some great numbers. I think in the rush to get into Sunpower (SPWR) investors have missed the boat with Suntech Power - while Sunpower has some efficiency advantages at this time, Suntech Power has the Chinese mfg base and in fact, already has surpassed Sunpower's gross margins which were a concern of mine.

• Revenue growth up 137% year over year to $386M (vs analysts $355M)
• EPS $0.36 vs analysts $0.28
• The all important (to me) gross margins up to 24.4%
• New production lines lets company expand 2007 capacity from 480 MW to 540 MW
• Next year expanding capacity from 600 MW to 1 GW (2 years ahead of schedule!)
• Guidance for next quarter gross margins up 50 to 100 basis points (fantastic)
• Suntech has currently secured enough silicon to produce more than 530MW in 2008. Based on this level of silicon supply, Suntech expects revenues to be in the range of $1.9 billion to $2.1 billion for the full-year 2008. (Analysts currently at $1.95B)
• Analyst day on Dec 11th
• Overall polysilicon procurement looking much better going forward

Overall very very impressive. The gross margins in this industry have been my major concern but with size comes scale, and hence why Suntech Power has been one of my favorites. Unfortunately, in terms of the portfolio the stock price did not budge for the first 2/3 of the quarter so I got impatient and sold, which obviously was a mistake. As I noted yesterday [Separating Chaffe from Wheat], Suntech along with First Solar are the 2 stocks who have held up best in this selloff and are emerging as the 2 leaders, and companies I need to get into (hopefully at lower prices). If Suntech Power got half the hype its American peer, Sunpower got....

While a very pricy stock, the $1.65 2008 estimates now look seriously under where the company should hit, something closer to $2.00 should be in order. Due to its larger float, this is also a company that mutual funds can actually buy in some scale and have liquidity unlike the smaller fare. This was also a thesis of mine earlier in the year - why don't I listen to myself? :)

At this point, if I were one of the larger players, I'd be lowering Average Selling Prices (ASPs) in 2008/2009 to crush my smaller competitors over the next 2-3 year period, and then once they are weakened, grab as much market share as possible in this commodity business for the years ahead... sort of what a small company you might of heard of before did... Intel.

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