Suntech beats the street, but the balance sheet takes a hammering to the tune of $70M with inventory write-downs and investment impairments of $100M being offset by $30M is shrewd debt repurchase.

Company Exceeds Fourth Quarter Revenue and Full Year PV Product Shipment Guidance; Announces Repurchase of $93.8 Million of Convertible Senior Notes

For the fourth quarter of 2008, Suntech expects total net revenues to be in the range of $405 million to $420 million, above previously issued guidance of revenues in the range of $345 million to $360 million. Full year 2008 total net revenues are expected to be in the range of $1.91 billion to $1.93 billion and full year 2008 PV product shipments are expected to be in the range of 493MW to 496MW.

As a result of the rapid decline in silicon prices in the fourth quarter, Suntech expects to make an inventory provision in the range of $46 million to $58 million [18-23% of inventory #2], which would have a negative impact to the gross margin of 11% to 14%. Fourth quarter 2008 consolidated GAAP gross margin is expected to be in the range of -1% to 2%.

“We are pleased to have exceeded our revised revenue and shipment guidance for the fourth quarter and full year 2008,” said Dr. Zhengrong Shi, Suntech’s Chairman and CEO. “While the weakening macro-economic environment and limited availability of credit has led to rapid changes in market conditions and reduced visibility, we believe that there is relatively strong underlying demand for Suntech products. We also believe that in this challenging environment, customers recognize the value in partnering with Suntech due to our reputation for consistently delivering premium quality modules, record of very successful projects, localized customer service and commitment to solar innovation.”

Convertible Senior Notes Repurchase and Investment Impairment

During the fourth quarter of 2008, Suntech conducted open market repurchases of Suntech’s 0.25% Convertible Senior Notes due 2012. Through December 31, 2008, Suntech re-purchased $93.8 million aggregate principal amount of the Convertible Senior Notes for a total cash consideration of $61.0 million. [3] As a result, Suntech realized a net gain of approximately $30 million. Suntech may from time to time seek to make additional repurchases of its Convertible Senior Notes. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors.

Due to the rapid decline in silicon prices and difficult financing environment, Suntech expects to incur an expense related to the impairment of Suntech’s investments in Nitol Solar and Hoku Materials. The total value of the investment impairment is expected to be in the range of approximately $49 million to $52 million. [4]

As of December 31, 2008, Suntech’s cash and cash equivalents balance was approximately $508 million, which is approximately $113 million higher than the cash and cash equivalents balance at the end of the third quarter of 2008. Cash and cash equivalents increased primarily due to the liquidation of some short term investments and the accelerated collection of some Value Added Tax Recoverable. [5]

via Suntech Reports Preliminary Fourth Quarter and Full Year 2008 Financial Results .

Thoughts on the Earnings

1. The outlook is above its previous range of $345M to $360M, and tops Wall Street’s prediction of $358M.
2. As of Q3 STP had $248M in inventory, no split between raw materials, WIP and finished goods was provided. Looking at 2006 and ‘07, raw materials were around 50% of inventory.  The write-down represents 18-23% of inventory or 30-45% of my guesstimate of WIP. Looking long term falling silicon prices will be a positive for Suntech as silicon has represented 40% of operating costs.
3. The debt repurchase was an excellent use of cash. I wish someone would give me that deal on my debt.
4. What were the original investments in Nitol Solar and Hoku Materials? According to Forbes “Suntech bought a $100.0 million stake in Nitol, a Russian company, starting about a year ago. It has 11.0%, or 2.3 million shares, of Hoku, which it purchased in February for $20.0 million and which is now worth $11.0 million.”
5. If only cash could increase due to the operating business providing cash flow. This remains a red flag for STP.  

Related posts:

1. Suntech Reports First Quarter 2009 Financial Results
2. Suntech Shine Again
3. Suntech Q3 Update and Thoughts
4. Akamai Reports First Quarter 2009 Financial Results, Announces Share Repurchase
5. Suntech Achieves 1GW and 1MW
6. Need cash? See Suntech