• Revenues Rebound:
  After falling 44% from Q3’08 to Q1’09, revenues rebounded 18% Q/Q in Q2’09 to $4.65B as shown in Figure 1. However, the gains are not being shared equally by all segments, regions or companies. The cell/module suppliers are growing faster than the polysilicon/wafer suppliers, 18% to 5% Q/Q in Q2’09, as polysilicon prices fall faster than cell/module prices and cell/module shipments outpace polysilicon/wafer shipments on significant inventory at cell/module suppliers.

Margins Continued to Decline:
Profit margins continued to worsen from Q1’09 to Q2’09 as shown in Figure 2 on lower prices and the fact that slower than expected demand made it difficult for manufacturers to sell-through their high-priced polysilicon/wafer inventory. Some companies were not able to take advantage of the rapid decline in polysilicon spot prices as they were struck in long-term, fixed price contracts or reduced shipment volumes prevented them from turning over their expensive polysilicon or wafers. Cell/module manufacturers again outperformed polysilicon/wafer suppliers, with gross margins of 19% vs. 8%, due to large inventory write downs at wafer manufacturers.

North American Suppliers Grew the Fastest and Were the Most Profitable:
Unlike all other regions, North American suppliers’ revenues rose from Q3’08 to Q2’09, up 11%, including 25% Q/Q growth in Q2’09 thanks to First Solar’s cost leadership, rapid capacity growth and high utilization. In addition, only North American suppliers were profitable when aggregated by region with average gross profits of 38%, operating margins of 19% and net margins of 17% as shown in Table 1.

Chinese Manufacturers Experienced the Largest Decline, Fastest Growth:
Chinese cell/module manufacturers experienced the largest declines from Q3’08 to Q1’09, down 61%, and experienced the fastest growth in Q2’09, up 32%, but are still off 48% from their Q3’08 results. Chinese companies improved their gross margin performance from 10% to 16% and had positive operating margins but experienced -8% net margins due to write-offs from Solarfun and Yingli. Excluding the charges, all Chinese suppliers had positive operating margins.

German Manufacturers Lost Less Ground than Chinese Manufacturers with Higher Gross Margins:
German manufacturers’ revenues rose 11% in Q2’09, but are still off 33% from Q3’08, losing less ground than their Chinese competitors. German companies had the second highest gross margins at 24%, but experienced negative operating margins due to write-offs from Bosch Solar and Q-Cells which experienced a surge in inventories and negative operating profits as the market favors the more vertically integrated companies due to their greater visibility into end market demand and greater control over their cost structure.

All Taiwan Suppliers Achieved Negative Operating Margins in Q2’09:
Taiwan suppliers, which are all cell-only suppliers, had the worst gross and operating performance in both Q1’09 and Q2’09 which is indicative of the lack of leverage cell-only manufacturers have in today’s PV market. All the Taiwan suppliers experienced negative operating margins in Q2’09. Taiwan manufacturers experienced the smallest revenue increase in Q2’09, up just 1%, and are tied with Chinese manufacturers for the largest decline since Q3’08, down 48%.

Q3’09 Looks to be Strongest Quarter of the Year:
Seasonally, Q3’09 looks to be the strongest quarter of the year although the development of the USA and China markets could potentially enable Q4’09 to be just as strong. Some manufacturers are expecting Q3’09 to be exceptionally strong as a number of projects were deferred from 1H’09 as project developers waited for prices to fall further and at the same time developers are looking to finish projects before the end of the year fearing budget reductions and lower subsidies/feed-in-tariff rates. However, the gains are not expected to be shared evenly.

Chinese Companies Have Brightest Outlook:
Chinese companies are expecting rapid growth in Q3’09 as seen in Table 2. At these growth rates, some of these manufacturers expect to achieve full utilization. On the other hand, European companies have a much different outlook and are reducing capacity utilization or taking capacity offline as shown in Table 3 due to excessive inventories from slower than expected 1H’09 demand. Taiwanese companies are hoping to return to profitability in 2H’09. As their c-Si competitors close the cost gap and to spur demand in a weak financing environment, First Solar implemented a rebate program in Germany which it expects to cost $40-$60M in 2H’09 which along with slower capacity growth implies slower Q/Q growth for the leading North American company.