The train wreck more widely known as the solar sector may finally be adjusting to reality and trying to get back on the tracks. SunPower Corp. (NASDAQ: SPWRA) reported earnings after the markets closed yesterday and said that it would reduce its costs by 10%. First Solar Inc. (NASDAQ: FSLR) announced plans to put off construction of a new plant in Vietnam. Chinese makers JA Solar Holdings Co. Ltd. (NASDAQ: JASO), Suntech Power Holding Co. Ltd. (NYSE: STP), and Trina Solar Ltd. (NYSE: TSL) have also announced plans to halt capacity increases. These companies have all just discovered the wheel it seems.

The solar PV over-supply issue became evident in the summer of 2010, following loans totalling nearly $30 billion to its solar makers, mostly to expand manufacturing capacity. The intention was to drive down costs — and prices — by flooding the market with Chinese-made panels. That might have been a good strategy if other governments had maintained their high subsidies for solar PV installations.

But when Germany cut its feed-in tariff, followed by a similar cut in Italy, the market for solar panels in Europe dropped dramatically. The US and China took up some of the slack, but not enough. Prices for modules have fallen to the point where crystalline-based panels are very near the $1/watt level. With the exception of First Solar, it is nearly impossible for any of the solar makers to tease out a profit at that price.

SunPower managed to meet EPS estimates of $0.16, but missed on revenues. For the current quarter, the company is forecasting EPS in the range of -$0.15 to $0.10. The consensus estimate had been for EPS of $0.69. The company also forecast gross margin for the fourth quarter of 7%-9%, down from non-GAAP gross margin of 11.4% in the third quarter.

SunPower’s cost reduction program is expected to cut 10% for its operating costs in 2012, which is nice, but total operating expenses in the third quarter came to about $500 million. For a full year, the expected savings would be around $200 million. Not bad, but likely not enough.

First Solar plans to stop construction of its new Vietnamese plant, but will continue to develop the plant it is building in Mesa, Arizona. The company also announced an efficiency improvement in its solar cells and said that manufacturing improvements will yield a 10% increase on each of its production lines.

JA Solar, Suntech, and Trina have all indicated that they plan to slow manufacturing capacity increases due to high inventory levels and low pricing. Trina also lowered its third-quarter guidance on module shipments from 480-520 megawatts to 372-375 megawatts. Gross margins are expected to be 10%-11%, compared with earlier guidance in the mid- to high teens. Seasonality effects could put an even larger crimp in shipments, forcing the Chinese makers to fire workers and cut spending even more.

SunPower’s shares are down more than -1.6% in mid-morning trading, at $8.62 in a 52-week range of $6.60-$23.36. First Solar shares are up nearly 8%, at $52.01, in a 52-week range of $42.50-$175.45. Trina shares are up about 3.7%, at $8.11, in a 52-week range of $5.28-$31.08.

Paul Ausick

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