JA Solar Stumbles on Falling Sales in China

JA Solar has been shifting its sales model to include more modules and fewer cells. In the second quarter, the company’s module shipments comprised 65.4% of all sales. The company’s focus on Japan has helped it overcome a slowdown in China and Europe. North American sales are up 3.3% year-over-year and sales to Asia (excluding China) are up nearly 13%.

The company said it plans to expand its module manufacturing capacity from 1,800 megawatts to 2,800 megawatts and its cell manufacturing capacity from 2,500 megawatts to 2,800 megawatts. The expansions are expected to be completed in the second quarter.

For the 2014 fiscal year, JA Solar raised its forecast for shipments from a range of 2,700 to 2,900 megawatts to a new range of 2,900 to 3,100 megawatts. For the third quarter, shipments are forecast at 730 to 760 megawatts. Of the annual total some 200 megawatts are expected to go to the company’s own downstream projects.

The company’s CEO said:

Our second quarter results were satisfactory, with strong revenue growth, continued bottom-line profitability, and progress in our transition from cells to modules as our main revenue stream. This successful transition has enabled us to emerge as a tier 1 module supplier in the world. … We expect better demand in China as both utility scale and distributed generation projects start construction in the second half. We believe secular demand trends in Japan will continue due to their unique energy needs, and we expect to grow our business in the North American market.

JA Solar missed estimates badly on both EPS and revenues. The bigger issue is that it has not changed its estimate of shipments to its own downstream business since the beginning of the year. The downstream business needs to get bigger faster. That’s the short story on JA Solar now.

Shares were down more than 6% in premarket trading Wednesday, at $9.37 in a 52-week range of $7.00 to $13.14. Thomson Reuters had a consensus analyst price target of around $14.00 before the results were announced.

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