Suntech lifts 2008 revenue outlook; shares jump

By Nichola Groom

LOS ANGELES (Reuters) - China's Suntech Power Holdings Co Ltd reported a higher-than-expected 58 percent rise in quarterly earnings and lifted its 2008 revenue target on strong demand for solar energy, sending its shares up nearly 16 percent.

The company also said on Wednesday that demand from Italy, Germany and other markets would offset a drop in sales to Spain next year as that nation pares back generous government subsidies for solar power.

"We have far more demand in the pipeline than we intend to supply," Chief Executive Zhengrong Shi said on a conference call with analysts.

About 40 percent of Suntech's second-quarter sales came from Spain, and concerns about a pullback in demand from that market have weighed on the company's stock in recent months.

After more than doubling in 2007, Suntech shares had fallen more than 50 percent this year at Tuesday's close. On Wednesday, however, they rose as much as 15.7 percent to $42.96, their highest level since June.

In a positive sign for investors, Suntech forecast a 20 percent decline in polysilicon costs in 2009 and said contracted selling prices on its products for next year so far were better than expected.

"If they do get those types of silicon price reductions ... then they could be in a very good position to keep or raise gross margins next year," said Jefferies & Co analyst Paul Clegg, who has a "buy" rating on Suntech.

Polysilicon is the key raw material used to make solar cells, accounting for 70 percent of Suntech's costs of goods sold. Tight supply has crimped expansion in the fast-growing sector, although prices are expected to fall as new production comes online later this year.

Suntech's second-quarter net income rose to $65.2 million, or 38 cents per American Depository Share, from $41.3 million, or 25 cents per ADS, a year earlier.

Wall Street analysts, on average, had been expecting earnings of 32 cents per ADS, according to Reuters Estimates.

Revenue jumped 51 percent to $480.2 million, well above the $443.53 million analysts had been expecting, in part because of a strong euro.

Gross margin, excluding stock-based compensation, increased to 24.7 percent from 22.5 percent in the first quarter, while Suntech had previously forecast it to be about flat.

HIGHER 2008 VIEW

Citing robust demand, Suntech raised its 2008 revenue outlook to a range of $2.05 billion to $2.15 billion. It had previously forecast $1.9 billion to $2.1 billion.

The company also increased its target for shipment of photovoltaic cells by 20 megawatts to 550 MW. A megawatt is able to power about 850 homes.  Continued...