Despite the fact that we were impressed with First Solar’s (FSLR) Q2 2012 recovery with regards to revenues and profits, we’re still not fans of the solar companies. As sympathetic as we are to alternative energy sources, we noticed that these companies have been largely spilling red ink despite receiving billions of dollars in direct and indirect subsidies. We had expressed concern that the weakness in the solar industry was beginning to catch up to First Solar before its most recent quarter in which it benefitted from the sale of larger scale solar power generation projects to offset the revenue and profit declines from its consumer solar panel business. While First Solar has yet to recapture the momentum it enjoyed from its IPO up until 2010, we can safely say that at least it isn’t JinkoSolar (JKS). We can make this conclusion because First Solar has a significantly larger presence in the solar power generation project segment than JinkoSolar, which relies primarily on consumer oriented solar module components. We have noted that JKS has recently won a bid from China Guangdong Nuclear Solar Energy Development to supply 30 MW of photovoltaic (PV) modules for a PV power plant project. This helped First Solar generate nearly 5X as much revenue as JinkoSolar in the Q2 2012 period.

The good news for JKS is that its operating expenses were 28% of FSLR’s. Unfortunately, JKS’s revenue was barely 20% of FSLR’s. We can plainly see that First Solar’s operating expenses represent a significantly lower proportion of its revenue than JinkoSolar. Despite the fact that First Solar has shifted its gears to low-margin, high volume solar power generation projects, it still had a higher gross margin than JKS. JKS should also be worried that it saw its operating expenses increase by 11.75% year-over-year in Chinese Renminbi terms even though its revenues collapsed by 45% in the same time period. JKS saw a 19% increase in its solar product shipment volumes but a significant decrease in the average selling prices for its products. Notable companies that have purchased solar systems power generation projects from First Solar include Berkshire Hathaway’s (BRK.B) MidAmerican Energy and Exelon Corporation (EXC).

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