JA Solar's Q4 2011 Earnings Preview

Investing Hobo submits: There have been pronounced changes to the landscape of the crystalline photovoltaic industry in the past two months. Most notably, average selling prices (“ASP”) across all four major crystalline verticals have declined significantly since the beginning of May. Many companies unable to operate in a lower pricing environment have curtailed or shut down operations. In other cases, margins have contracted for companies still competitively positioned enough to generate profits.

By Investing Hobo: For over three quarters of 2011, leading U.S. listed Chinese solar companies held onto previously issued annual shipment targets, despite a clear over supply situation which sent spot market pricing tumbling since early May. Even for companies like Trina Solar (TSL), which had an excellent past track record of under promising and over delivering, succumbed to the overall negative industry macro-dynamics.

By Investing Hobo: With the photovoltaic solar industry undergoing a destructive consolidation period, more and more companies have found themselves on the losing side. Dramatic declines in solar module average selling prices("ASP") have forced numerous manufacturers to curtail or even shut down operations completely as market pricing fell below production costs.

By Investing Hobo: In the past year average selling prices("ASP") for solar products fell dramatically across the board. As pricing dropped by as much as 70% in some verticals, higher cost business models became exposed. While the early bankruptcy victims have been Western companies such as Solyndra, Evergreen Solar, Solar Millenium, and once industry leading solar cell manufacturer Q-Cells, some once labeled low cost Chinese manufacturers have also dipped into negative gross margin territory.

By Investing Hobo: Prices for silicon based solar photovoltaic products declined dramatically in 2011. From peak levels at the end of 2010, average selling prices ("ASPs") for components among the four major crystalline solar verticals dropped by as much as 70%. Polysilicon ASPs declined from over $80/kg to under $30/kg while silicon wafer ASPs went from as much as $1.00/watt to as low as $0.30/watt throughout the course of last year.

By Investing Hobo: Prior to the recent ongoing solar industry consolidation cycle, which began in early 2011, many observers may have speculated JA Solar (JASO) would be one of the least likely top performers. As a primarily single vertical solar cell manufacturer operating in an environment that experienced high levels of pricing pressure, JASO seemed likely to post horrible results.

By Investing Hobo: Those who live by the sword die by the sword. Perhaps this saying is too strong to use on Daqo New Energy (DQ), but it does embody the company's recent dramatic reversal of fortune. As primarily a single vertical polysilicon producer, DQ enjoyed many quarters of disproportionately high polysilicon pricing when polysilicon was most undersupplied relative to other downstream verticals.

By Investing Hobo: Like most of the solar industry, JA Solar (JASO) posted sizeable losses in 2011. With average selling prices ("ASP") tanking by as much as 70% throughout last year. U.S. GAAP losses were practically unavoidable as higher carrying cost inventory needed to be worked down.