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Motech's 3Q net income disappoints

Motech Industries Inc (茂迪), the nation's biggest manufacturer of solar cells, yesterday said that third-quarter earnings declined 22 percent from a year ago owing to rising material prices.

Net income was NT$543 million (US$16.73 million), or NT$2.84 per share, compared with NT$699 million, or NT$4.06 per share, from the same period last year.

Sales last quarter jumped 86 percent to NT$4.13 billion from a year ago and were up 12 percent from the second quarter, driven by strong demand.

Capital expenditure during the quarter totaled NT$207 million, most of which was spent on expanding production capacity for solar cells, or photovoltaic (PV) cells, at its Fab II.

margin fall

Rising raw material prices stemming from a persistent shortage drove down its gross margin from more than 20 percent in the first quarter to 18.5 percent in the second quarter and further down to 17.5 percent in the third quarter.

The result was lower than market expectations of a gross margin of about 20 percent, said Wang Wen-wen (王文雯), an analyst at Jih Sun Securities Co (日盛證券).

"I think the company somewhat underperformed in the third quarter," Wang said.

However, Motech president Simon Tsuo (左元淮) said that better production yields did help to partially offset the rise in material prices.

"The fall in gross margins was alleviated in the third quarter after we boosted yields and upgraded our production technology," Tsuo said at the company's first investor conference yesterday.

Higher depreciation, amortization and tax expenses also affected the company's bottom line.

Excluding depreciation and amortization, gross margin for the third quarter would be higher than that in the second quarter, Tsuo said.

The raw material shortage will continue next year, as demand for PV cells remains strong while supply of its key material -- silicon -- remains tight, Tsuo said.

The raw material constraint will persist until 2011, when major suppliers start deliveries after completing their plants, he said.

To secure its material supply, Motech has inked accords with several major manufacturers, including a seven-year wafer supply agreement with Swiss Wafer AG, a six-year polysilicon supply agreement with Nitol Solar Ltd and a 10-year silicon supply agreement with Wacker Chemie AG.

output

Motech's total production output was 46 megawatts (MW) for the third quarter, up from 29MW in the same period last year and 43MW in the last quarter. For the first nine months of the year, production output totaled 126MW. The company has set a target output of 180MW for the full year, compared with a PV cell production capacity of 240MW.

Motech plans to expand output to 280MW for the next year, and has secured more than 70 percent of the materials, Tsuo said.

The company will aggressively expand its output in 2009 after its plant in China's Jiangsu Province and US-based AE Polysilicon Corp, in which Motech holds a 12.9 percent stake, start mass production at the end of next year, Tsuo said.

The vertical integration will give Motech better control over raw material supply and raise its material self-sufficiency ratio to 50 percent in the long run.

Shares of Motech closed down NT$2, or 0.54 percent, to NT$366.
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