Suntech Power Holdings Company Ltd ( STP - Analyst Report ) posted first quarter adjusted earnings of 17 cents per American Depositary Share (ADS), falling behind the Zacks Consensus Estimate of 35 cents. However results beat past the year-ago adjusted earnings of 11 cents.

Operational Results

Suntech registered total net revenues of $877.0 million compared to $945.1 million in the fourth quarter of 2010 and $588.0 million in the first quarter of 2010. Revenues in the reported quarter however comfortably beat the Zacks Consensus Estimate of $861 million. The sequential decline in revenues was primarily due to a slight decline in shipments, resulting mainly from policy uncertainty in Italy, and a slight decline in the average selling price of Photovoltaic products as a result of seasonality, particularly in Germany.

In the reported quarter gross profit was $166.9 million and gross margin was 19.0% compared to $153.4 million and 16.2%, respectively, in the fourth quarter of 2010; and $114.5 million and 19.5%, respectively, in the first quarter of 2010. The sequential increase in gross margin was primarily due to the lower cost of in-house silicon wafers used in production.

Operating expenses for the first quarter of 2011 increased to $72.4 million, which represented 8.3% of revenues, compared to $63.2 million, or 6.7% of revenues in the fourth quarter of 2010, and $51.0 million, or 8.7% of revenues, in the first quarter of 2010. Net income increased to $31.9 million for the first quarter of 2011, compared to net income of $358.0 million for the fourth quarter of 2010 and net income of $20.7 million for the first quarter of 2010.

Financial Condition

As of March 31, 2011, Suntech reported cash and cash equivalents of $782.6 million, compared with $872.5 million as of December 31, 2010. The company at the end of the reported quarter had outstanding long-term bank borrowings of $202.7 million and convertible notes worth $555.4 million.

Outlook

Wuxi, China-based Suntech is a leading solar energy company. The company designs, develops, manufactures and markets photovoltaic (PV) cells and modules. Looking forward in the second quarter of 2011, Suntech expects low single digit growth of PV shipments and relatively flat gross margin compared with the first quarter of 2011.

For the fiscal year ending December 31, 2011, Suntech reiterates shipment guidance of 2.2GW of solar products. Due to pricing pressure, Suntech has revised its full year revenue guidance to a range of $3.3 billion to $3.5 billion.

Suntech Power is one of the largest producers of PV solar modules under its proprietary Pluto technology with a geographically-diversified customer base. Other positive factors for Suntech include ongoing expansion programs, greater conversion efficiency through its Pluto technology-enabled modules, subsidy program in China, and improving operating efficiencies. However apprehensions over rising competition, subsidy cuts in Europe, and financial stability of its customers overshadow the positives.

In the near-term however we assign a Zacks #3 Rank (short-term 'Hold' recommendation) for the stock, in line with peers like First Solar Inc. ( FSLR - Analyst Report ) and JinkoSolar Holding Company Ltd. ( JKS - Snapshot Report ) . Over the longer run, our Outperform recommendation on the stock indicates that it should perform above the broader market.