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JA Solar Holdings Company Ltd. (JASO - Analyst Report) announced third quarter 2012 results. Adjusted loss per American Depositary Share (“ADS”) was 17 cents, lower than the Zacks Consensus Estimate of a loss of 20 cents. Results also improved from the year-ago adjusted loss per ADS of 36 cents.

Quarterly Performance

JA Solar’s revenues in the reported quarter were $260.9 million, beating the Zacks Consensus Estimate of $253 million. Revenue in the third quarter of 2012 decreased 9.2% from $287.5 million in the second quarter of 2012, and decreased 33.7% from $393.8 million in the third quarter of 2011.

Total shipments in the third quarter of 2012 were 418 MW, above the high end of the company's previously provided guidance of 350 MW to 370 MW, flat versus the 418MW shipped in the second quarter of 2012, and down 6.1% from 445 MW in the third quarter of 2011.

Gross loss in the third quarter of 2012 was $15.4 million, compared with a gross profit of $13.7 million in the second quarter of 2012 and a gross loss of $16.9 million in the third quarter of 2011. Gross margin was negative 5.9% in the third quarter of 2012, compared with positive 4.8% in the second quarter of 2012 and negative 4.3% in the third quarter of 2011.

Total operating expenses in the third quarter of 2012 were $85.1 million, compared with $38.5 million in the second quarter of 2012 and $27.1 million in the third quarter of 2011. The sequential increase in total operating expenses was primarily due to a long-lived asset impairment of $39.9 million related to the company's multi-crystalline wafer manufacturing facilities in Donghai, Jiangsu province, China, and a prepayment impairment of $12.0 million.

Operating loss in the third quarter of 2012 was $100.4 million, compared with an operating loss of $24.8 million in the second quarter of 2012 and an operating loss of $44.0 million in the third quarter of 2011. Operating margin was negative 38.5% in the third quarter of 2012, compared with a negative operating margin of 8.6% in the second quarter of 2012 and a negative operating margin of 11.2% in the third quarter of 2011.

Net loss was $59.1 million, compared with a net loss of $72.8 million in the second quarter of 2012.

Financial Condition

JA Solar at the end of the reported quarter had cash and cash equivalents of $543.7 million and total working capital of $312.6 million. Total short-term bank borrowings and convertible notes due 2013 were $253.2 million. Total long-term bank borrowings were $720.1 million, among which $315.6 million will be due in one year. The total face value of outstanding convertible notes due 2013 was $128.0 million as of September 30, 2012.

Outlook

JA Solar expects cell and module shipments in the range of 380 MW and 420 MW in the fourth quarter of 2012. For the full year 2012, the company revised its total cell and module shipment forecast to a range of 1.55 GW and 1.65 GW versus an earlier range of 1.5 GW and 1.8 GW. The revised estimates reflect the company's prioritization of maintaining a healthy financial position over short-term shipment gains.

Our Take

JA Solar is one of the most cost-efficient solar producers with a geographically diversified customer base. However, the loss incurred by JA Solar this quarter reflects industry-wide high inventory levels, rising competition, and the oversupply of solar cells in the market. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock. This is in line with its peers  ReneSola Ltd. (SOL - Analyst Report) and Suntech Power Holdings Co. Ltd. .

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