(Reuters) - Canadian Solar Inc (CSIQ.O) forecast lower shipments and margins for the current quarter as its market share shrinks in the European Union, the biggest solar market where the EU plans to cap imports of cheap solar panels made in China.
Shares of the company, most of whose manufacturing operations are in China, were down 7 percent at $13.26 on the Nasdaq on Wednesday.
Canadian Solar said it expects to ship between 410 megawatts (MW) and 430 MW of solar panels in the third quarter, lower than the 455 MW it shipped in the second.
The company forecast gross margin of 10-12 percent for the third quarter, lower than nearly 13 percent in second quarter.
Canadian Solar's sales to Europe slumped by about 83 percent in the quarter ended June, accounting for less than 11 percent of its second-quarter revenue of $380.4 million. Europe accounted for nearly 70 percent of the company's revenue a year ago.
The company said it was adopting a "conservative approach" in Europe. It does not expect any growth in shipments to Europe in the third quarter.
"It does not surprise me in the least that they would guide to a slower third quarter as compared to second quarter," said Raymond James analyst Pavel Molchanov.
"Second quarter had considerable 'pre-buying' in Europe ahead of the feared European tariff that could have pushed Chinese module prices in Europe up almost 50 percent," he said.
Canadian Solar's rivals Trina Solar Ltd TSL.N and Yingli Green Energy Holding (YGE.N) on Thursday said they expect second-quarter shipments and gross margins to be higher than their forecasts on the jump in sales in Europe.
China and European Union struck a deal last month to regulate Chinese solar panel imports. The fine print of the agreement is yet to be disclosed, but a EU source told Reuters that Chinese firms could sell into Europe at a minimum price of 56 euro cents per watt, close to the market price.
China's shipments to EU, however, will be capped at 7 gigawatt (GW) per year, around half of the EU's 2012 demand of about 15GW. [ID:nL6N0FX04U]
"Given last month's EU-China trade deal, needless to say the pre-buying has come to an end," said Molchanov.
Canadian Solar, like its rivals, is trying to make up for the loss of market share in Europe by tapping more lucrative markets such as Japan.
Higher sales to the fast-growing Japanese solar market helped the company halve it second-quarter loss, prompting the company to forecast profitability on a full-year basis in 2013.
The company has reported losses for the last two years.
Japan accounted for nearly 36 percent of Canadian Solar's total solar panel shipments in the second quarter. Shipments to the Asian country nearly doubled from the first quarter.
Japan, however, will not fully compensate for the loss of market share in Europe, meaning that Canadian Solar will have to sell more in China and other emerging Asian markets, where panel prices are among the lowest in the world.
Increased revenue from the company's higher margin total solutions business — covering everything from the making of solar cells to installation of solar plants — also helped the company cut losses in the second quarter.
Canadian Solar estimated that the resale value of its Ontario project pipeline, once built into grid-connected solar power plants and sold to investors, will exceed C$1.50 billion ($1.44 billion).
The company's net loss narrowed to $12.6 million, or 29 cents per share, in the quarter ended June from $25.5 million, or 59 cents per share, a year earlier.
Shares of Yingli Green and Trina Solar shot up on the New York Stock Exchange on Thursday morning on the companies' stronger-than-expected estimates for the second quarter.
Yingli Green's stock was up 10 percent at $4.02, Trina Solar shares were up 5.5 percent at $6.96.
Yingli Green estimated that its panel shipments increased 23-24 percent in the second quarter from the first. It had previously forecast a low-to-mid teen percentage increase.
Trina Solar estimated that it has shipped between 630 MW and 660 MW of solar panels in the quarter ended June, higher than its forecast of 500 MW-530 MW.
Both companies said gross margins were likely to be 11-12 percent. Trina had earlier forecast gross margins in the mi-single digits in percentage terms, while Yingli was expecting margins of 9 percent to 11 percent.
Trina Solar is scheduled to report second-quarter results on August 20, while Yingli Green will report on August 30.
Reporting by Swetha Gopinath and Garima Goel in Bangalore; Editing by Sriraj Kalluvila