Canadian Solar falters during probe

Despite the company signaling an end to its internal audit committee investigation unless new information coming to light, analysts fear that without any comment from the U.S. Securities and Exchange Commission SEC, the probe was far from over.

The solar modules maker, valued at about $500 million, had delayed reporting its full first-quarter results after getting a subpoena from the SEC in June.

Canadian Solar's accounting issue could hurt the company's ability to secure supply in a tight market, Jefferies & Co analysts said, pointing to the company's expectations of a sequential fall in second-quarter module shipments.

"They restated their results, giving people lack of confidence in management credibility the SEC inquiry is unresolved... this might linger for a long time," analysts at Jefferies, who rate the stock "hold," told Reuters.

Solar companies, which have been seeing blistering growth based on their potential, have come under regulatory scrutiny for alleged accounting irregularities, sparking fears that more cases could start to surface.

The company's shares, which fell 21 percent in the two days from June 1 surrounding the news of the regulatory probe, dropped a further 13 percent to a one-week low of $10.88 on Nasdaq.

For the April-June second quarter, Canadian Solar sees shipments of 173-177 MW, and backed its 2010 shipment view for 700-800 MW. First-quarter shipments were 185 MW.

The company's gross margin for the first quarter was 12.4 percent, lower than own forecast, as operating costs more than tripled. Margins are expected to improve in the second half, the company said.

Analysts at Wells Fargo Securities said the company's focus on weak first-quarter results in its statement and post-earnings conference call, rather than the potential for second-half recovery, was disappointing.

"We believe the first-half challenges were well understood and we were hoping management would shift investor focus to the second half recovery," the analysts said.

The company said first-quarter net income was $1.5 million, or 3 cents a share, and net revenue rose about seven-fold to $336.9 million, helped by higher demand in Europe.

For the first quarter, Europe was the largest market for the company, with shipments boosted by the prospect that Germany would soon cut solar subsidies.

Analysts on average had expected profit of 7 cents a share on revenue of $330.9 million, according to Thomson Reuters.