Chinese solar cell makers are striving to find ways to diversify sales after the export-oriented industry suffered huge losses from the depreciation of the euro.

Despite continued revenue growth, solar cell makers' profits have shrunk significantly due to volatile currency markets.

China's solar cell industry was an early victim of the euro's decline as Europe absorbs more than 80 percent of solar cell exports.

Solar cells, also called photovoltaic or PV cells, are semiconductor devices that convert the energy of sunlight into electricity. They are most commonly used in solar panels.

Wuxi-based Suntech Power, the world's largest manufacturer of solar cells, saw its gross margin squeezed to 19.5 percent in the first quarter of 2010 from nearly 24 percent in the last quarter of 2009, mainly owing to euro volatility.

Suntech's profit was halved to $20.7 million from $49.9 million during the same period while revenues remained nearly flat, mainly owing to the fluctuating euro, the company said.

Other major Chinese solar cell makers also reported slower growth compared to previous quarters.

According to industry insiders, estimated total exchange losses are likely to exceed $1 billion within the industry since the euro began to depreciate.

But exports of solar cell products still doubled during the first quarter of this year.

European nations are likely to reduce stimulus spending in solar energy due to belt tightening. For example, Spain, Italy, Greece and Portugal are mulling spending cuts and may reduce or even eliminate solar subsidies, which could dent Chinese suppliers for several quarters, said industry analysts.

Coupled with the euro depreciation, this could mean a weaker industry outlook throughout this year and into 2011. The current situation will likely effect demand since all Chinese suppliers are significantly exposed to European markets.

To hedge the risks of a volatile exchange rate, some suppliers chose forward exchange settlements and financial derivatives, by which an agreement on future exchange rates was signed to offset price fluctuations, according to some industry players.

"Exchange losses are really not my top concern right now," said Wang Xinghua, chairman of ET Solar, a Jiangsu-based solar energy equipment maker. "Finding new clients and new orders for next year is our priority," he added.

The company lost 10 percent in profit as the euro dived as much as 20 percent but its revenue soared almost 80 percent, partly offsetting the losses, according to Wang.

Despite the exchange losses, solar cell suppliers are rather bullish on the market outlook.

ET Solar expanded its production capacity to 600 megawatts (mW) this year from 150 mW in 2009, partly driven by its ambition to explore emerging markets, such as the US.

The installed capacity in the US will double this year and solar energy markets in Asia as well as in Australia are also likely to take off, industry analysts estimate.

Yingli Solar said its exports to the US will triple to 100 mW this year and it is also optimistic about other fast-growing markets including Australia, the Czech Republic and Poland.

"Chinese PV makers are starting to face intensifying competition from foreign rivals who are gradually recovering from the economic downturn, forcing them to explore domestic markets while diversifying overseas," said Jiang Qian, chief industry analyst with China Investment Consulting.