Investors are looking for signs of a recovery in solar panel demand when manufacturers report earnings in the coming weeks, though panel prices are still falling fast and earnings may not see a meaningful improvement until 2010.

U.S. solar players including SunPower Corp, First Solar Inc and MEMC Electronic Materials are scheduled to report quarterly earnings this week and next, with Chinese and German companies' results also in the offing.

Recently, companies including SunPower and Yingli Green Energy Holding Co Ltd have said the solar market turned a corner in the second quarter. Last week, however, the world's top solar cell maker, Germany's Q-Cells, injected fresh nervousness into the market when it withdrew its 2009 outlook -- which it had previously cut three times.

Demand for solar panels has suffered this year due to a lack of available financing for renewable energy projects and a pullback in government subsidies in Spain and Germany. That demand slide has lead to a global glut of solar panels that has sent prices tumbling and hampered manufacturers' profits.

Second-quarter results from solar companies are expected to be significantly better than the previous quarter, when many reported hefty losses. Analysts are more interested, however, in the manufacturers' outlooks for the remainder of the year.

What will be most important will be management commentary on demand and average selling prices, Simmons & Co analyst Burt Chao said in an interview. I would expect Q3 demand to improve, and if they talk that down that would be very negative for the stocks.

Many companies have said they expect improved financing conditions and funds from the U.S. economic stimulus to boost demand in the second half of this year, yet financing remains tight and government programs have been slow to roll out.

In addition, prices on solar panels are still falling.

Many solar companies set expectations for improving demand in the second half of this year, said Gabelli & Co analyst Hendi Susanto. We believe higher-than-expected price declines will likely overshadow improving volumes.

Earlier this week, Bank of America/Merrill Lynch analyst Steven Milunovich downgraded the solar sector to underweight, citing the risk that demand will not recover as much as expected. He added that this year's rally in alternative energy stocks may be over for the time being as second-quarter results should be disappointing.

SUNPOWER KICKS IT OFF

Panel maker SunPower will kick off the solar earnings season after the market closes on Thursday. For SunPower, the market is focused on to what extent the company is feeling pressure from lower-priced Chinese competitors, which could result in steeper-than-expected price declines. Barclays Capital analyst Vishal Shah said in a client note that he expects SunPower to cut its 2009 revenue outlook.

SunPower should also offer insight into the global financing environment and outlook for U.S. solar policies.

In the first half of August, investors will also hone in on a raft of earnings from solar companies out of Germany -- the world's biggest solar market -- including industry bellwethers such as Conergy AG, SolarWorld and Solon SE.

Top German solar company Q-Cells stunned the industry when it forecast a second-quarter loss before interest and tax of 62 million euros ($87.99 million), as the recovery it had hoped for failed to materialize.

German cell maker Ersol, owned by the world's largest supplier to the automotive industry Bosch, hit a similar note by substantially cutting its full-year profit outlook.

To me, this (recovery) has been wishful thinking, said Sebastian Growe, analyst at Equinet. There is a hope among companies, but what strikes me is that this has seldom translated into hard estimates, real numbers.

Hopes rest on all-rounders such as SolarWorld, which has so far remained relatively unscathed by the crisis that has hit the sector.

German manufacturers' woes may not extend to Chinese counterparts including Suntech Power Holdings Co Ltd, Yingli Green Energy Holding Co Ltd and JA Solar Holdings Co Ltd, analysts said, as price declines on Chinese-made panels were more dramatic earlier this year, when many took hefty inventory writedowns.

With Q-Cells, one of the real key things they said was (prices) have declined a lot faster than we had previously expected, Chao said. The Chinese manufacturers have taken the (price) declines early on.

(Reporting by Nichola Groom, editing by Matthew Lewis)