by Staff Writers
El Segundo CA (SPX) Mar 27, 2013
Suntech Power's epic plunge from solar module dominance to bankruptcy comes as the result of misplaced investments, a misguided pricing strategy, antidumping action in the United States and a potential new willingness by the Chinese government and banking system to cast off detrimental manufacturers, according to the IHS Solar service at information and analytics provider IHS.
China's Suntech on Wednesday said its main operating subsidiary, Wuxi Suntech, had been pushed into bankruptcy by eight Chinese banks. This represents a major fall from grace for Suntech, which as recently as 2011 was the world's largest supplier of photovoltaic (PV) solar modules, as presented in the attached table.
"The seeds of Suntech's fall were planted during its rise to market leadership," said Mike Sheppard, senior PV analyst with IHS.
"In 2009, at a time when the solar market was reeling from bloated inventories and cash-flow concerns, Suntech was one of the few companies willing to brave the uncertain business conditions and invest aggressively in manufacturing capacity. This bold strategy resulted in Suntech becoming the world's largest PV module supplier in 2011. However, in retrospect, the company failed to invest in all the correct areas, specifically in wafer manufacturing. By failing to vertically integrate in this fashion, Suntech was caught in a cost squeeze between falling system, module, and cell pricing and steady wafer expenses-making the company uncompetitive."
From premium to discount
This had the most negative impact on Suntech, which was the No. 1 module supplier in the U.S. market with 600 megawatts worth of shipments during the year.
Compounding this issue were financial concerns over the global solar fund, which is still being investigated for alleged illegal activities. The net effect of these two events hurt the company, significantly eroding the price premium earned by the company. By the time news from internal power struggles and the exit of Dr. Shi Zhengrong, Suntech president and CEO, had come to light, it was too late for a company so laden with debt.
"A little bloodletting may help soften the trade case in the EU. And with a major player folding, China can demonstrate it is not fully supporting these companies anymore. This means that the consolidation in the PV industry will continue, since there are still many hundreds of suppliers and there is still a fundamental overcapacity in the market."
PV growth to continue
Even so, IHS Solar does not expect an immediate shift in the supply and demand balance. Although consolidation among suppliers will continue, a turnaround in the PV industry is expected to occur this year in light of growing end markets, stabilizing prices and revenues, and positive single-digit margins for best-in-class manufacturers.
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