Most Solar Manufacturers May Disappear by 2015, Trina CEO Says

By Natalie Obiko Pearson - Nov 8, 2011 7:01 AM GMT+0700

Most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.

“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”

Three U.S. solar companies including Solyndra LLC have gone bankrupt this year and others led by First Solar Inc. (FSLR) and Yingli Green Energy Holding Co. slashed sales and margin forecasts, reflecting slower demand growth and stiffer competition. SunPower Corp. (SPWRA) and Roth & Rau AG (R8R) of Germany agreed to takeovers.

Gao, who founded Trina in 1997, predicted that only about five companies may survive through 2020 in each of the three major manufacturing segments. He defined those as photovoltaic panels, ingots and wafers, and the raw material polysilicon.

“Globally, that would be stable and sustainable,” Gao said last week, without naming survivors or his expectations for his own company.

SunPower and First Solar, the largest U.S. solar-gear manufacturers, this month said they will reorganize after cutting their forecasts.

The five biggest makers of traditional crystalline silicon panels by factory capacity are China’s Suntech Power Holdings Co. and LDK Solar Co., Ontario-based Canadian Solar Inc. (CSIQ), Germany’s SolarWorld AG (SWV) and Trina, according to Bloomberg industry data.

Hemlock, Wacker

Hemlock Semiconductor Corp., owned by Dow Corning Corp., is the leading maker of polysilicon, followed by Wacker Chemie AG (WCH) of Germany, OCI Co. Ltd. of South Korea and GCL Poly Energy Holdings Ltd. (3800) of China.

Investors and project developers are increasingly looking at cash and survivability of manufacturers, executives said.

“Customers are flying to quality,” seeking suppliers who are considered reliable enough for banks to lend on projects, Suntech CEO Zhengrong Shi said last week. The top six manufacturers took 55 percent of the panel market in the second quarter, up from 26 percent last year, he said.

German solar-panel maker Q-Cells SE (QCE), whose 2012 convertible bond trading at a discount to face value of about 58 percent, has said it’s open to takeover bids. Orkla ASA said on Sept. 14 it’s looking for ways to exit from its 39.7 percent stake in Norwegian panel and polysilicon maker Renewable Energy Corp ASA. (REC)

Quick Innovation

Survivors will need strong technology, economies of scale and the ability to innovate quickly, “but also very strong financial performance, very healthy balance sheets,” Gao said.

A ranking of 35 companies in the Bloomberg Global Leaders Large Solar Index shows Conergy AG, which makes panels in Germany, has the weakest balance sheet with a total debt exceeding total equity by more than tenfold, data compiled by Bloomberg show. LDK Solar and Canadian Solar also rank among the five most leveraged companies with short and long-term borrowings more than double shareholder equity.

The Chinese companies have a “huge” cost advantage over their European, American and Japanese competitors because of better operational management and an ability to react faster to market conditions, Gao said.

The spot price of solar panels has fallen about 40 percent this year as manufacturers particularly in China ramped up their production capacity, according to New Energy Finance. The 10 largest silicon panel manufacturers doubled their manufacturing capacity last year, the data show.

Operating Margins

Many solar-equipment companies are losing money at the operating level, as the average operating margin fell to 0.1 percent in the third quarter compared with 13.7 percent a year earlier, Bloomberg industry data show.

At Trina, second-quarter panel shipments jumped 78 percent from the year-earlier period, while its operating margin shrunk to 5.7 percent from 22.5 percent.

Prices will fall further, which will spur the market to expand many-fold by 2020 because solar power will become more affordable across the world, Fang Peng, chief executive of JA Solar Holdings Co., told a conference in Singapore this week.

“The industry has a very bright future even if right now we’re in winter,” Peng said.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.