Expect More M&A Action from Suntech Power

The PV solar power market is intensely competitive and rapidly evolving. The number of solar manufacturers has steadily increased due to the growth of actual and forecast demand for PV products and the relatively low barriers to entry.

Suntech Power Holdings Co., Ltd., (STP) a Chinese company with $1.95 Billion (2008) revenues is the world's largest manufacturer of crystalline silicon photovoltaic (PV) modules. Suntech Power announced Friday, its follow-on public offering of 20,000,000 American Depositary Shares (''ADSs''), each representing one ordinary share of the Company, was priced at $12.50 per ADS.

Note the chart below of Suntech Power EPS history.

Suntech Power has also granted the underwriters an option to purchase up to 3,000,000 additional ADSs to cover over-allotments. UBS Investment Bank (as Global Coordinator and Stabilization Agent), Goldman Sachs (Asia) L.L.C. and Deutsche Bank Securities Inc. will act as joint book-runners and underwriters for the offering.

Suntech Power faces stiff competition from the PV divisions of large conglomerates such as Sharp Corporation (SHCAY.PK) $2.6 billion joint venture with Italy’s Enel SpA (EN), including specialized cell manufacturers such as Q-Cells AG (QCSLF.PK) and LDK Solar (LDK) joint venture, as well as integrated manufacturers of PV products such as Kyocera Corporation (KYO), Green Plains Renewable Energy Corporation (GPRE), SolarWorld AG (SRWRF.PK) and SunPower Corporation (SPWRA). Some of the competitors have also become vertically integrated, from upstream polysilicon and silicon wafer manufacturing to PV system integration.

It is also contending with significant competition from companies such as First Solar, Inc. (FSLR), now producing products based on the more advanced PV technologies, including thin film solar modules, amorphous silicon, string ribbon and nano technologies, which may offer cost advantages over the crystalline polysilicon technologies.

Furthermore, the entire PV industry faces competition from conventional energy and non-solar renewable energy providers. Due to the relatively high PV manufacturing costs compared to other energy sources, solar energy generally offers competitive government incentive programs.

The Suntech Power management team will retain broad discretion over the use of proceeds of the follow-on public offering with a recent history of aggressive M&A activity.

During March 2008, the Company acquired 11.7% equity interest in Hoku Science Inc. (“Hoku”), a NASDAQ listed company for total cash consideration of $20.0 million.

During May 2008, the Company acquired 5% equity interest in Xi’an Longi Silicon Material Limited (“Xi’an Longi”) for total cash consideration of $7.3 million.

In June 2008, the Company committed to acquire 86.0% share equity of Global Solar Fund, S.C.A., SICAR (“GSF”) as a limited partner for total cash consideration of $364.6 million (EUR258 million).

In September 2008, the Company established two joint ventures, Gemini Solar Development Company LLC (U.S.) (“Gemini DevCo”) and Gemini Fund I Manager LLC (U.S.) (“Gemini Fund I”), for total cash consideration of $0.3 million.

During October 2008, the Company committed to subscribe for a minority interest, representing a 24.0% equity interest, in Yunnan Diantou New Energy Development Co., Ltd. (PRC) (“Yunnan Diantou”) for total cash consideration of $17.6 million, and $3.5 million has been paid as of December 31, 2008.

In addition for Q1 2009, Suntech Power has already announced it is actively looking to build a new facility in the U.S. among several locations it is considering Oregon as a manufacturing site. Oregon already has a similar role for SolarWorld AG manufacturing site making it an interesting clean energy labor resource. Suntech's U.S. factory, wherever it lands, would slice wafers into cells and assemble panels. The PV modules are typically installed on the roofs of commercial and residential buildings to collect solar energy.

Suntech Power’s total net revenues for the first quarter of 2009 were $315.7 million, a decrease of 23.8% from $414.4 million in the fourth quarter of 2008. The sequential decrease in revenues was primarily due to a decrease in the average selling price of PV products and a decline of shipments.

During 2009, we should expect more M&A activity from the solar industry and Suntech Power as it continues to raise cash to remain competitive among clean techs by diversifying its technology in advancing low cost manufacturing capabilities.

Disclosure: The author has no significant direct interests in the companies listed in this article.

Comments

[jmmx:]

James,

A pretty good article here, with a wealth of useful information. A couple of suggestions however.

1- When you mention the companies in which STP has invested (e.g. Hoku), you might mention what they do.

2- More importantly, it is god that you mention the negative factors for STP (competition, thin film, etc.), but you should equally mention the more positive factors as well:
- price of silicon is dropping
- silicon PVs still offer much higher efficiency rates than other systems.

These few additions would have created a more complete picture of the situation.

Regards.

May 25 11:59 AM

[Wisdom vs. ...:]

good article overall, thanks
string ribbon has nothing in common with thin film; the cSi is spun (or dipped) directly on the ribbon, eliminating the time and material waste sawing crystals into wafers.
calling thin film technologies 'advanced' is misleading; they are newer, but they are relatively very inefficient and need significant improvement to be competitive with cSi LONG-TERM.

May 25 02:00 PM