Sharp's Secret Weapon: Solar Cells and Systems (SHCAY)

Sharp (SHCAY.pk, TSE ticker: 6753) is primarily known for its consumer electronics, and these days big screen thin panel LCD TVs are getting all the attention and big investment dollars.

Though largely overshadowed by LCDs, Sharp Solar is rumored to be worth a good chunk of Sharp's approximately $20b market-cap and in a few years will help cut the company's energy use costs to zero. Red Herring interviewed Ron Kenedi, head of Sharp North and South America's solar operations. Below I pulled out the key points and quotes and I added some comments from my own research along with a quick look at Q3 earnings.

    • Sharp Solar has ~43% of U.S. solar market share
    • ~30% of global market share
    • World's number 1 solar manufacturer since 2000
    • Sales of solar cells increased 34% in the 3rd quarter (ended Dec. '05) +34% y-o-y to 38.4 billion yen (approx. US$325 million at Y118/US$1)
    • Solar cell sales accounted for approx. 5% of all Sharp's sales in Q3; unfortunately more precise data is unavailable because Sharp classifies solar cells under its "Other Electronic Components" product group, although solar accounts for about half of this group's sales
    • Benefited from Japanese government's 10-year subsidy beginning in 1994 due to have been phased out as of last year; similar to how     German manufacturers benefited from government subsidies (the two nations overtook the U.S. as the leading solar manufacturers over the past ten years)
    • Domestic competitors: Kyocera (KYO), Sanyo (SANYY), Mitsubishi Electric (TSE ticker: 6503)
    • Poised to capitalize on burgeoning California solar market especially after the recent California Solar Initiative legislation approving nearly $3 billion over 10-years towards solar development
    • The state of California is the world's third largest solar market after Japan and Germany
(Sources: Red Herring article, California Public Utilities Commission, Sharp press releases)

Sharp's Q3 Financials (period ended Dec. 31, 2005):

    • Net Sales: 731.7 billion yen, +12.5% y-o-y
    • Operating Income: 43.8 billion yen, +20% y-o-y
    • Income Before Taxes and Minority Interests: 41.2 billion yen, +18.7% y-o-y
    • Net Income: 26.3 billion yen, +25.8% y-o-y

Key Kenedi interview quotes:

Q: Analysts have estimated that Sharp’s solar division would have a market capitalization of more than $10 billion if it were a stand-alone company. Sharp’s total market cap is about $20 billion. So why is Sharp still valued mainly as an electronics company?

A: I wouldn’t say that it’s $10 billion. Sharp should be valued as an electronics company because LCD flat screens and phones are major pillars of Sharp. And solar is right behind that.

I don’t know how saturated those other markets are, but the promise of solar is huge. It’s definitely important to the company. By 2010, we have a mandate as a company that we will save as much power as we use. We will have net zero energy use, between our energy savings and energy generation.

Q: Some of your competitors grew 100, 200, and even 500 percent last year. In comparison, a report released by brokerage CLSA Asia-Pacific Markets in July estimates that Sharp’s solar revenue grew only 60 percent last year. Are competitors catching up?

A: When you’re starting with nothing, it’s easy to get 200 percent growth. Sharp is a very modest, conservative company when it comes to giving up revenues. And anyway, [60 percent] is nothing to sneeze at. Two hundred percent growth in one year is a one-year deal; it’s not sustainable.

We did have a lot of growth in 2004. In 2005, we couldn’t grow a lot because we’ve hit our limit in terms of silicon. We’re getting more silicon than anyone else in the world, but we really could double sales if we had the silicon. We’re trying to get as much as we can.

Q: What are some of the new technologies you’re developing? And when do you expect they will begin to take hold? We’ve been hearing about technologies like thin-film for years, but more than 90 percent of the market is still based on crystalline technologies.

A: We’re doing a lot of things to save silicon—scrap, thinner cells, and we’re looking at all our processes. We’re starting there. We expect to see a pretty good savings of silicon. In the last 20 years, thin-film has been the hope. We think it is getting closer and closer, and we think in two to three years it will become mainstream. Concentrators also make a lot of sense for large fields. We expect that will happen in three to five years.

SHCAY 1-yr chart: