(BN) Solar ‘Decade of Mergers’ Starting as Plunging Prices Imperil the Weakest

Most Solar Manufacturers May Vanish by 2015, Trina CEO Says

Nov. 8 (Bloomberg) — 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., 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 more, led by First Solar Inc. and Yingli Green Energy Holding Co., slashed sales and margin forecasts, reflecting slower growth in demand and stiffer competition. SunPower Corp. and Roth & Rau AG 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 at a conference in Singapore, without naming survivors or giving 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.

Meyer Burger Technology Ltd., Europe’s biggest manufacturer of the factory equipment for making solar gear, today said it would delay the full takeover of Roth & Rau.

Roth & Rau Surprise

The decision was made after the German competitor issued a profit warning yesterday that may cause Baar, Switzerland-based Meyer Burger to take impairments of as much as 60 million euros ($83 million), compared with its $376 million takeover price. Roth & Rau plunged 27 percent, the biggest decline since it began trading in 2006.

Mergers have picked up this year as share prices have tumbled for producers of solar components and finished panels. Germany’s SolarWorld AG, the biggest maker of traditional photovoltaic panels based outside of China, fell 66 percent last quarter, the most since it began trading in 1999.

Deals for solar companies worldwide total more than $3.3 billion this year, up from $2.5 billion last year and more than half the record $6.1 billion set in 2009, according to data compiled by Bloomberg.

Hemlock, Wacker

Trina ranks fifth by factory capacity among the world’s biggest makers of traditional panels from crystalline silicon. The leaders are China’s Suntech Power Holdings Co. and LDK Solar Co., followed by Ontario-based Canadian Solar Inc. and SolarWorld, according to Bloomberg industry data that lists Trina with a 1.2-gigawatt capacity at Dec. 31. Gao said Trina has since increased that to 1.9 gigawatts.

Hemlock Semiconductor Corp., owned by Dow Corning Corp., is the top maker of polysilicon, followed by Wacker Chemie AG of Germany, OCI Co. Ltd. of South Korea and GCL Poly Energy Holdings Ltd. of China, according to Bloomberg industry data.

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.

The Bloomberg Industry Global Leaders Large Solar Energy index has lost 59 percent this year, more than 10 times the 5.7 percent decline in the MSCI World Index. The Standard & Poor’s 500 index has gained 0.3 percent in the period.

Bonds at Junk

German solar-panel maker Q-Cells SE, 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.

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.

Chinese Comparison

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.

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 .

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

Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/


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