The Chinese cell and module company is creating a joint venture (JV) to expand cell production, buying a silicon wafer company to better control its raw material supply and counting on an investment fund to generate profits from project development.
The results of these efforts should lead to a banner year in 2011, the company executives said during a meeting with investors and analysts in New York City on Monday. Suntech expects to generate USD$3.4 billion to $3.6 billion in revenue and a gross margin of 20-22 percent in 2011. For 2010, the company will likely bring in $2.78 billion to $2.83 billion in revenue and a gross margin of 17 percent.
The forecast beat Wall Street expectations, which had pegged the average revenue at $2.74 billion for 2010 and $3.02 billion in 2011.
Like many of its peers, the company wants to expand its manufacturing might so that it wont be caught flatfooted when demand rises and market research points to a continuing growth in the global solar market in the next few years. But instead of building a new factory all by itself, however, it has chosen to create a joint venture with Wuxi Industrial Development Group and Wuxi New District E&D Group.
The approach will be cheaper for Suntech. The company will pony up $60 million for a 40 percent stake in the JV, but it will get 600 megawatts (MWs) of annual solar cell production capacity by mid-2011 and another 600 MWs in late 2011 or even 2012, depending on market demand.
How can we expand our capacity quickly and use little money? Thats why we decided to leverage other peoples resources to expand manufacturing capacity, Suntech chairman and CEO Zhengrong Shi, told analysts. Its not a significant increase of cost, but its quite a good return on investment for our JV partners.
The new cell factory will be crucial for ramping up the companys production of its Pluto cells, the latest and greatest offering that can achieve over 19 percent efficiency (monocrystalline silicon). The company already has 450 MWs of production lines installed to churn out Pluto.
Making a move to a new technology typically involves higher manufacturing costs, so the JV is a less capital-intensive way for Suntech to get desirable volumes of solar cells without shouldering all the initial equipment and operating expenses. But analysts wanted to know what happens if Suntech has no need for all the cells the new factory can make. If the partners could sell the cells to other buyers, would they in effect undercut the companys business in some way?
Shi said the partners have the right to sell excess cells to others, and he sought to assure the analysts by noting that Suntech should be able to take all the cells from the factory in 2011. But he didnt address what might happen, say, if Suntech cells end up in competitors modules.
Suntech is eager to control its silicon wafer supply as well. Last month, the company announced a plan to buy a subsidiary of Hong Kong-based Glory Silicon Technology Investments that will come with 375 MWs of annual ingot and wafer production capacity.
The move will allow Suntech to address what is perceived as a weak spot in the companys operation. Historically, the company buys wafers, so its profits are subject to the commoditys price fluctuation. The risk is something Suntech, the No. 2 solar module maker worldwide, wants to mitigate, Shi said. The company already saw its gross margin shrink from 17.8 percent to 16.4 percent in the third quarter of this year partly because of the higher wafer costs.
Some of its fellow silicon module makers, such as Trina Solar and Yingli Green Energy, already have in-house wafer production. Some analysts also believe Trina and Yingli have been more adept at reducing their manufacturing costs.
The company expects to boost the wafer production to 500 MWs by the end of this year and increase that to 1.2 gigawatts (GWs) by the end of 2011. By the end of this year, the company says it will have 1.8 GWs of cell and module production capacity. By 2011, that number should climb to 2.4 GWs (including the 600 MWs from the JV). ?
If all goes well, Shi said his company can reduce its module manufacturing cost from $1.40 per watt during the third quarter of this year to $0.80 per watt in 2013. He said a large engineering and construction firm in the United States, whom he declined to name, can already install projects at $3.50 per watt.
Suntech also hopes to reap some benefits from a two year investment firm that funds solar projects. The company has the majority stake in the investment firm, called Global Solar Fund (GSF). GSF has 140 MWs of project under construction and expects to complete 80 MWs in the fourth quarter of this year; the rest will be done in 2011.
GSF-funded projects provide outlets for Suntechs modules. In addition to counting module sales, Suntech also can recognize gains in the values of the companies that GSF invests in.