In a new analysis of solar companies "Its not over for the solar industry" published by strategy and marketing consultants, Simon-Kutcher & Partners, the financial and market performances of key solar companies from Germany, the U.S. and China were analyzed.
The analysts concluded that to survive industry consolidation, finances must be secured, production costs cut, and "most importantly", sales and pricing must be optimized. Specifically, they said both structures and processes must be improved; portfolios should be differentiated through the greater use of services; and systematic price-setting processes should be adopted.
In order to evaluate the status of the solar companies, Simon-Kuchers partner, Phillip Grothe and director, Alexander Thoele studied both their relative market performance and financial power. To determine industry strength, within these two categories, they further looked at profitability and growth (market performance), and financing and liquidity (financial power), based on such factors as operating margin, return on investment, EBT development, degree of internationalization, liquidity and equity ratios. Each factor was rated from one to three, where three was highest.
The analysts found that Germany-based photovoltaic inverter company, SMA Solar Technology is an "internationally leading outperformer" having "impressed the industry with a profit margin of 13.4 percent in 2011". In terms of profitability it was the clear leader out of the 17 evaluated companies, which included two U.S., four Chinese and 11 German manufacturers. In the area of growth, however, it fell down, particularly in "degree of internationalization". Overall, it was given a total market performance of 2.17, as was Germanys centrotherm photovoltaics.
With regards to SMA, Grothe commented, "All outperformers should segment their markets even more systematically, become even more international, and strengthen the positions of their successful brands." In centrotherms case, it is said to have a relatively weak financial base. "Companies in this situation need growth and profits to increase their internal stability." According to Grothe, they would do well to "offer a ‘growth story’ to their investors and capital providers in addition to securing their market position. Options in this area include differentiating the service portfolio and creating partnership programs."
Overall, the analysts say the U.S. and Chinese companies are dealing with slashed government subsidies and falling prices better than their German counterparts. "Chinese suppliers, for example, currently generate more than half of the industrys global revenue, and this share is set to increase," reported the analysis. It added, "Although profitability has dropped sharply across the board, many of the American and Chinese companies have increased their revenue in foreign markets such as Germany. Benefitting from competitors bankruptcies, they are gaining a foothold in new market segments." Local sales teams and "attractive" partner programs are also said to help.
On the other hand, those companies that have a strong financial base, but are weaker in market performance should use their "internal strength to invest in sales and use price as a strong profit lever". According to Grothe and Thoele, this strategy should be employed by First Solar, Trina Solar, SolarWorld and Aleo Solar.
"When it comes to margins, every percentage point counts," stated Thoele. "German Solarfabrik and Chinese JA Solar would return to the profit zone if they raised their prices by just one percent, and for American First Solar it would take only two percent. Given the current situation, thats a more realistic option than selling more megawatts."
SunPower, Conergy, Suntech and Yingli Solar were found to have performed most "poorly" by the analysis, having scored low both in the area of market performance and financial power. Here, "quick wins" and effective pricing are the factors for success, they said. "Companies need to enforce their prices more effectively," said Thoele, who headed the study. He added, "Specific sales training can help here. Systematically harnessing the price potential of small customers and charging for extras (packaging, shipping, express delivery, minimum volume order, etc.) are two measures that can have a quick impact."
Total market performance and financial power
SMA Solar Technology
Source: Simon-Kucher & Partners