Bad investment and US trade case led to Suntech fall

Following Suntech Power Holding Co. Ltd’s announcement last week that subsidiary Wuxi Suntech had entered insolvency and restructuring proceedings, IHS Solar has identified a number of issues, it says, have helped bring the once world leading crystalline photovoltaic module manufacturer to its knees.

Specifically, stated senior PV analyst, Mike Sheppard, Suntech’s failure to invest in wafer manufacturing was a big mistake. "By failing to vertically integrate in this fashion, Suntech was caught in a cost squeeze between falling system, module, and cell pricing and steady wafer expenses—making the company uncompetitive," he explained.

The successful SolarWorld-led petition to impose tariffs on photovoltaic modules coming from China to the U.S. also impacted Suntech, continued IHS Solar. Indeed, it believes Suntech was the hardest hit, due to its number one module supplier ranking in the U.S.

"Suntech worked hard to earn its price premium status. As the first Chinese company to do so in the PV market, it was considered at the same level at top-tier U.S., European and Japanese producers," commented IHS Solar.

These issues were further compounded by the GSF Fund scandal, which hit the headlines on July 30, 2012, after Suntech announced it may have backed €560 million worth of fraudulent bonds, issued in connection with the Global Solar Fund, S.C.A., Sicar (GSF), in 2010; and the recently unveiled internal power struggle, which came to light when founder Zhengrong Shi was ousted as Chairman of the Board.

"The net effect of these two events hurt the company, significantly eroding the price premium earned by the company," stated IHS Solar. "By the time news from internal power struggles and the exit of Dr. Shi Zhengrong, Suntech president and CEO, had come to light, it was too late for a company so laden with debt."

Principal PV analyst Stefan de Haan added that the insolvency announcement signals that the Chinese government and banks may not be willing to support ailing manufacturers at all costs. "A little bloodletting may help soften the trade case in the EU," he said.

"And with a major player folding, China can demonstrate it is not fully supporting these companies anymore. This means that the consolidation in the PV industry will continue, since there are still many hundreds of suppliers and there is still a fundamental overcapacity in the market."

Overall, however, IHS Solar forecasts that 2013 will witness a "turnaround" in the photovoltaic industry.