Greentech Lead Asia: Suntech Power Holdings, the world’s largest solar PV manufacturer as per 2011 records, is at the brink of collapse.
The company, with 2,000MW of annual production capacity at the end of 2011, has filed for bankruptcy following a default in US$541 million bond payments.
While the hostile business environment affected all major solar energy players in the world, Suntech bore the brunt more than others due to the sheer size of its business and lack of proper management. Poor financials aggravated the situation further.
The problem started when Chinese government announced huge subsidies to solar panel makers in the country. This resulted in an unexpected boom in the market and helped leading players including Suntech make windfall gains in the earlier days of their business.
Lured by tax breaks and subsidies hundreds of Chinese providers flooded the solar industry supplying enormous quantities of products. During their happy days Chinese manufacturers expanded their horizons to several foreign markets, especially the U.S. and the Europe where solar installations had been gaining momentum.
The happy days did not last long, however. The European Union and the U.S targeted Chinese players accusing them of selling solar products at below market price and enjoying unfair government subsidies. Chinese players were thus forced to restrict supplies to the Western countries and were penalized with huge import tariffs.
By then solar market worldwide had started facing oversupply issues, which forced several solar PV makers to offer solar panels at reduced rates with poor margins. This resulted in an unhealthy competition in the market, and it had a direct impact on the bottom line of leading suppliers. Many solar makers reported loss despite significant increase in solar PV shipment volume.
Suntech was the most affected by these changes as the company could not manage the impact caused by the vulnerable market conditions across its multiple centers. The company, which had spread its operations across seven countries — United States, Germany, Switzerland, Japan, Australia, Italy, Spain – in addition to China, found it difficult to keep their business going.
By deliberating pushing the prices down to capture larger market share, Suntech sawed the seeds of its own destruction, say analysts. Their failure should serve a lesson to other Chinese providers.
“What (Suntech) has done is increase supply to the market so much, that they really almost can’t sell anything at a profit now,” said Ben Cavender, associate principal of China Market Research Group (CMR) in Shanghai.
Suntech recorded a net loss of $1.0 billion in 2011, from a profit of $237 million in 2010. The company has not yet revealed the financial results for 2012.
Suntech business expansion was driven by its interest to capture more markets. One reason for the company’s failure s that it “went too fast in its expansion,” said Liu Wenping, a partner in Shanghai-based solar investment consulting firm Sapphire Capital.
Suntech had also been a victim of a business fraud when one of its partners faked $680 million in collateral for a loan Suntech had guaranteed.