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 GT hopes to bring its polysilicon segment back into the black in 2008.[3] This field has particularly strong growth potential, as the solar market 's 41% annual growth from 2001 through 2008[4] has led to a bottleneck in refined silicon supply, creating new demand for silicon refining equipment. Of GT Solar's $1.3 billion backlog, polysilicon equipment made up 44%[5], so losing LDK's $180 million backlogged order was painful to the company's business and its shareholders.[6] Nevertheless, company management remains optimistic, citing that LDK's orders of GT's core polysilicon machine, the chemical vapor deposition unit, made up less than 8% of backlog and will have no real effect on the company's future earnings.[7] GT Solar's success is inherently connected to the success of the solar industry, which has grown at a 41% average rate since 2001.[8]
[edit] Business Overview GT Solar makes manufacturing equipment for the silicon and solar industries. Specifically, its Polysilicon business makes machines to produce polysilicon from raw silicon, while its Photovoltaic business makes machines to make multicrystalline ingots from polysilicon, as well as machines to make solar wafers and cells from multicrystalline ingots. The company went public on July 24th, pulling $500 million from the IPO.[10] The company's 2008 fiscal year ended March 31st, 2008. Over 95% of the company's revenue comes from customers in Asia, like LDK Solar.[11] [edit] Business and Financial MetricsGT Solar's revenue increased slightly from 2006 to 2007 and then saw strong growth from 2007 to 2008, coinciding with strong growth in the solar industry. At the same time, net income, which had been a loss before, became profit.  [edit] Segment BreakdownGT Solar operates two business segments: Polysilicon and Photovoltaics. [edit] Polysilicon (0% Revenue in 2008)GT Solar entered the polysilicon refining industry in 2005, and has since received 9 orders for 176 of its chemical vapor deposition (CVD) systems, which produces polysilicon from raw silicon, from six customers.[13] Of these, only one has been delivered, in August of 2007, but will not realize any revenue until the customer has confirmed that a pre-set"output criteria" has been met (i.e., the customer has used the machine to produce a certain amount of siicon). [edit] Photovoltaics (100% Revenue in 2008)GT Solar's PV segment makes machinery that solar cell manufacturers use to turn polysilicon into solar panels. Its primary product is the directional solidification systems (DSS) unit, which converts polysilicon into multicrystalline ingots and was responsible for 86% of 2007 revenues..[14] [edit] Trends and Forces[edit] One Product and Three Customers are Responsible for the Majority of SOLR's RevenueIn GT Solar's 2008 fiscal year, ended March 31st 2008, one customer accounted for 62% of total revenue.[1] Three customers are responsible for 59% of GT's $1.3 billion backlog.[1] Loss of any major customer would have a real, negative effect on the company's operations; in July 2008, one of GT Solar's large backlog customers, LDK Solar, decided to purchase silicon processing equipment from JYT, a private competitor to GT Solar, thereby voiding LDK's $180 million worth of backlogged orders to GT.[15] Though GT made a press release claiming that the loss would have no effect on backlog or future operations, shares plummeted by 17% following the news.[16] As a result of the events surrounding LDK's switch, GT Solar now faces no less than seven separate lawsuits for failing to disclose “imminent risk of losing out on a contract for future orders from LDK due to delays in shipping production equipment to LDK".[17] During the company's 2008 fiscal year, sales of the DSS unit accounted for 86% of total revenue.[1] This is risky, given that sales of the DSS, which processes polysilicon into ingots that can then be turned to solar panel wafers, are dependent on the market for solar power. If a refined silicon shortage continues, solar panel production growth will slow, bringing down demand for the DSS. Fortunately for GT Solar, 44% of the company's backlog is composed of orders for silicon refining equipment.[18] High demand for silicon refining equipment during a refined silicon shortage will cause sales from the silicon segment of GT Solar's business to make up for any potential decreases in photovoltaic segment sales. Furthermore, the company has not actually realized any revenue on its silicon refining equipment. Once this starts to happen, the concentration of DSS sale in total revenue will significantly decrease. [edit] GT Solar's Success Depends on Demand for Solar PowerAs the price of oil has skyrocketed and the average citizen has become more aware of his environment, there has been a strong push for the development of economic alternatives to petroleum, especially renewable sources of energy. The push for clean energy has benefited the solar industry, which has averaged 41% growth per year from 2001 through 2008, and is projected to continue growing at a similar rate (if not faster) in the future.[19] In 2007, there were 2,826 MW of PV solar installations - over a GW more than the 1,744 MW installed in 2006.[20] With the expansion of the industry and increased investment, PV solar has made great strides in the last five years as panels have become more efficient and production costs have decreased. According to the Department of Energy’s Solar America Initiative, the hope is that with continued research and increased competition, PV solar power will become a competitive source of commercial electricity by 2015.[21] As a source of renewable energy, solar has a wide appeal. It is a virtually limitless resource, and once installed, can produce electricity without emitting harmful pollution. In developed countries that see heavy air conditioner usage, peak electricity usage occurs during the hottest, sunniest days of the year - the same days when solar panels can produce the most energy. Solar comes with limitations, however, most notably the poor efficiency of PV modules, which is further reduced by the need to convert DC from solar cells into AC current. Moreover, solar is weather dependent and intermittent, requiring storage or back-up systems to supplement generation at night or on cloudy days. In 2007, solar power represented only a tiny fraction of total electricity generation and energy demand (less than 1% at the end of 2007).[22] If solar energy overcomes these obstacles and its share of the energy market starts to grow, the industry's production capacity will increase, causing GT Solar's market to grow. [edit] GT Solar's Emerging Polysilicon Production Equipment Business Benefits from the Silicon BottleneckOn the other hand, 44% of GT Solar's $1.3 billion backlog comes from orders for polysilicon manufacturing equipment.[23] As polysilicon vendors begin to expand production, demand for the company's CVD reactor and other polysilicon equipment will continue to increase; as backlog items are produced, this demand will be realized in the form of new revenue and income. Unfortunately for GT Solar, these refining capacity shortages are already being addressed by silicon manufacturers and likely will not last much longer. Hemlock Semiconductors began production from its new facility in June of 2008, a facility that is expected to produce 9,000 metric tons a year, and perhaps as much as 36,000 metric tons per year after improvements slated for 2011. This alone dwarfs 2005's worldwide silicon production levels of just 26,000 metric tons.[24] [edit] A Shortage of Silicon Refining Capacity Dampens the Potential Growth of Solar Panel Production, Thereby Damping the Potential Growth of GT SolarSilicon, a necessary input to most solar panels, is one of the most abundant elements on Earth; refined silicon, on the other hand, is in short supply. As solar power has increased in popularity, silicon producers, who previously catered only to the semiconductor market, experienced a surge in demand. Due to limited mining and refining capacity, they were unable to keep up with the increased demand. This created a "shortage" of refined silicon, and caused prices to soar. A shortage of refined silicon is a double edged sword for GT Solar. A continued shortage of refined silicon would prevent the solar industry from expanding production, thereby reducing demand for GT Solar's photovoltaic manufacturing equipment - the only equipment that the company has made any revenue on. Furthermore, a silicon shortage increases costs to the solar industry. In the silicon PV industry, the cost of silicon accounts for approximately 45% of each module’s manufacturing cost.[25] This means that when silicon prices rise silicon PV manufacturers are forced to either absorb the extra cost or pass it on to consumers. The average long-term contract price of polysilicon has increased from $50-$55 per kilogram in 2006 to $60-$65 per kilogram delivered in 2007, with market prices sometimes spiking to as much as $400 per kilogram .[26] Higher silicon prices mean higher solar panel prices, making solar less competitive with other, cheaper forms of energy.
[edit] CompetitionGT Solar has no real publicly-traded competitors for its polysilicon business. It does, however, have two competitors for its PV business.
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