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JA Solar Holdings, (JASO)Stock (Semiconductor - Specialized Industry)
JA Solar Holdings Co. (NASDAQ: JASO) is an emerging, Chinese producer of monocrystalline solar cells. The energy sector is becoming increasingly turbulent, with oil recently hitting $100/barrel and alternative energies becoming increasingly popular. Growth in solar panel efficiency over the last few years has made the sun an increasingly appealing source of power; rising silicon prices threaten the success of the solar industry in this new environment, however, by making photovoltaics more expensive relative to other energy sources like wind. In an industry where the supply of refined silicon has ramped up production costs and crunched margins, JA Solar continues insures itself against rising input prices by establishing supplier relationships with such monocrystalline wafer suppliers as M. Setek, Renesola, and Shunda Semiconductor and contracting for large, low-cost silicon deliveries in coming years. Within the solar industry, JA Solar must compete on the basis of its solar panel efficiency and its manufacturing costs. Though the company is based in China, and therefore keeps production costs down via cheap labor, it is barely above average in both measures of solar success. JASO will either have to develop stronger efficiency technologies or lower-cost production technologies, as 17.7% efficiency[1] cells that cost $2.37/watt[2] to manufacture don't compare well against competitors like SunPower or First Solar, with 22% efficiency[3] and $1.40/watt[4] manufacturing cost respectively. The solar sector is becoming more and more competitive; among JA Solar's competition are such powerhouses as SunPower, SunTech, BP Solar, Sharp, Kyocera, and Q-Cells.
[edit] Business and FinancialsJA Solar is an international producer of photovoltaic (PV) cells. PV cells absorb light energy (usually from the sun) and convert it to electricity. There are multiple kinds of PV cells; JA Solar produces monosilicon cells. The company takes monocrystalline wafers made by silicon refiners like ReneSola and M. Setek and turns them into PV cells. Each cell has a relatively low power output, but when multiple cells are combined into a system or module, enough electricity can be generated to power a house, a factory, or even contribute to the utilities grid. JASO, however, is only involved in cell production - it sells its products to module manufacturers and systems integrators and lets them do the dirty work. JA Solar currently sell its products to customers in the U.S., China, South Korea, Germany, Sweden, and Spain.
Source: Lehman Brothers Global Technology Conference Presentation[5]
JA Solar's monocrystalline solar cells have generally achieved conversion efficiency rates in the range of 16.0% to 16.5%. The highest efficiency level achieved with solar cells produced by JA Solar to date was 17.70%. In terms of wafer thickness, JA Solar is capable of processing silicon wafers that are as thin as 180 microns. JA Solar currently purchases a large amount of its wafer supplies from Jinglong Group, which is owned by the shareholders of its largest shareholder, Jinglong BVI. Jinglong Group is the largest producer and supplier of monocrystalline wafers in China with more than ten years’ operating history in the silicon processing business. Recently, JASO also entered into supply agreements with wafer manufacturers ReneSola, M. Setek, and Shunda Semiconductor. [edit] Trends and Forces[edit] JA Solar Keeps a Steady Silicon Supply to Protect Itself against ShortagesRecently, JA Solar has secured large supply deals with major silicon providers, in order to insure that it will have enough of the necessary materials to continue to grow without seeing costs rise. Examples include:
JASO uses silicon for the majority of its products, as do most solar power companies; currently, there is a worldwide silicon shortage. This shortage has been caused by a lack of silicon refining capacity. In the past, companies like MEMC Electronic Materials (WFR) produced silicon wafers for the semiconductor industry. Now, with the advent of solar power and its rapid growth, demand for silicon has increased greatly, leading to its undersupply as production capacity is not enough to meet current demand. This undersupply has led to rising prices for solar equipment which in turn raises the price of solar power compared to other clean energy production technologies such as wind and ethanol. Furthermore, higher silicon prices mean higher production costs for solar companies - and lower margins. By securing low-priced silicon supplies for the next few years, JA Solar hopes to shelter itself from the silicon price storm, until refining capacity expands to meet demand. [edit] Neither the Efficiency nor the Cost of JASO's Cells are Remarkable for the Emerging Solar IndustryDespite producing monocrystalline solar cells, which tend to have higher efficiencies than multicrystalline cells, JASO's best product has a maximum production efficiency of 17.7%[9]. JASO produces less efficient cells than major competitors like SunPower (22%[10]), Suntech Power Holdings (18%[11]), and Kyocera (18.5%[12]). Even with lower production costs from using low-wage Chinese labor, JASO's 3Q07 manufacturing cost of about $2.37/watt[13] is not as low as some competitors like First Solar, with a cost of $1.40/watt[14]. Solar panel efficiency is important because Oil and gas prices have trended upwards over the past several years. As rising oil and gas prices lead to more expensive commercial electricity, consumers may start to demand new, cheaper sources of power. Solar power is currently less efficient than other energy sources, even wind. Sunlight, however, is available in massive quantities for half the day, and is free, unlike oil or coal. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative, despite the current level of inefficiency. Concurrently, as solar power's efficiency rises, it becomes more competitive with oil and gas. The solar industry's R&D focus is on increasing this efficiency while minimizing the use of inputs like silicon. If solar companies can develop technology that allows more electricity to be produced with thinner PV cells, for less money, then solar power will become more competitive. [edit] Government Support for Renewable Energy is Vital to the Growth of the Solar Industry...and JA SolarGovernments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence. Examples include:
Emissions caps and clean energy mandates that are supported by subsidies and tax cuts make solar energy relatively cheaper. This means that corporations and utilities companies may turn to clean energy sources to generate electricity for manufacturing facilities and power plants, directly benefiting solar power companies like JA Solar. Without government support, however, solar companies would have difficulty vending their products, as solar energy is currently much less cost effective than coal or natural gas. [edit] Competition and Market ShareJA Solar only recently emerged as a major player in the solar market, after being formed in 2005 and going public in 2007. The company produces monosilicon PV cells, which are more expensive to produce than polysilicon PV cells, but tend to have higher efficiencies - though JA Solar's cells still have lower efficiencies than many others. Other competitors, with 2005 market shares[15], include:
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