Solarfun Power Holdings (SOLF)

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As part of the 49.99 % purchase of Solarfun by Korea’s Hanwha Chemical, Solarfun has changed its named to Hanwha Solar One (Nasdaq:HSOL)

Hanwha Solar One (Solarfun Power Holdings) manufactures Photovoltaic (PV) cells and PV modules, provides PV cell services to convert silicon wafers into PV cells, and supplies solar power system services in China.^[1] Unlike many of its competitors, Solarfun manufactures PV products in house and sells them directly to system integrators or to third-party distributors.^[2] The company has four PV cell production lines and four multicrystalline PV cell production lines, with a total manufacturing capacity of 240 megawatts. In addition to its production plants, the company owns 40 monocrystalline ingot production furnaces, with up to 37.5 megawatts of annual manufacturing capacity.^[3]

Business and Financials

Hanwha Solar One reported revenue of RMB7,527.0 million (US$1,140.5 million) for 2010. This represents a 99.2% increase from revenue for 2009.^[4] While PV shipments, which totaled 797.9 MW in 2010, were a primary driver in revenue growth in 2010, Gross margin increased from 11.5% in 2009 to 20.8% in 2010 amid higher PV prices.^[5] Hanwha Solar One also improved its balance sheet. the company reported for 2010 cash and cash equivalents of RMB1,630.8 million (US$247.1 million) for and net working capital of RMB3,179.9 million (US$481.8 million).^[6] In 2009, Hanwha Solar One reported cash and cash equivalents of RMB1,296.7 million and net working capital of RMB2,286.5.^[7]

For 2011, the company expects module shipments between 1GW to 1.2 GW, of which about one-fifth would be for PV module processing services.^[8] Over the course of 2011, Hanwha Solar One plans to drive revenue growth by expanding its production capacity.^[9] The expanded capacity has the potential of being a response to higher prices and international sale.^[10]

Trends and Forces

Increased world competition

As global demand increases for PV solar systems and pricing is predicted to remain stable, more companies are seeking to take advantage of the growing market.^[11] While strong sales from European and US customers is a good indication of potential 2011 sales for solar companies like Hanwha Solar One, Japanese PV firms have plans to expand production capacity to better compete against Chinese rivals. Some of these rivals include Kyocera (KYO), Sanyo (SANYY), Sharp Corporation (SHCAY), and Mitsubishi Corp (TYO:8058).^[12]

The export market is important for Japanese PV firms; Exports made up 64% of megatwatts shipped in the first quarter to the third quarter of the fiscal year ending March 2010.^[13] As a result, producing PV systems at competitive prices has the potential of playing a crucial role in the ability of Japanese and Chinese firms to sell to PV importers.^[14] The build capacity of Chinese companies as well as government and private investments have played a crucial role in the ability of PV firms to produce competitively-priced cells.^[15] By the end of 2010, the module capacity of China's top five integrated firms has the potential of being 40% than that of Japan's entire industry.^[16] Nevertheless. Chinese companies have the potential of experincing pricing pressures from Japanese and US competitors.^[17]

Lower silicon prices and access to financing

Lower product prices coupled with long-term financing agreements are some reasons why Hanwha Solar One’s sales have the potential of doubling in 2010.^[18] Hanwha Solar One 195-watt capacity costs approximately 35% less to comparable panels made by Germany’s Schott AG.^[19] The cheaper price and high quality of the Chinese panels enable better returns for solar park builders, who have been experiencing pricing pressures since Germany lowered prices consumers pay for solar power.^[20] These lower panel costs have helped Chinese panel makers increase their global market share to 60%.^[21]

In addition to lower silicon prices, Chinese companies also have newer production equipment compared to many of their western rivals like Solarworld AG and Q-Cells SE.^[22] Chinese companies have also had access to plenty of cheap capital for expansions. Loans made to Trina Solar (TSL), Suntech Power Holdings (STP) , and Yingli, and JA Solar Holdings, (JASO) have totaled $16 billion for 2010.^[23]

Hanwha Solar One's sales depend on both costs and PV efficiency

Solarfun produces less efficient cells than major competitors like SunPower (22%^[24]), Suntech Power Holdings (18%^[25]), and Kyocera (18.5%^[26]). 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 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 its 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 polysilicon. 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. On this front, Hanwha Solar One appears to be lagging.

In June 2010, Solfarfun introduce new building-integrated photovoltaic cells (BIPV). The cells, which come in a variety of shapes and designs, can be used in windows and skylights, which has the potential of making them more attractive for homeowners and architects.^[27] As a result, Hanwha Solar One's new cell hopes to combine efficiency and design in way that has the potential of increasing their use on buildings and homes.^[28]

Competition and Market Share

Though Hanwha Solar One previously had an insignificant share of the solar market, its $135 million IPO in December 2006 gave the company the confidence to aim for an end-of-2008 capacity of 360 MW^[29]. Assuming it makes its goal, the expansion would put Hanwha Solar One solidly in the top 10 solar companies worldwide.

Other competitors, with 2005 market share^[30], include:

• SunPower (SPWR) (insignificant in 2005) - One of the fastest growing solar companies, with one of the most efficient cells around
• Sharp Electronics (24%) - The largest photovoltaic cell manufacturer in the world
• Suntech Power Holdings (4%) - A Chinese photovoltaic cell company that is muscling its way into world solar markets
• JA Solar Holdings, (insignificant in 2005) - A Chinese PV company that only sells monocrystalline solar cells; it lets its customers take care of building the modules and systems.
• Evergreen Solar (insignificant in 2005) - A solar company that produces string ribbon PV cells and operates at all production levels from silicon wafer to power system.
• Kyocera (8%) - A Japanese electronics company that is also a major manufacturer of solar cells
• Q-Cells (9%) - The world's largest solar cell manufacturer, based in Germany.
• First Solar (insignificant in 2005) - A thin cell solar panel manufacturer that uses cadmium telluride instead of silicon for its cells.
• BP (5%), Mitsubishi (6%), and Sanyo (7%) - Not primarily photovoltaic cell manufacturers, but heavy market competitors nonetheless.
• EMCORE (insignificant in 2005) - A Concentrated Photovoltaic System manufacturer that uses Gallium arsenide PV cells and got its start in the solar business making power cells for satellites.
• Energy Conversion Devices - This company uses amorphous thin-film silicon in its ultra-thin, albeit low-efficiency solar cells.

Notes

1. ↑ Reuters: Company Profile for SOLF
2. ↑ Reuters: Company Profile for SOLF
3. ↑ Reuters: Company Profile for SOLF
4. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
5. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
6. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
7. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
8. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
9. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
10. ↑ Hanwha Solar One 2010 Full Year Results, March 2011
11. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
12. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
13. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
14. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
15. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
16. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
17. ↑ MarketWatch.com: Japan's solar sector rivals China's, January 2011
18. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
19. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
20. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
21. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
22. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
23. ↑ thestreet.com:JA Solar Gets $4B China Loan Package, September 2010
24. ↑ [SunPower's New Solar Panel Is 22% Efficient; http://www.renewableenergyaccess.com/rea/news/story?id=46286]
25. ↑ [Forbes - Sun King; http://www.forbes.com/free_forbes/2006/0327/062.html]
26. ↑ [Kyocera - Solar Timeline; http://kyocerasolar.com/about/timeline.html]
27. ↑ Wikinvest.com: Solarfun (SOLF) Introduces New Line of BIPV Modules, June 2010
28. ↑ Wikinvest.com: Solarfun (SOLF) Introduces New Line of BIPV Modules, June 2010
29. ↑ Solarfun Website, Why Choose Solarfun, http://www.solarfun.com.cn/Why_Choose_Solarfun.php
30. ↑ CIBC Initiating Coverage, SOLF, January 29th, 2007