Chinese challenger aims for top spot in solar tech

Suntech Power Holdings has come from China--and out of nowhere--to become a big name in solar power.

Bucking the automation trend, Suntech Power Holdings credits its rise in the solar industry to people, and lots of them.

Rather than use expensive robots, Suntech employs roughly 2,500 workers to assemble solar cells into panels and perform other tasks ordinarily handled by machines. The workers give Suntech a lower operating cost than Western competitors, and there are fewer broken cells, said Steve Chan, vice president of business development at the company.

The factory workers make, on average, about $200 a month, not including housing subsidies, free food and an on-site medical clinic. (It's about half of what a new college graduate earns in China).

Low-tech as it sounds, the approach has led to a Moore's Law-like growth rate for the Shanghai-based company. Suntech, which makes both solar cells and completed panels, was an asterisk in overall market share in 2002. By 2005, it was the eighth largest solar cell maker in the world, according to statistics from Photon International. In 2006, it jumped to fourth and this year passed No. 3 Kyocera in solar cell manufacturing capacity.

The rise of Suntech

These lists show the market share leaders for manufacturers of photovoltaic cells in 2005 and 2006.

1. Sharp
2. Q-Cells
3. Kyocera
4. Sanyo
5. Mitsubishi
6. Schott Solar
7. BP Solar
8. Suntech
9. Motech
10. Shell Solar

1. Sharp
2. Q-Cells
3. Kyocera
4. Suntech
5. Sanyo
6. Mitsubishi
7. Motech
8. Schott Solar
9. Deutsche Cell
10. BP Solar

Source: Photo International

Suntech's revenue and profits are following a similar path. Sales in 2006 rose to $598.6 million, more than doubling 2005 revenue, while net income rose by from 30.6 million in 2005 to 106 million last year. Revenue this year will likely hit $1 billion. In 2002, revenue was $3 million.

"We came from nowhere," Chan said. "We were able to grow in the face of an industry shortage of silicon."

Many believe the company now has its eye on toppling Sharp as No. 1 in the industry. Sharp has factory capacity to produce enough solar cells to put out 600 megawatts of power in a year, compared with Suntech's 360 megawatts. By 2010, Suntech expects to have the factory capacity to produce 1 gigawatt of solar cells a year.

"Suntech, longer term, is going to be the Honda Civic of the industry," said Jeff Osborne, an analyst at CIBC World Markets. "My fundamental belief is that 80 to 90 percent of the market, long term, will be a commodity product and the Chinese and Taiwanese are going to dominate that (commodity) sector."

Alternative energy is becoming big business in China. In the past two years, several Chinese solar companies--such as Nanjing's Sunergy, JA Solar Holdings and Solarfun Power Holdings--have held initial public offerings in the U.S. Suntech did it first, in late 2005; because of the IPO, founder Zhengrong Shi is one of the richest men in the country.

Chinese manufacturers have also begun to expand into the market for solar water heaters. Meanwhile, The Jiangsu province has linked up with the Cleantech Network and Tsinghua University to create a clean-tech industrial park.

Not the usual story
But just when you think this might be another story about how low-cost labor in China will bowl over established Westerners, guess again. Product quality, solar cell efficiency and access to large amounts of silicon remain key considerations and will hinder many of the new entrants from China, said Paula Mints, an associate director for Navigant Consulting. Most of the other Chinese companies have barely made a dent in the market, and price cutting is already trimming their margins.

Then there is the problem of shipping. Solar panels weigh a lot. Shipping them from China virtually eliminates any of the costs saved through cheaper labor, Mints said.

"The shipping costs are significant. You've got to get the stuff across the ocean and then you've got to land it," she said. "Unless the domestic market takes off, the other manufacturers will be challenged."

To address these problems, Suntech is preparing its second act. While trying to beat competitors with lower costs, Suntech will go high-tech in another area. It is building a conveyor belt and robotic system for cell manufacturing that will allow it to shoot for gigawatt-scale output, said Chan. Managing manual laborers "will probably become cumbersome at some point," he said.

Two of the five robotic systems Suntech hopes to one day deploy are already being beta tested.

It is also building its own industrial park near its factories, which will house equipment providers (assembling the robots designed by Suntech) as well as component suppliers, to cut down costs and increase efficiency. The strategy neatly mimics what Dell has done in PCs.

To top it off, the company is wedging its way into thin-film solar cells, roofing tiles with integrated solar cells through the acquisition of a Japanese company, and higher-margin solar cells that can convert more sunlight into electricity than average cells.

"We feel we are going to hit 20 percent efficiency in a few years, but we will do it with a low-cost structure," Chan said.

If the company succeeds, other Chinese companies will follow suit, so what happens over the next few years for Suntech is a big deal in solar.

"The Chinese companies are where we will have to keep our eyes open," said Ron Kenedi, vice president of the Solar Energy Solutions Group at Sharp.

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