Solar Comments: Consolidation Chinese Style? 太阳能行业：中国式整合
When someone says an industry is in need of consolidation, the assumption is usually that mergers and bankruptcies will reduce overheated competition and excess capacity to create a more efficient and profitable sector. But the concept seems to have a completely different meaning in China, where 2 of the nation’s top solar panel makers discussed the consolidation concept in their latest earnings reports even though we’ve yet to see any major companies close or merge among a money-losing group that now produces more than half the world’s solar cells. In announcing fresh major new losses for their latest reporting quarters, Suntech (NYSE: STP) and Trina Solar (NYSE: TSL) both used the “c” word, with the latter saying specifically it sees further signs of industry consolidation happening. (Suntech earnings; Trina earnings) Suntech was less direct, saying simply it was consolidating its own operations to close down some of its less efficient facilities. Obviously there could be M&A deals now being negotiated that are still secret, but to the best of my knowledge there has been little or no consolidation happening in this sector that has been suffering from overcapacity for a year now. Several US companies had to close last year, but they were mostly smaller players and those bankruptcies happened almost a year ago. Other than that, the only deal I’ve seen so far this year was a small acquisition in January of a small German manufacturer by LDK Solar (NYSE: LDK). (previous post) China watchers will know that consolidation of any industry in China — especially a strategic one like solar that Beijing wants very much to develop — is extremely difficult due to the government’s willingness to support money-losing companies indefinitely with loans from state-owned banks and other public funding sources. That means even the most money-losing companies may never close if the government doesn’t want them to. What’s more, mergers are also extremely difficult, as most big manufacturers get strong support from local governments that worry that any such mergers might result in the closure of manufacturing facilities that contribute to their local economies. So what consolidation does Trina see exactly? Perhaps the answer lies in Suntech’s comments. Rather than consolidation through combinations and closures, the industry may have to follow Suntech’s example and see individual manufacturers close down their less efficient facilities. That approach could work for relatively well for more efficient companies like Suntech, though a less efficient player like LDK — which already announced massive layoffs earlier this year (previous post) — might have to shutter the majority of its operations to return to profitability. This kind of consolidation could be the most likely and practical, but will also mean we could expect to see some significant drops in capacity at Chinese solar companies as they self-consolidate on their march back to profitability.
Bottom line: Chinese solar cell makers, unable to consolidate through mergers and closures, are starting to close less efficient factories to reduce overcapacity and return the sector to health.
Related postings 相关文章:
◙ Sohu Disappoints Again, LDK Cuts Inspire 搜狐再次令人失望，江西赛维裁员鼓舞人心
◙ Passive Beijing Blasts New US Solar Tariffs 中国炮轰美高关税不实用 解决太阳能产品纷争需更主动
◙ LDK Cuts, Suntech Waits As Solar Winter Nears End 太阳能行业冬季将结束：赛维裁员，尚德等待
