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Suntech Power Holdings Co., Ltd. (ADR) (STP): Can This Company Stage a Comeback?

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The embattled Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is a giant solar products manufacturing company. Until 2011, the company was the largest solar company in terms of market share listed in the Chinese and the U.S. stock markets. The company’s crystalline silicon photovoltaic (PV) modules production is unmatched by any other company in the industry. The PV modules are known to convert light energy into electricity for industrial, commercial, residential, and utility applications. The company has delivered more than 25 million solar panels in no less than 80 countries. However, it has been struggling since 2009 and has had its fair share of battles.

Problem overview

Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) has been hit with one scandal after another, including the official bankruptcy of its primary operating subsidiary, Wuxi Suntech. The company’s revenue has also steadily declined in the last five years. Its insolvency problems began back in 2009 when the company booked revenue that never materialized. This, coupled with the stiff competition in the solar industry, has caused the one time leader in the solar industry to wobble. On top of all this, the company is engaged in a battle with the EU over damping allegations.

Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP)The solar module manufacturer has over $2 billion in debt and is on the verge of collapse. On March 15, 2013, the parent company defaulted on $541 million convertible debts. Since then, it has been signing forbearance agreements with bondholders. Sooner or later, the bondholders may take legal action against the company and force it into involuntary bankruptcy. Until recently, its stock price had been on a downward trend. By March, it had lost over 90% of its stock price value in less than five years.

State of the global solar industry

Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) is not swimming alone in turbulent waters; rival companies are also in crisis. Fall in prices of the PV modules have been such a quandary, and perhaps Suntech’s insolvency development and EU-China trade war have also fueled the matter.

The prospects are not looking so well for the Chinese giant, Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), which has overtaken Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) in shipments of panels into the U.S. The first-quarter fiscal report showed that the company’s loss stood at $0.01 per share, a margin that was wider than its previous year’s performance. After this sixth quarterly loss, it has replaced their head of finance. The Chinese solar merchandise producer is now looking homeward to increase sales in the wake of lower revenue. Its survival in the world’s largest solar market will depend on the performance of its peers.

Bosch had been struggling to survive in crystalline photovoltaic module production despite the depressed prices of solar PVs. But eventually, in March, the Germany-based company closed down its solar energy business. After spending $2.5 billion in the industry, the auto-parts giant argued that the solar industry had no path to profits. The company suffered a huge loss, which is estimated by PV Tech to be close to $3.1 billion.

It has also emerged that Siemens AG (ADR) (NYSE:SI), another Germany-based company, has closed down its solar energy business. Just like Bosch, Siemens has raised concerns about the sudden decrease in prices of PV panels. Earlier in 2009, the company had acquired Israel-based Solel Solar Systems at a cost of $418 million , and later, the Italy-based solar thermal company, Archimede Solar Energy. But over the last two years, the company has suffered close to $1 billion in losses.

Other parts of the industry are not spared either. SMA Solar Technology is yet another victim. The global leader of solar inverters controlled over 40% of the global market. The remaining inverter market share has been held by almost 400 small companies of which almost half are Asian. SMA’s profit margin has been declining steadily, which has been attributed to unfair competition from cheap investors from Asia.

So far, the best performing stock in the solar industry has been SunPower Corporation (NASDAQ:SPWR), which has dominated its fellow U.S.-based companies. While the company plays second fiddle to SolarCity Corp (NASDAQ:SCTY) in the residential and commercial sectors, it has invested in very profitable projects. Its C7 product has made it the world’s largest utility-scale installer, which is expected to help it through the volatile industry.

The future of Suntech

Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) has been struggling to get back on its feet. This has led to a series of debt restructuring moves and changes in management, as well as strategies. While the market forces are the major causes of problems at this company, some of the problems are inborn. The company’s management made a series of blunders and poor investment decisions. It lost billions of dollars on various projects, such as the polysilicon and thin film project, which has been written off.

Suntech’s European Unit (SPI) is leading the restructuring and reaching significant milestones. It has just been granted a six month definitive moratorium on debt repayment. The moratorium, which may be extended afterward, was issued from the judicial authorities in Schaffhausen, Switzerland. The company is expected to continue with its normal operations as the process continues. Meanwhile, there has been considerable increase in investor confidence and the share price is slowly moving up.

Conclusion

The continuous closure of giant solar companies is a result of stiff competition in an industry with no competitive advantage, though most countries argue that Chinese companies enjoy government subsidies. With the low and unsustainable solar panel prices, only withdrawal of some manufacturers might help curb oversupply and stop prices from falling further.

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