Hanwah Strategic Frameworks

“Who’s Eating Who In The Jungle?”
An Analysis of Companies in the Global Solar Photovoltaic Industry

MGSM850 T4 2012
Project Report Prepared By:
Leyon Aponso, Allen Sibley, Chamilla Fernando, Harry Hau, Sadat Zuhair
Emrana Khan, Justine Wang, Thomas Steiner, Iain Podd

Table of Contents

TABLE OF CONTENTS

2

EXECUTIVE SUMMARY

3

A DYNAMICALLY CHANGING INDUSTRY

4

SUNPOWER CORPORATION

9

O VERVIEW
S TRATEGIC D ECISIONS IN RESPONSE TO CURRENT MARKET CONDITIONS
‘F IVE F ORCES’ AND C OMPETITIVE ADVANTAGE V IEW
R ESOURCE BASED V IEW (C APABILITIES)

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10
12
12
13

HANWHA GROUP

16

O VERVIEW
S TRATEGIC D IRECTIONS IN RESPONSE TO CURRENT MARKET CONDITIONS
E XPANDING THE BUSINESS DOWNSTREAM TO PROVIDE S YSTEM INTEGRATION

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16

PRODUCTS AND SERVICES
ACQUISITION OF Q-C ELLS
D YNAMIC C OMPETITIVE ADVANTAGE V IEW
R ESOURCE BASED V IEW

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18
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20

CONCLUSION

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APPENDIX

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S UNP OWER H ISTORY (S OURCE: S UNP OWER)
S UNP OWER F INANCIAL S NAPSHOT & S HARE P RICE
H ANWHA M ILESTONES (S OURCE: H ANWHA W EBSITE)

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24
25

REFERENCE LIST

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STRATEGIC PARTNERSHIP WITH TOTAL AND SUBSEQUENT TENESOL ACQUISITION

2

Executive Summary

The Global Solar Photovoltaic panel manufacturing industry has grown very rapidly over the past 10 years, with of the emergence of a dominant design for panels, escalating energy prices, the desire to reduce global emissions of carbon, and enormous growth in demand on the back government incentives to install solar photovoltaic panels, particularly in Europe, as well as large scale solar systems for utilities in many locations around the world. Many new companies have been established in Europe, the US and Asia, over the past decade and manufacturing operations established throughout the world.
In China, there has been massive growth in manufacturing to satisfy global demand, and a number of Chinese companies have become major global players. Aggressive competition is now rampant and as a result the industry is currently experiencing rapidly falling prices, combined with a slowdown in demand from Europe, and global supply significantly exceeding demand.
The industry has now moved into a cycle of consolidation with many early entrants into the industry are suffering financial distress, and a number of significant mergers & acquisitions in the past 12 months, hence the title of this paper; “Who’s Eating Who In The Jungle”.
Within this global environment, two similar but quite different companies have emerged; Hanwha (a Korean company) an insurgent who have entered the global market using a fast-moving latecomer strategy and SunPower (a US company, now owned by a French company), a long established pioneer of the industry who are having to adopt a defensive strategy in order to survive.
Both are making significant strategic decisions in order to position themselves to be globally competitive.

This paper analyses these strategic decisions

using a range of analytical frameworks to better understand the drivers and expected outcomes of these decisions.

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A Dynamically Changing Industry

The Global Solar Photovoltaic Cell and module manufacturing industry has experienced very rapid and major disruptive changes over the past 2 years arising from the following key factors:
•

Global manufacturing capacity has more than tripled since 2009, with
China now producing about 60% of all PV cells globally, as demonstrated by Figure 01 below, ‘Top 10 Global PV Cell
Manufacturers 2006, 2010 (Rank Order by Capacity), Bloomberg New
Energy Finance

•

A flattening in demand arising from global economic conditions, and changes in market conditions in Europe in particular. Supply is now significantly greater than current demand, as demonstrated by Figure
02 below, ‘Supply & Demand of PV Modules, 2007-2013 (GW),
Bloomberg New Energy Finance

•

Prices of PV modules have fallen by 75% since 2008, with 45% fall in
2011, as demonstrated in Figure 03 below, Áverage Crystalline PV
Module Supplier – Prices & Costs’, while manufacturing costs are not falling as fast and current margins are unsustainable for the industry

•

In response to aggressive price competition from Chinese companies, and in order to protect their solar PV industry and companies, the
United States is levying ‘hefty’ tariffs on imported PV cells made by
Chinese firms in China.

These factors have resulted in many companies suffering severe financial distress, having to seek additional financing from investors, scale back production or close factories, in order to survive. Industry consolidation has commenced with numerous corporate takeovers and asset sales. The title of this report, ‘Who’s Eating Who in The Jungle?’’ is an apt description of the volatility of the global Solar PV market in its current evolutionary cycle.

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Alternatively this situation could be considered as part of the ‘’creative destruction’’ (Schumpeter cited by Mathews, 2012) experienced in all industries as market player’s battle for market share.
The status of the Global Solar PV market environment can be better understood by using Porter’s five forces model;
•

Barriers to entry are relative low for latecomers due to there being distressed assets available, a mature dominant technology, the availability of ‘turnkey’ manufacturing equipment, and large emergent manufacturing economies such as China supported by Government incentives and with low labour costs.

•

The number of competitors has rapidly increased, resulting in high rivalry, with particularly aggressive price competition

•

Power of buyers is high and supplier power is low, due to current oversupply in the global market, accompanied by slowdown in demand

•

Threat of substitutes has increased as PV modules have become more commoditised and alternative renewable energy sources such as
Wind power gain market share

Based on this view, a company considering entering the current market might be well advised to not do so, or wait until market conditions improve, however, the market conditions are also an opportunity to enter the market for companies with a follower or latecomer strategy, and the financial capability to do so, while those who are caught in the volatility of the market also have opportunity to survive with the right strategy.
This is particularly relevant given that the industry is forecasting massive growth over the next 20 years, with very significant investment in commercial large-scale solar power generation infrastructure in both the US & China.

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As the technology improves further and costs fall to the point where the
Levelised Cost of Energy (LCOE is an all inclusive cost measurement commonly used in the energy world to compare the generating costs of different technologies) for Solar approaches parity with traditional sources of electricity generation (oil, coal, etc.), as well as other sources of renewable energy, solar PV companies that can demonstrate products that help deliver the best LCOE for energy generation will have a significant strategic advantage. This creates a very interesting environment in which to analyse the respective strategic decisions of SunPower, a long-standing industry player since 1985 and Hanwha, a very fast moving new entrant in 2010.

In 2011, both

companies had similar market share in terms of the dominant technology
(Crystalline) within the industry, at 2.8% and 3.6% respectively (see Figure 03
‘Top 15 Crystalline Module Producers Q2 2011- Market Shares’ below). Both have taken strategic decisions to create value, grow or defend their market share and maintain or improve their competitive position, through vertical integration along the Solar PV value chain (see Figure 04, ‘Solar Photovoltaic
Value Chain’ below) and leveraging their core competencies.

Figure 01: Top 10 Global PV Cell Manufacturers 2006 & 2010

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Figure 02: Supply & Demand of PV Modules

Figure 03: Average Crystalline PV Module Supplier

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Figure 04: Top 15 Crystalline Module Producers Q2 2011

Figure 05: Solar Photovoltaic Value Chain

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SunPower Corporation

Overview
SunPower is a vertically integrated solar products and services company that designs, manufactures, and delivers high-performance solar electric systems for residential, commercial and utility-scale power plant (UPP) customers. The company was originally incorporated in California in 1985 to develop and commercialize high-efficiency solar cell technologies. SunPower now generates over $2.3 Billion in annual revenue and operates globally with international manufacturing, sales and marketing operations.
They are the industry leader in terms of the technical efficiency of the dominant industry technology (crystalline modules) with a 24% conversion rate of solar energy into electricity.
The UPP Segment refers to large-scale solar products and systems business, which includes power plant project development and project sales, turn-key engineering, procurement and construction services (EPC) for power plant construction, and power plant operations and maintenance (O&M) services.
The Residential & Commercial Segment focuses on equipment sales into the residential and small commercial market through a third-party global dealer network, as well as direct sales and EPC and O&M services in the United
States and Europe for rooftop and ground-mounted solar power systems.
SunPower was the leading US commercial installer of solar systems in 2011
(Figure 06)

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Figure 06: Leading US Commercial Installers 2011

Strategic Decisions in response to current market conditions As the market conditions caused SunPower’s sales and revenues to rapidly decline, SunPower was forced to make some major strategic decisions to prevent the competition and consolidation of the global PV industry overpowering them, and can be considered as having a Defensive strategy to maintain market position. SunPower's current strategy includes 5 important facets; technology and customer-service, right sizing of production capacity, driving down cost, streamlining its operating structure and improving its financial position.
SunPower is restructuring its manufacturing operations, deactivating PV cell production lines, cutting back on PV panel manufacturing by 20%, and a reduction of its employees by 900. Apart from significantly reducing inventory,

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lowering operational costs and improving efficiency, these steps would result in an overall blended manufacturing utilization of approximately 60% for the fourth quarter of 2012.

As a result these changes will enable significant

reductions in the manufacturing cost per Watt of Solar panel electricity output.
See Figure 07 below:

Figure 07: Manufacturing Cost Reduction Roadmap (Source: Nasdaq)
Another strategy used by SunPower was to expand its market share and vertically integrate along the Solar PV supply chain via acquisitions such as the PowerLight Corporation, SunRay Renewable Energy and most recently,
Tenesol. By making these acquisitions, SunPower has been able to improve access to customer markets, increase its scale of operations and diversify.

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Strategic Partnership with Total and subsequent
Tenesol Acquisition
In June 2011 SunPower entered into a strategic partnership with Total, one of the world’s leading energy companies, listed as the 11th largest company in the world on Fortune’s 2011 Global 500 List, providing SunPower with the following benefits;
•

A $1 billion credit support agreement

•

$600 million liquidity support agreement

•

$24 million four-year solar research and development investment

•

Access to more than 130 markets around the world

In January 2012 acquired Tenesol SA from Total and Total increased its ownership in SunPower to 66 precent. Tenesol is engaged in the business of devising, designing, manufacturing, installing, and managing solar power production and consumption systems for farms, industrial and service sector buildings, solar power plants and private homes. The acquisition of Tenesol provides SunPower with the following key benefits;
•

Expanded downstream presence in 18 countries across Europe, the
Middle East and Africa.

•

Entry into the off-grid market in those countries

•

Manufacturing facilities in France and South Africa

‘Five Forces’ and Competitive Advantage View
SunPower needed to improve the capital structure of the company in order to ensure successful implementation of their strategic plan and maintain a competitive market position. The partnership with Total makes this possible in many ways, including;

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Expansion into new markets - Through the Total partnership they have been able to vertically integrate and tie up downstream distribution channels in Europe the Middle East & Africa that otherwise might be available to competitors or new entrants
Investments in R&D - SunPower has been able to develop the world’s leading solar panel in terms of conversion efficiency (conversion of solar energy into electricity) thus creating product differentiation with buyers, and less need to compete on price due to the superior technical performance of their product. The Total partnership includes an R&D investment
Improving the Levelised Cost Of Energy equation - Through the ongoing R&D, and cost reductions described above SunPower’s superior product price performance, reduces the threat of substitute products such as other renewable and traditional sources of electricity production.
Cost reductions - Particularly in the manufacturing process; through process optimisation, ongoing R&D into simplifying the technology, and locating manufacturing capability close to local markets. The Total partnership and Tenesol acquisition help deliver in each of these areas, as well as improving economies of scale.
Another key decision to ensure the survival and ongoing market position of
SunPower is to cut costs, and in particular to cut back manufacturing volumes.

Resource Based View (Capabilities)
The partnership with/ ownership by Total and acquisition of Tenesol has helped enabled key strategic capabilities for SunPower. These capabilities will be instrumental for SunPower’s long-term survival and competitive advantage.

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Resources: what we have now (resource bundles)
Philippines, France, South Africa manufacturing locations

Flexibility in production capacity closer to customer markets

Maxeon™ Gen 3 cells1 which has demonstrated an industry leading efficiency of up to 24% potential to achieve grid parity.

Physical

Competencies: what we do well Research & Development that has created market leading technology

Vertically integrated supply chain with greater product range, manufacturing capacity and global distribution channels to customers.

Financial

Human

Machines, buildings, raw materials, products, patents, databases, computer systems
Strong financial backing of Total enables resource expansion through Tenesol acquisition
$75 million long-term loan from
International Finance Corporation
(IFC) supplier of funds.
Educated, low-cost workforce in the Philippines.
Managers, employees, partners, suppliers, customers.

Product differentiation to meet customer needs
Ability to reduce cost through more effective utilisation of manufacturing plants, reducing the number of manufacturing steps.

Ability to raise funds and manage cash flows, working capital, and be able to invest in growth etc.
Ability to develop and offer a unique lease financed product

By having a larger network of businesses as a result of the acquisitions, there is a larger knowledge base from which experience and learning may be enhanced. How people gain and use experience, skills, knowledge, build relationships, motivate other and innovate. 14

By focusing on their existing R&D capabilities, SunPower has transformed a threshold capability into a distinctive capability through creating product differentiation, and as a result a distinctive resource in the form of a market leading product. By having these distinctive resources, SunPower has gained a competitive advantage over its competitors. Continuation of innovation will be a critical success factor, as technology will eventually turn a distinctive capability back to a threshold capability as a result of competitor activities and new entrants.

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Hanwha Group

Overview
Hanwha Group is a 60-year-old top 10 Korean business groups and Fortune
Global

500

company

with

businesses

in

chemicals,

manufacturing,

construction, finance, retail and resorts, and revenues of US$32 Billion in
2011. Until recently the majority of their businesses have been focussed on the Korean market as a supplier of raw materials and manufacturing technology into that market and since 2010 are aggressively seeking to transform themselves into a major global corporation. Hanwha entered into the Solar Photovoltaic business directly in only 2010, with stated intention of becoming a top 3 global solar player by 2015 (Hanwha Website, 2012).
Hanwha’s approach to entering the Solar PV business can be regarded as insurgent, taking an aggressive and strategic approach to entering the market.

Strategic Directions in response to current market conditions Hanwha has taken advantage of the challenging global Solar PV market conditions to enter the marketplace using a fast moving, latecomer, countercyclical investment strategy (investing in resources at a time when most of the market is cost cutting or focussed on improving return on existing investments). Key to their strategy has been leveraging the core capabilities of a number of the existing companies within the Group, complemented by acquisition. Within 2 years they have established a major market presence through resource leverage, strategic acquisition and alliances to acquire or gain access to the resources needed to create a fully integrated Solar PV value chain. They have expanded downstream to provide system integration products and services to capture value & accelerate globalization of its solar business. 16

In 2010 Hanwha Group acquired Solarfun Power Holdings Co Ltd., a Chinese
Photovoltaic manufacturing company, listed on NASDAQ, which has been renamed Hanwha SolarOne, and positioned at the core of the Hanwha Solar
Value Chain Integration, (see Figure 07 below), from the production of polysilicon from Hanwha Chemical, through to project development, asset management and financing services from Hanwha Finance Network. Hanwha
Solar Energy and E&C provide downstream capabilities with, development, engineering, procurement, construction and operations & maintenance solutions. Hanwha L&C develop and manufacture high tech materials.

Figure 07: Solar Value Chain Integration

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Expanding the business downstream to provide System integration products and services
In line with this strategy Hanwha SolarEnergy entered into partnerships with
Solar Monkey, (a US based company that develops and construct power plans in US and Europe) and strategic investments in OneRoof energy
(residential lease financing), tenKsolar (high energy output rooftop systems) and Silent power (energy storage) in US to offer value added solar solutions and services. In September 2012, Hanwha announced a distribution partnership with AEE Solar, one of the largest wholesale distributors of solar products and equipment in the US.

Acquisition of Q-Cells
In October 2012 Hanwha completed the acquisition of Q-cells, a German based solar company founded in 1999, which were a top 10 PV Cell manufacturers. Due to the difficult market conditions Q-cell was experiencing financial distress and had to file for insolvency in April 2012. As a result of this acquisition, Hanwha now claim to be the 3rd largest solar PV manufacturer in the world. Strategic benefits to Hanwha include:
•
•

•
•
•

Access to 1GW cell manufacturing facilities in Germany and Malaysia
(Reuters, 2012)
Access to Q-Cell’s European markets and an ability to re-enter USA markets via Q-cells’ established North American base. (Hanwha withdrew from US due to heavy tariffs imposed on Chinese imports).
32 Patents, strong innovation capabilities and resouces1.
Trained workforce of 1250 employees
Hanwha Solar Unveils Product Innovations With Strategic Partners
(Press release Sep 10, 2012)

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Dynamic Competitive Advantage View
Access to North American Markets – 13% of the sales of Q-Cells derived from North America. Due to high tariffs imposed on Chinese imports, many Asian PV Cells manufacturers find it difficult to penetrate American markets at competitive prices. Through this venture Hanwha can capitalise on expanding their market presence in the USA via Q-Cells. This helps reduces existing rivalry within the US industry, widens the scope of the company, and helps improve sustainable competitive advantage.

Improved Procurement Power- Hanwha Q-cells consists of a combined manufacturing capacity of 2.3GW which is a 75% increase to current capacity and enables improved economies of scale. This will help Hanwha negotiate better prices for raw materials, which helps align input costs with the drastically falling prices of the finished modules. Hence through increased ordering volumes they can reduce the bargaining power of suppliers.

Supply Chain Integration - Through vertical integration Hanwha is able to capture more value for the Group of companies, secure supply of raw materials within the Group (Hanwha Chemicals), and access customer markets more effectively. Through consolidating 2 large participants in the industry (SolarFun and Q-Cells) and therefore improving economies of scale, a degree of competition, reduced customer bargaining power and removal of rivalry within the industry.

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Resource Based View

Resources: what we have now (resource bundles) Physical

•

•
•

Financial

•

•

•

Human

•
•
•

Competencies: what we do well

Manufacturing facilities in Germany, Malaysia, &
China
Q-Cells technology & patents Vertically integrated supply chain with greater product range, manufacturing capacity and global distribution channels to customers.

•

Access to US Markets at much lower cost through avoiding import tariffs
Access to raw materials through Hanwha
Chemicals.
Strong Hanwha Group balance sheet

•

•
•

•
•

A skilled European
•
based workforce
•
Expanded Research &
•
Development facilities
Downstream subsidiaries
& partners provide additional human resources. 20

Manufacturing experience built over 50 years within the Hanwha Group
Research & Development
Economies of scale.

Investment in downstream partners to provide distribution and differentiation Counter-cyclical investment in assets
Retention of value within
Hanwha Group through vertical integration
Global industry knowledge
Research & Development
Meeting customer needs through downstream systems integration relationships. Conclusion

‘Who’s Eating Who In the Jungle’ in the Global Solar PV Industry? In this paper we have analyzed a company that is consuming others (Hanwha), and a company which has been consumed (SunPower). However, and maybe more importantly, as the analysis of Hanwha and SunPower would suggest, the companies with a dynamic approach to strategy are surviving so far.
Whilst SunPower has been acquired by Total, their strategic approach has enabled them to survive as an entity, through leveraging the financial resources provided by Total to enable their core competencies of developing industry leading R&D and innovative channel distribution strategies to be retained, whilst realigning their business to the competitive realities of the market, expanding economies of scale and entering new markets through acquisition. In contrast, Hanwha Group has understood that for their group of companies to survive they could no longer rely on their traditional business model that focussed within the Korean market, and on predominantly being a supplier of raw materials and manufacturing technology to other manufacturers within that market, as they would be left behind by the rapidly growing Chinese raw materials and manufacturing industries in particular. They have strategically leveraged core competencies and resources across the Hanwha Group of companies to re-think the model of their business and enter a totally new industry on a global basis. Where they don’t have the capability within the
Group they opportunistically acquire the resources and capabilities they require, rapidly becoming a key player in the jungle and a source of creative destruction. It is to be expected that there will be significantly more consolidation and acquisition over the next few years, and both these companies will need to continue to dynamically adapt in order to survive.

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Appendix

SunPower History (Source: SunPower)

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23

SunPower Financial Snapshot & Share Price

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Fig: Sunpower 2 year share price (Source: Yahoo Finance)

Hanwha Milestones (Source: Hanwha Website)
2011
NASDAQ ticker symbol change from SOLF to HSOL
Formal announcement of Hanwha SolarOne adds technology, manufacturing, and project development capabilities
Plans to increase cell capacity from 550 MW to 820 MW, wire saw capacity from 400 MW to 572 MW, ingot capacity from 360 MW to 510
MW

2010
Took over Solarfun Power Holdings
Raised module capacity to 700 MW to meet market demands, and plans to expand module capacity to 900 MW by August, 2010
Acquired a 25 MW cell production line from SMIC, and plans to expand cell capacity to over 500 MW by July, 2010
Expanded customer support in North America, Europe, and Asia

2009
Opened a 100 MW annual module production for Q-Cells
Established a South Korean sales office and obtained Korean certification for full product line

2008

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Attained complete vertical integration with opening of wafer slicing facility and purchase of Jiangsu Yungguang Solar, a top silicon ingot producer (100% interest purchase completed in 2009)
Major long-term investment by Good Energies
Began operation of an expanded wire saw facility
Completed and successfully started operations of 120 MW of additional cell and module capacity; total capacity reaches 360 MW

2007
Established German, Spanish, North American, and Australian sales offices Earned UL and CEC Certification
Increased capacity to 240 MW

2006
Listed on NASDAQ as SOLF
$53 million USD investment from Citigroup Venture Capital, Hony
Capital, Legend Capital, and Good Energies in June 2006
Second PV cell line started commercial operations in August 2006

2005
First PV cell production line started commercial operation in November
2005
IEC61215 certification obtained from TÜV Rheinland Group in
Germany
First export module order delivered

2004
First PV module production line completed in December 2004
Established by leading electricity meter manufacturer Linyang
Electronics in August 2004

1997
Linyang Group founded: China's #1 electric meter manufacturer with over one-third domestic market share

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Reference List

Hanwha Group enters solar power development business (press release april –
2011)
HanWha Press Release

Hanwha Solar Launches Project Development Business in North America with
Hanwha SolarEnergy America ( press release Aug 8,2012) http://investors.hanwha-solarone.com/releasedetail.cfm?ReleaseID=699267 Hanwha acquires stakes in two U.S.-based solar energy companies http://www.hanwha-solarone.com/en/news/company-news/company-news-002/125company-news-016 Hanwha
Solar
Enters
Distribution
Partnership with AEE
Solar<
http://investors.solarfunpower.com/releasedetail.cfm?releaseid=705923> Accessed
20th November 2012

HanWah Website www.hanwha.com

Nasdaq, Accessed 20th
November 2012

Reuters, 2012 “UPDATE 2-Hanwha SolarOne to beat US tariffs with Q-Cells buy” accessed 20 November 2012

Schumpter cited by Mathews, T4, 2012 MGSM850 Lecture Slides, MGSM
SOLARFUN POWER HOLDINGS CO. LTD. - Annual and Transition Report (foreign private issuer) – 2012.
SunPower Website www.sunpower.com

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