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Investment Overview for Suntech Power (NYSE:STP)
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Below are key drivers of Suntech's value that present opportunities for upside or downside to the current Trefis price estimate for Suntech Power:
Photovoltaic (PV) Modules
- PV Modules Gross Margin: The production cost of solar cells for SunPower declined from $2.67 per watt in 2007 to $1.20 per watt in 2010 due to improved technology which led to an improvement in efficiency and a decline in polysilicon costs. However, because of faster price declines, gross margins have fallen further. Margins fell from 27% in 2009 to 17% in 2011. We expect margin declines to continue in the near-term before improving gradually and exceeding 14% by the end of the Trefis forecast period. If margins increase to 15% by the end of the forecast period, there could be a 70% upside to our estimate.
- Energy Capacity of PV modules sold: The total energy capacity of solar modules sold increased from 358 MW in 2007 to 1,522 MW in 2010. In 2011, capacity sold increased to 2 GW and is expected to continue to rise to nearly 5 GW by the end of the Trefis forecast period. However, if intense competition restricts sales to 4 GW by the end of the same period, the Trefis price estimate would see a 50% downside.
For additional details, select a driver above or select a division from the interactive Trefis split for Suntech Power at the top of the page.
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Suntech Power is a solar energy company engaged in the design, development, manufacturing and marketing of photovoltaic (PV) products, including a range of building integrated photovoltaic (BIPV) products and also provides engineering, procurement and construction services to building solar power systems using its own solar modules. It is the world's largest manufacturer of crystalline silicon photovoltaic (PV) modules and is China's largest U.S. listed solar player by market capitalization. The PV modules that are produced are used for the purpose of generating electric power for residential, commercial, industrial and public utility applications in various markets globally. The firm also provides PV system integration services to customers in China and the U.S. and is expanding into the development of utility scale solar power systems. The company sells its products in a variety of markets and has been expanding rapidly, taking advantage of low cost production in Asia.
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The PV Modules segment is the most valuable segment because of following reasons
Recent move into the systems integration business
The systems business at Suntech Power did not contribute significant revenues prior to 2007. In 2011, the division had sales of just over $100 million compared to the $2.9 million in 2007.
Competitive niche in the middle of PV Supply chain
Suntech's competitive niche is in the middle of the PV supply chain. It has established itself as the biggest supplier of PV Modules, benefiting from low manufacturing costs and growing Asian demand. Suntech's PV Modules are among the cheapest in the industry because of its cost advantage that comes from having its manufacturing facilities in China, which gives it access to cheap labor and raw materials.
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Government subsidies on solar systems
As the prices for traditional forms of energy such as coal and oil grow as well as concerns regarding the impact of fossil fuels on the environment, government subsidies may drive significant growth in the renewable energy sector over the next few years.
Suntech has made sure to comply with all necessary regulations to qualify for the tax benefits of producing solar panels. The firm was one of the first companies eligible for Arizona's Renewable Energy Tax Incentive program which provides refundable tax credits and property tax reductions for manufacturers.
Similarly in China, the country's renewable energy law is planning on raising the total percentage of renewable energy used in the country to 10% by 2020.
Environmental concerns are pushing renewable energy growth
Fossil fuels are limited in supply, with easily extractable reserves quickly being depleted due to worldwide economic growth. As the world approaches peak oil, the scarcity of new reserves will likely drive up the demand for renewable energy.
Furthermore, current energy production methods release pollutants like smog, as well as carbon dioxide gas, which contribute to the greenhouse effect and global warming. Solar energy production produces little, if any, pollution or emissions, making it one of the cleanest sources of power. Increased popular education on these issues is creating pressure for governments and energy companies to regulate energy production. This movement is having a worldwide impact on energy regulation in the form of global emissions caps.
Growing Trade Regulations on Chinese Solar Manufacturers
Chinese solar manufacturers are being subject to import tariffs in the U.S. and investigations are being undertaken by the E.U. to see if the companies are receiving unfair support from the Chinese government. If major tariffs are imposed, it could impact the price competitiveness of Suntech in key markets.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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