Suntech Partners With Phono Solar To Focus On Systems Business

by Trefis Team
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Suntech Power (NYSE:STP) is entering into a partnership with another Chinese module manufacturing firm, Phono Solar, to jointly focus on its systems installations business. [1] The two companies will work together on developing solar farms in China as well as in international markets such as the U.S. and Europe. With module prices continuing to remain under pressure due to weak demand from the European markets, companies are shifting focus to systems installations where margins are more stable. Thin film manufacturer First Solar (NASDAQ:FSLR) has been focusing on developing large solar farms in the U.S. to reduce the impact of declining module prices on its revenue.

We have a $3.54 price estimate for Suntech Power, which is at a 40% premium to its current market price.

Click here for our full analysis of Suntech Power

Solar farms push

Phono Solar, a state-owned module manufacturer, is looking to diversify to solar project development as module prices continue to fall because of oversupply. It already has plans to develop around 50 MW of solar farms across China and is also looking to develop projects in Europe and in the U.S. The systems installations business margins have remained relatively more stable compared to the rest of the PV value chain.

Suntech’s partnership with Phono could help the company develop and expand its systems installations business, while limiting capacity expansion in module manufacturing. Rivals such as First Solar have already announced plans to cut manufacturing capacity as module demand is expected to fall in 2012 because of subsidy pull-backs in key European markets.

Expansion into project development and the delivery of solar farms have become major avenues of expansion for solar firms looking to reduce exposure to falling module prices. With margins in the module manufacturing business under pressure, companies are forced to diversify and reduce production capacity.

We expect Suntech’s partnership with Phono to boost its panel sales as well as revenues from systems installations over the next few years.

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Notes:
  1. Phono Solar to Partner With Suntech Amid Price Declines, Bloomberg []
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