Three of Taiwan’s largest solar companies merge to rally against Chinese competition

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Prior to the merger of three of Taiwan’s leading solar panel makers this month, the survival of all three was in question. Neo Solar Power Corp., Gintech Energy Corp. and Solartech Energy Corp. officially became a single company on October 1 after a year of planning. They arranged a share swap deal, analysts said, because they had lost money to larger-scale competitors in China with little hope of a rebound otherwise.

“This means that the drastic industrial environment has forced companies to change their traditional business model focused on cell manufacturing,” Wang said. Meng-chieh, amdirector at the Taiwan Industrial Technology Research Institute.

The new company, which will fall under the corporate structure of New Solar Power, will see a former company, Gintech, provide upstream supplies while the others make different types of panels. Called United Renewable Energy Co., it can compete with its Chinese peers by “increasing manufacturing capacity” and accelerating the commercialization of new products by merging technological expertise, Wang said.

“Before, they would jump here and there,” says Chiang Hao-hsien, general secretary of the Taiwan Photovoltaic Industry Association, which has 110 members. “They hope that with this merger they can become a complete puzzle.”

Separately, the three were arguing in an industry that has lost money globally over the past five to six years, Chiang says. The losses in Taiwan result from slower-than-expected use of solar power in some markets – despite a US government forecasts that the energy source will grow from around 50 billion kilowatt-hours in 2015 to 400 billion by 2040 – and fierce competition from China.

Learn more about Forbes: Why has China put the brakes on its solar program?

Producers in China pose the most obvious threat to Taiwan-based solar industry companies, as their modules sell for less, due to the country’s larger scale of production, says John Brebeck, senior advisor at the investment advisory firm Quantum International Corp. in Taiwan. Chinese panels are also of lower quality, he adds. “The production process for solar cells is similar to integrated circuits but much, much simpler,” explains Brebeck.

China’s solar industry is the largest in the world and is responsible for the 80% reduction in global panel prices, according to this report. Taiwan’s industry is smaller, but its companies, including Gintech and Neo Solar, rank among the largest panel companies in the world, and have a complete supply chain.

Neo Solar Power, which was founded in 2005, reported NT $ 10.25 billion ($ 331 million) in net income last year with a loss of NT $ 4.16 billion. He did, however, publish a revenue growth for august. Solar energy job a 34% revenue loss last year, ending at NT $ 6.2 billion. Gintech, a former Forbes Best Under A Billion winner, did not release full financial reports in 2017.

As part of the merger transaction, one Gintech share was exchanged for 1.39 Neo Solar share, while one Solartech share was exchangeable for 1.17 Neo Solar share. The Taiwanese government’s National Development Fund said it will also help finance the new company.

During the first six months, United Renewable Energy will make little to no money as three corporate cultures merge, Chiang predicts. Later, he says, additional basic lines of work should help the larger business grow.

United Renewable Energy could potentially establish markets in India, Latin America and the Middle East to overcome restrictions imposed by China and Taiwan’s relatively small size. “Differences in language or culture should be resolved through internationalized sales capabilities and logistics systems,” Wang said.

The three companies combined have the highest registered capital of any solar panel producer in Taiwan, according to Chiang. They announced last year the goal of raising capital of $ 687 million. Neo Solar said the new company could generate around NT $ 50 billion in sales in the first year and post up to NT $ 100 billion in annual revenue within five years.

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