A Chinese solar company’s fall from grace

Suntech Power (s STP), once the world’s largest solar panel maker, is in need of a rescue. The company sought to change the reputation of Chinese solar manufacturers, which are often seen as uninnovative, and was one of the rare firms that opened up a U.S. factory when many of its peers were waiting and watching to see how the market for solar panels would unfold.
Now the company seems to be on its way to becoming the biggest casualty yet of a shakeup of the global solar industry and its own financial oversight problems. Suntech reportedly is running out of cash and could be taken over by the government of the city in which it’s headquartered, according to the New York Times on Wednesday. The takeover possibility was reported by the China Business Network earlier this week. The company has declined to comment.
Suntech at Bird's Nest

What’s next?

The fact that Suntech is teetering financially has been well documented in recent months. The big question is what will become of a company and the what kind of impact will its decline have on the industry? In the near term, the support from the Wuxi government will keep Suntech afloat and at least part of its large workforce employed. Long term, the chances of the company’s survival are low if it remains under government control. A sale of Suntech’s intellectual property and manufacturing assets is likely.
Suntech can’t afford to take a long pause to right itself when its competitors are fighting more fiercely than ever to keep their footing in a market that has seen an oversupply of solar panels and plummeting prices for those panels for over two years. That has led to dozens of solar manufacturers worldwide — from stalwarts such as Q-Cells in Germany to American startups such as Solyndra and Abound Solar — to file for bankruptcy. The large Chinese solar manufacturers, who rose to prominence over the past five years thanks largely to strong support from state-owned banks, have been posting losses for many quarters.
But the fact that Suntech’s woes partly come from a financial scandal means it could be less likely to get a greater government bailout. The scandal has seriously tainted the company’s reputation, so helping it out will not send a good message. The Chinese national government also has been working on building a domestic market for its solar equipment makers while figuring out which companies to support and which companies should consolidate because there are just too many players. In fact, the government said publicly last year that it was promoting mergers and acquisitions of solar companies and planning to prohibit local governments from helping ailing solar companies.

It's an American right to have solar

Suntech solar panels in the U.S.

Suntech got in trouble with a fund it controlled that financed solar power plant development in Europe. The company announced last summer that an internal investigation revealed that the Global Solar Fund used faked German bonds to guarantee the funding that Suntech secured for GSF. The fund also came under legal scrutiny in Italy when a criminal investigation alleged that the fund built projects illegally to take advantage of lucrative government subsidies for solar electricity generation.
Those fake bonds have made it difficult for Suntech to pay over $541 million to holders of its convertible bonds. Last week announced a settlement with Global Solar Fund and its top executive. Earlier this week, The company said it managed to get most of its note holders to agree to give the company more time. The company replaced its founder, Zhengrong Shi, as CEO last year and recently forced him out as chairman. Shi is fighting with Suntech over his ouster.
Implications in the U.S.
The drama presents an ugly turn for a company that was solid and took technology and market risks to grow. Suntech invested heavily on research and development of new technology and received glowing media coverage for its effort, including recognition in the Technology Review. Chinese companies in general had been known more as mass producers rather than innovators.
Suntech's new tech

Suntech’s new solar panel

Suntech’s decline also leaves a depressing note in the efforts by the federal and local governments to expand solar manufacturing in the U.S.
Suntech opened a factory in Arizona in 2010 to assemble the cells from its factories in China into panels. The factory opened to much fanfare because optimism ran high then about rebuilding a solar manufacturing sector in the U.S. With the stimulus package, the federal government was approving billions of dollars in loans and guarantees to help U.S. solar manufactures to build factories domestically.
That effort hasn’t been successful so far, however, in light of the bankruptcy of Solyndra in 2011 and Abound Solar in 2012. It’s achieved better results promoting the installation of solar power plants and rooftop systems at homes and businesses.
Suntech scaled back its production at the Arizona factory and yesterday announced its plan to shutter it on April 3. Its demise will not make the U.S. a more attractive place to set up production. That’s a sentiment that will be hard to change.