Hanwha SolarOne is shifting its position in the PV industry in an attempt to improve its business opportunities and financial condition in light of its slow recovery, compared to tier 1 Chinese rivals.
Management noted in a conference call to discuss third quarter 2013 financial results that the company would focus on improving its competitiveness and profitability position by focusing on what it described as “high-end market[s]”.
High-end markets can be interpreted to be those with higher ASPs as well as focusing on sectors such as residential rooftops and the downstream project sector, which have the ability to provide higher margins.
According to Hanwha SolarOne, it will focus on the EU residential market, notably the UK as well as the booming Japanese market, where it claimed in the call it would “exploit its first-mover advantage in Japan”.
Management also highlighted that it would also target what it described a “high-priced segments in the North America market”.
Ki-Joon Hong, chairman and CEO of Hanwha SolarOne said: “We continued to evolve our business model in respect to changing industry conditions. And turning to 2014, our strategy can be summarised as follows. We will for sure enhance profitability with a focus on expansion in high-end markets including the EU residential as top segment, exploit first-mover advantage in Japan and also higher price segment of US market.”
However, on the surface it would seem that the company is now moving closer to the business strategy of sister company, Hanwha Q CELLS, further blurring of the lines between both companies.
Hanwha Q CELLS USA recently announced that it was establishing a new commercial division in the US, to support what it expects to be an important market sector, which has until now lagged behind both the utility-scale and residential solar markets.
Like other China-based module manufacturers, Hanwha SolarOne is also attempting to become a stronger market player in the booming downstream domestic market, teaming with key Chinese utilities and other partners to build its EPC and project development business. This is the key area where no overlap with its sister company exists.
According to Yingli Green management in their latest quarterly conference call, utility and distributed generation projects in China, if selected correctly have become increasingly viable with initial rates of return of between 9-11% for investors/owners, while stable pricing is allowing manufacturing cost reductions to transfer to the bottom-line of improving gross margins.
Drivers for strategy change
Like its rivals, Hanwha SolarOne has seen shipments increase to the extent that it continues to operate manufacturing lines at full-capacity.
In the third quarter of 2013, Hanwha SolarOne reported revenue of US$185.5 million, down 4% from the previous quarter on shipments of 317.8MW, down a fraction from 321.2MW in the second quarter.
Shipments and revenue is therefore flat-lining under stable to slightly higher ASPs, while the company reported net losses in the second quarter of 2013 of US$19.9 million, down from US$28.6 million in the first quarter of 2013. Losses in the third quarter of 2013 were US$65.6 million.
Gross quarterly profits are also flat-lining at low levels, with third quarter profit at US$9.4 million, while gross margins are at least half those of China-based rivals with margins of 5.5% in the second quarter and 5.1% in the third quarter of 2013.
With no plans to add capacity in the “near-term” a return to profitability is proving illusive for Hanwha SolarOne, should it have not changed market strategy.
Not surprisingly, investor community interest in the company has hit an all time low. Only one low tier investment fund analyst was on the latest quarterly conference call, down from an average of around three over the last 18-months that included major US investment banks.
Hanwha SolarOne noted that it expected shipment volumes for the fourth quarter of 2013 to increase in a range of 13-19% (360-380MW). However, part of the shipment increase is due to tolling arrangements with Hanwha Q CELLS, which is outsourcing greater module production to its sister company to meet demand.
Management had previously said in the second quarter conference call that shipments attributed to tolling would increase through the rest of the year and account for around 25% of shipments in the fourth quarter.
The company noted in providing full-year guidance that module shipments would be between 1.2-1.4GW of which about 30-35% would be for “PV module processing services”.
With the planned business strategy shift, Hanwha SolarOne management painted a bullish picture for 2014, noting continued strong end-market demand and its expected geographic diversity and mix.
The company said it expected shipment split from key markets to include Japan accounting for 30-35% of shipments in 2014, China at 12-15% of shipments and North America at 8-10%.
Though the company did not provide details, it expected to further tap into new emerging markets including Middle East, Africa, South America and Southeast Asia.
“Attention to restructuring our balance sheets with less reliance on debt, significant growth in the domestic market, improvement in profitability driven by lower cost and growing contribution from higher margins downstream business,” noted Jung Seo, CFO in summary on the conference call. “Further progress in exploiting synergies with Q CELLS, especially in the areas of supply chain and in technology. Cell efficiencies targeted around 18% by the end of the year.”
With Hanwha SolarOne’s planned strategy shift and management commentary, it becomes clear that the success of the strategy has become increasingly reliant on Hanwha Q CELLS involvement.