The second year of a profitless prosperity, characterised by overcapacity and rapidly declining average selling prices (ASPs) had a continued negative impact on R&D spending and staffing levels for the main group of tier-one PV manufacturers in 2013.
Continuing our annual analysis of R&D spending behaviour of 12 leading module manufacturers, combined spending was US$422 million in 2013, down 9% from 2012 when spending totalled US$464 million, which was also down around 9% from a record peak of US$510 million in 2011 (see Figure 1).
Excluding the only thin-film module producer (First Solar) within the group, c-Si based PV module manufacturers’ R&D spending declined around 13% to US$288 million in 2013, compared to US$332 million in the previous year.
R&D spending for major c-Si module producers peaked at US$369 million in 2011 and has fallen back in line with spending levels seen in 2010. The steady decline in spending during the two-year downturn period confirms that many manufacturers regard R&D spending as being discretional and in response to business conditions, more so than perhaps strategic and therefore critical to future prosperity.
However, four c-Si module producers (SunPower, SolarWorld, ReneSola and Yingli Green) have separated themselves from the pack with spending all above US$45 million, with ReneSola and Yingli Green actually increasing spending in 2013, compared to the previous year (see Chart 2).
A significant gap exists from the following pack (Trina Solar, JA Solar, Hanwha SolarOne, REC Solar, Canadian Solar and JinkoSolar), which all have annual R&D spending below US$20 million.
However, several of the laggards have been steadily increasing spending in small incremental amounts over the last few years, with JA Solar and Hanwha SolarOne doing so in 2013.
This trend is also reflected in R&D spending as a percentage of annual revenue, with ReneSola continuing to have the highest ratio of 3.1% of the c-Si group in 2013. However, only Yingli Green increased spending as a percentage of revenue in 2013, going from 1.6% to 2.2% last year.
As with overall R&D spending in 2013, First Solar continues to be way out front with spending of US$134.3 million, up from US$132.4 million in 2012. This led to an R&D spending to revenue ratio of 4.1% in 2013, up from 3.9% in the previous year.
R&D staffing patterns
The correlation between R&D spending and dedicated staffing levels within R&D departments including costs associated with either an increase or reduction in staffing levels continues to be close but occasionally erratic on a company by company basis.
With R&D spending down again in 2013, so is the overall headcount within R&D departments. Staffing levels were approximately 2,911, down 16.5% from 3,487 in 2012, nearly double the reduction spending, in percentage terms (see Figure 3).
Five companies (Trina Solar, JinkoSolar, Hanwha SolarOne, ReneSola and SolarWorld) reduced their R&D headcounts in 2012. This trend continued in 2013 with a further five companies (Yingli Green, Canadian Solar, JinkoSolar, Hanwha SolarOne and ReneSola) reducing R&D headcounts.
JinkoSolar, Hanwha SolarOne and ReneSola have reduced R&D headcounts in two consecutive years (see Figure 4).
Due to several companies not disclosing staffing levels specifically dedicated to R&D activities or as in the case of Suntech have not provided annual reports for two years due to bankruptcy, staffing levels are therefore estimated, based on a number of factors including overall staffing levels, R&D expenses and business factors.
We have assumed that with Suntech stopping production for much of 2013, R&D spending and staffing levels fell dramatically.
In the case of REC Solar, the spin-off of from REC Group has allowed relatively greater insight into its module manufacturing operations and explains the reduction in estimates for spending and headcount. It underlines how REC Silicon, which has been unconnected to REC Solar since the latter half of last year, historically absorbed a higher percentage of R&D expenditure. REC Solar’s spending estimates for 2013 were based on two quarters of financial figures since its spin-off from REC Group.
The biggest single reduction in R&D department headcount from non-estimated figures was Yingli Green. The company has been the anomaly amongst the pack since 2010 when it massively increased headcount for R&D activities.
Indeed, Yingli Green continued to expand staffing levels, reaching a peak in 2012 of 1,464 people, but perhaps not surprisingly this number fell dramatically to 1,016 in 2013, a more than 30% decline.
The disparity with the rest of the group covered is significant as the company with the second largest R&D staffing levels is Trina Solar with 425 people in R&D activities in 2012, and 556 in 2013.
Overall we estimate that eight companies reduced R&D staffing levels in 2013, compared to six in 2012.
Noteworthy therefore are the companies that actually increased R&D staffing levels in 2013, which included Trina Solar (131), SunPower (70) and JA Solar (29). Of these companies only JA Solar increased R&D spending in the same year.
R&D spending rankings
As we have highlighted in previous reports, R&D spending rankings have historically had little correlation with companies ranked on a revenue, shipment or production level basis. Only First Solar has achieved a market leadership position within a given year while holding the leadership position in R&D spending (see Figure 5).
Yingli Green may have topped the PV module suppliers rankings by shipments in the last two years (NPD Solarbuzz rankings), yet was only ranked in sixth position for R&D spending in 2012 and fourth in 2013.
In contrast, JinkoSolar has seen its market ranking rise rapidly over the last few years and was fifth in 2013, but remains the laggard of group covered as far as R&D spending relates.
Others such as SunPower, REC Solar and SolarWorld have consistently appeared high in R&D spending rankings but in 2013, none were ranked in the top 10 module supplier rankings by NPD Solarbuzz.
Conversely, there is a subtle trend in R&D spending rankings and leading supplier rankings that has emerged. Yingli Green, Trina Solar and ReneSola have gradually ranked higher in R&D spending, while at the same time climbing up the supplier rankings.
Other than the demise of Suntech in both rankings the other significant contrast is the continued top ranking of First Solar in respect to R&D spending but its decline in supplier rankings, having fallen a further two rankings positions in the NPD Solarbuzz table to number seven.
However, in contrast to all others, except SunPower, a proportion of R&D spending is allocated to its downstream business, notably in allocating funds to its modular PV power plant technology.
Both companies are leaders in the downstream business and have some of the largest PV project pipelines using a modular technology approach and have consistently been investing R&D expenditure in this area, compared to others that continued in 2013 to devote R&D funding to lowering manufacturing costs and improving wafer/cell/module conversion efficiencies.
It will be interesting to see if the likes of Canadian Solar, a perpetual laggard in R&D spending, changes course, considering that it expects to generate around 50% of its 2014 revenue from its downstream business and joins the likes of First Solar and SunPower in fundamentally changing its overall business model to that of a PV energy provider rather than simply a PV module supplier.
The PV market downturn that was driven by overcapacity and falling ASPs continued to impact R&D spending and staffing levels in 2013. Overall spending was down again by 9% but staffing levels fell by around 16.5%. We estimated that slightly more companies lowered spending in 2013 than in the prior year, while the same number – five (though not the same companies) – actually increased R&D spending on an annual basis.
It is emerging that R&D spending can correlate to market share rankings for some companies, though the connection remains tenuous and contradictory for others.
With PV market growth increasing and an end to a long period of profitless prosperity it will be interesting to see if R&D spending behaviour reverses in 2014 or whether continued tight control of discretional spending continues as many companies repair battered balance sheets.