Suntech Power ( STP ) is the world's largest manufacturer of crystalline silicon photovoltaic (PV) modules and is China's largest U.S.-listed solar player by market capitalization. It competes with other international solar power giants including FirstSolar ( FSLR ), SunPower ( SPWRA ), and Yingli Green Energy Holding Com ( YGE ).
Our price estimate for Suntech Power stands at $10.68 , implying a 20% premium to market price.
The increasing focus by countries on renewable sources of power over the last few years has made the solar industry highly competitive - companies try to differentiate themselves largely on module manufacturing costs and module efficiency.
Suntech Power has the advantage of lower production costs because of the Chinese government's incentives to local solar industry companies, as well as the lower cost of labor in the country. Since revenue per unit sold is bound to decline due to intense competition, it is critical for these companies to find ways to reduce manufacturing costs.
Suntech Power's Production Cost Figures
Production costs of solar cells for Suntech declined from 2.28$/watt in 2007 to 1.25$/watt in 2009 due to new technology that spurred improved efficiency and a decline in polysilicon costs.
We believe that these production costs will continue to fall in the years to come, dropping below 80¢ per watt by the end of our forecast period.
What Will Drive the Declines?
As we mentioned above, Suntech Power enjoys significant cost advantages due to its operations in China. At the same time, the company has made significant investments to improve other cost efficiencies.
The company is aggressively pursuing thin film technology for manufacturing PV cells. Currently, only First Solar uses this technology, allowing them to limit production costs to below 75¢ per watt. Suntech is also continuously seeking ways to automate its processes, moving towards leaner manufacturing operations.
On top of this, declining polysilicon prices due to a substantial increase in global polysilicon manufacturing capacity should contribute to a reduction in production costs, as polysilicon is the primary input material used in the manufacturing of PV cells.
All these factors taken together paint a picture that indicates that Suntech Power is well-positioned to achieve production costs of below 80¢ per watt by the end of our forecast period.