RENEWABLE ENERGY

No Sunshine at SMA Solar

ARCHIV - Blick über eine Photovoltaikanlage auf das Firmenschild des Solartechnikherstellers SMA Solar in Niestetal (Hessen), aufgenommen am 31.03.2009. SMA Solar stellt am 30.03.2016 seine Jahresbilanz vor. Foto: Uwe Zucchi/dpa +++(c) dpa - Bildfunk+++
SMA Solar has fallen on hard times as competitors are mounting and producing for cheap.
  • Why it matters

    Why it matters

    As the world’s largest manufacturer of photovoltaic inverters, SMA Solar’s difficult financial situation is an indication of the overall state of the global solar market.

  • Facts

    Facts

    • After years of losses, SMA Solar had boosted its stock price by 230 percent and increased revenue by 15 percent in the first half of 2016.
    • The downturn in China’s solar market and the collapse in the price for inverters, however, has pulled SMA Solar’s stock prices down by 9 percent.
    • In response to the downward pressure, SMA Solar is closing plants in Denver and Capetown.
  • Audio

    Audio

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SMA Solar had just turned the corner after years of losses. The Hesse-based company’s stock price had climbed 238 percent and shareholders took home a dividend for 2015, marking the first time in two years.

Then the Chinese solar market collapsed, dragging down SMA Solar’s stock price with it. As of Thursday, the company’s share price has dropped 9 percent to just €37 from €50 at the start of 2016.

As the world’s leading manufacturer of photovoltaic inverters, SMA Solar is particularly sensitive to fluctuations in the the world’s largest solar market, China. Photovoltaic inverters turn the direct electrical current from solar panels into an alternating current for electrical outlets.

“The market has undergone a significant change in the past weeks,” Pierre-Pascal Urbon, the chief executive of SMA Solar, told Handelsblatt. The price of photovoltaic inverters has “slid massively” because the Chinese solar market has collapsed, Mr. Urbon said.

In response, SMA Solar has announced another round of layoffs after deep cuts in 2015. The company is closing its second-largest factory in Denver, Colorado – which employees nearly 300 people – and a smaller plant in Capetown, South Africa. By the middle of 2017, SMA Solar will downsize from 3,500 to 2,900 employees.

The company is also selling its railway technology division, where a team of 65 employees manufacturing power inverters for trains and subway systems.

“We fear that it will be increasingly difficult for SMA to make further cuts in fixed costs.”

Arash Roshan Zamir, Analyst, Warburg

“We are reacting immediately and being proactive in order to remain competitive,” Mr. Urbon said.

The competition is cut throat. SMA Solar’s Asian rivals are dumping photovoltaic inverters on the market for next to nothing, putting tremendous downward pressure on global prices. The price of inverters has been dropping by more than 10 percent a year.

As a consequence, Mr. Urbon has been forced to admit that his 2016 goal of bringing home €120 million in profit before tax and interest “is very ambitious” under the current circumstances.

There’s growing concern among market analysts that SMA Solar is running out of options to cope with the collapse in prices. The factory closures in Denver and Capetown leave SMA with locations only in Germany and China, and the company has already cut 1,400 positions over the past three years.

“We fear that it will be increasingly difficult for SMA to make further cuts in fixed costs,” Arash Roshan Zamir, an analyst at the consulting firm Warburg, told Handelsblatt. “In the future, SMA will be able to counter ongoing price pressure through a continuous reduction in variable costs.”

In addition to consolidation, Mr. Urbon also plans to continue investing in new technologies. Last year, SMA Solar started a partnership with engineering giant Siemens to offer joint systems for solar parks.

And not all the news is bad. Despite the current downturn, SMA Solar increased its revenue in the first half of 2016 by 15 percent to €494 million compared to the same period last year. Mr. Urbon is optimistic that his company will weather the current storm.

“Photovoltaic electricity will be fully competitive with wind energy on land by the end of the decade,” Mr. Urbon said, which will offer “completely new opportunities for growth.”

 

Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. To contact the author: hubik@handelsblatt.com

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