Morris Chang, chairman and CEO of Taiwan Semiconductor Manufacturing Company (TSMC), noted in August 2012 that the firm had changed its position in relation to investments in solar cell maker Motech, shifting from strategic purposes to financial ones. The remarks stirred speculation concernig TSMC's next step in, as well as the overall development of, the solar industry. TSMC may or may not sell its Motech shares but either way, the firm holds the key to the future of Taiwan's solar industry.
The TSMC-Motech romance
TSMC bought 20% of Motech for NT$82.7 (US$2.9) per share in December 2009 and became the solar firm's biggest shareholder. The total investment was NT$6.2 billion. When Chang anounced the position change in August 2012, Motech's share price had reached an all-time-low at NT$28, and for the first half of 2012, Motech reported net loss of NT$3.225 billion. It means at the time TSMC had lost almost NT$4 billion from its Motech investment.
Despite the fact that the solar industry rebounded in 2010, the incentive cuts in many major markets in Europe and the persisting oversupply market condition drove many solar firms around the world into bankruptcy in 2011-2012.
Although Motech reported 2012 net loss of NT$5.072 billion - resulting from production suspension at its subsidiary AE Polysilicon (AEP) and low product prices - it still was the "most successful" investment that TSMC has made in the solar industry. When prices of mainstream silicon-based solar products began to fall, TSMC Solar - the foundry player's major investment in the CIGS thin-film solar segment - got hit harder.
Though a major player in the solar industry, Motech has yet to create product differentiation and this is seen as the reason for TSMC to shift its investment position.
In fact, Motech is a relatively sound solar firm, as the drastic market fluctuations have already plunged large-size solar firms such as Germany-based Q-Cells and China-based Suntech deep into financial problems. Q-Cells has been bought by South Korea-based Hanwha Chemical Corporation while Suntech has recently announced its China subsidiary, Wuxi Suntech, has entered insolvency.
Neo Solar powered by Delta
The three top solar cell makers in Taiwan, Motech, Gintech, and Neo Solar Power (NSP), are of similar sizes and if any two of three merged, the remaining one would be marginalized. Hence when rumors of TSMC selling Motech shares surfaced, many firms, including Gintech and NSP, reportedly hoped to secure a deal with TSMC.
Motech's fate has yet to be determined, but NSP has already merged with DelSolar, a solar subsidiary of Taiwan-based power supply firm Delta Electronics. NSP remains the suriving company and Delta is NSP's largest shareholder.
It is certainly a gamble for NSP to merge with DelSolar as demand continues to be weak, with neither of them running at full capacity. Overlapping customer bases and over-capacity are a major concern. NSP's post-merger annual solar cell capacity now stands at 2GW - bigger than that for either Motech or Gintech - profitability remains a question.
Wooing TSMC
Rumors have spread that Gintech has been eager to discuss the possibility of cooperating with Motech through TSMC. However, Gintech has denied the rumors.
China-based solar firms such as GCL-Poly reportedly hope to buy Motech shares from TSMC. If TSMC agreed to sell Motech shares to any of the China-based firms, the solar supply chain in Taiwan would experience turbulences. However, the Taiwan government is unlikely to let China-based firms buy shares of Taiwan-based solar firms, and therefore it is unlikely for China-based firms to cooperate with Motech through buying shares.
Taiwan's over-reliance on OEM orders
Due to the trade wars between China, Europe and the US, Taiwan-based firms have enjoyed temporary transfers of orders. However, China-based firms will likely form a strategy to cope with the trade tariffs within one year. Even if China-based firms cannot find strategies to avoid the tariffs, they still have domestic demand to rely on; the international market may then be dominated by South Korea-based brands. South Korea has a complete solar supply chain from polysilicon to modules.
The solar market is still relatively small compared to other IT markets, but it is filled with heavyweight players: Taiwan-based TSMC, Delta Electronics, Foxconn Electronics (Hon Hai Precision Industry) and AU Optronics (AUO); US-based Intel and IBM; Japan-based Sharp, Kyocera and Panasonic; the Netherland-based Shell; UK-based BP; and France-based Total.
At first, China-based firms' domination came from their cost effectiveness, enabled by heavy subsidies from the Chinese government. It has turned out that China-based firms have not been better off than competitors in the face of the solar doom.
Although Taiwan-based solar firms are relatively sound compared to competitors, role adjustments will be crucial. Taiwan-based firms cannot survive long if they continue to rely on the OEM business model alone. They need to diversify into other market segments, such as brand business.
