| Year | 2005 | 2006 | 2007(P) | 2008(E) |
| Revenue | 226M | 598.9M | 1.3B | 1.9B |
| Net Income/Share | 0.31 | 0.68 | 1.01 | 1.6 |
| EOY Production Capacity (MW) | 150 | 270 | 480 | 600 |
| Production Output (MW) | 67.7 | 160.1 | 355 | NE |
| Gross Margin | 30.3 | 24.9 | 21 | NE |
- NE – Not Estimated.
Growth in Revenue, Net Income, Production Capacity, and Production Output are all expected to shrink next year. Production Capacity and Output growth are expected to be in the 25% range down from about 50% this year. Gross margin has buckled over the last two years as raw material prices as well as competition increased. Suntech’s growth rate should be in the vicinity of 25% annually, given the capacity projections for 1GW by 2010. This would give the stock a PEG ratio well above 1, qualifying as a fairly rich valuation.
Suntech’s products exclusively based on PV cells made of thin film deposits of silicon semiconductors are second generation technology. Globally, research is underway on the third and fourth generation PV cell technology that could potentially leapfrog Suntech’s technology in both efficiency and price. However, commercial viability of such products is projected to be years away and so this threat can be categorized as a wildcard scenario. To offset such threats, a strong R&D commitment is critical. The table below shows how Suntech’s employee count is split up across the organization:
| Function | Employee Count | % of Total |
| Mfg. & Engg. | 2263 | 68.9 |
| QA | 323 | 9.8 |
| G&A | 270 | 8.2 |
| P&L | 142 | 4.3 |
| R&D | 202 | 6.2 |
| Mktg. & Sales | 82 | 2.5 |
| Others | 2 | 0.1 |
| Total | 3284 | 100 |
6.2% is a number insignificant for a business that needs very strong R&D. The only silver lining is Suntech’s relationships with certain universities doing research in newer technologies.
All in all, given the magnitude of Suntech’s business issues, under-allocation of resources in the R&D area, and the rich valuation, a long-term investment in Suntech can be expected to yield only average returns.
Suntech Power Holdings Analysis:
- Part 1 - A Solar Industry Behemoth In The Making.
- Part 2 - Business Issues.
- Part 3 - Preferring Manufacturing Expertise Over R&D.
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4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.
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