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STANFORD GRADUATE SCHOOL OF BUSINESS Case: 8347-4, Dare: 0/11/10 SUNTECH POWER HOLDINGS (A): THE PRE-IPO YEARS InrRopucTION! One day in late June 2005, Dr. Zhengrong Shi, Founder, Chairman and CEO of Suntech Power Holdings, was touring one of the company’s new manufacturing lines and thinking about the future of both his company and the solar energy industry. Suntech had been operating for just over three years and had exhibited strong growth and profitability, thanks to the company’s low cost manufacturing strategy and the growing global demand for solar and other renewable energy sourees. Shi had ambitious plans for his company and wondered what would best position Suntech for future growth. Dr. Zhengrong Shi Dr. Zhengrong Shi was both a visionary and the beneficiary of good luck and timing, Bom to poor peasant farmers on a small island in the Yangtze River Delta, Shi excelled at school and academies since he was a young boy and set his sights on a college degree and beyond. After graduating from Jilin University in 1983, he went on to earn a Master's degree from the Shanghai Institute of Optics and Fine Mechanics. He then became eligible for a government sponsored overseas study program, and enrolled in the physics department at the University of New South Wales in Sydney, Australia in 1988. After one year, Shi received funding to do a doctorate in the engineering department under Dr. Martin Green, an expert in solar power. Shi completed his PhD in 1992 and became the research director of Pacific Solar, a company started by Dr. Green in Sydney to market the solar cell technologies that Shi had been researching, " This case relies upon information ftom the following sources unless otherwise noted: (1) Bill Powell, “China’s New King of Solar,” Fortune, February 11, 2009, ‘tpu/money enn, com/2009/02/1 /news/intemational/powell_shi,fortune/index htm (2) Suntech Power Holdings, Form FI/A, November 28, 2005, psi, ives/edgar/datal 114: 1 8)h99980424V 1 za “This case was writen by Professors Antonio Davila, George Foster, and Ning. Jia. It draws on a prior Suntech Power Holdings ‘case written by Jocelyn Homblower. Its to be used asthe basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation, Copyright © 2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: ewl@geb.stanford edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, ‘Stanford, CA 94305-5015. No part of this publication may be reproduced, sored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means — electronic, mechanical, photocopying, recording, oF ‘otherwise —without the permission of the Stanford Graduate School of Business. ‘use only inthe course FIN 604 Pract ‘Suntech (A): The Pre-IPO Years E-347-A a” Pacific Solar successfully developed technology that cut the cost to produce solar energy by reducing the amount of silicon required in the manufacturing process. On a visit to China to see family and friends in 2000, Shi discovered that the country was booming and the government was making significant efforts to attract foreign investment capital and recruit educated Chinese with technical skills to retum home from overseas. Shi became optimistic about moving back to China and was convinced that it would now be possible to be a successful entrepreneur and lead a rewarding life in his home country. SOLAR ENERGY INDUSTRY In 2000, solar power was emerging on a global scale as a realistic energy alternative to fossil fuels. Rising energy demands around the world, coupled with an increasing awareness of climate change and rising prices of fossil fuels (i.e. oil, coal, and natural gas), spurred the development of alternative energy sources, including solar. Solar energy is a clean (no CO> emissions), efficient, sustainable, and plentiful form of renewable energy. The earth receives more energy from the sua in just one hour than the world uses in an entire year.” Solar energy generation systems use interconnected photovoltaic (PV) cells to generate electricity from sunlight. PV material is most commonly manufactured utilizing highly-purified silicon, a semiconductor. When sunlight hits PV cells, electrons are dislodged, creating an electrical current that can be captured and harnessed. Solar PV cells produce direct current (DC) electricity from sunlight. An inverter is required to convert the DC to alternating current (AC, the standard current for household wiring and for power lines that supply electricity), which can then be used for grid connected power generation. Although the price of PV modules was too high to compete with grid clectricity in most places, financial incentives adopted by governments in countries such as Germany and Spain triggered a significant surge in demand. The political purpose behind government incentives and subsidies was to facilitate a small-scale build-out to grow the industry and allow manufacturers to reach the economies of scale necessary to reach grid parity, the point at which the price of solar energy is equal to or less than the price of grid power (electricity provided by utility company, ‘At the time, residential solar energy systems typically cost $8 — 10 per watt. Government incentives and/or volume purchases could have reduced installed costs down to $3 — 4 per watt (10 ~ 12 cents per kilowatt hour). PV prices declined on average 4 percent per annum between 2004 and 2009, driyen by a progressive increase in conversion efficiencies and manufacturing economies of scale.* A solar cell's energy conversion efficiency is an expression of the amount 1 SPG Solar, “Solar Energy Facts,” hp spesolar.comesidensalsolarfactshtml (December 3, 009). | hupulen wikipedia org/wikiPhorovoltais “id. 2009 Global PV Industry Report,” Fast Solar Energy Facts, Solarbuzz, ‘tpl, solarbuzz,com/FastPactsindustry htm (December 3, 2008). a Suntech (A): The Pre-IPO Years E-347-A p3 of energy produced in proportion to the amount of energy consumed, or available to a device.” Although the sun produces a lot of energy in a wide light spectrum, commercial PV systems have the ability to only capture and convert small portions of that spectrum to electricity using photovoltaics. In 2009, typical PV systems were about 7 to 17 percent efficient. ‘The global PV market, measured by annual PV system installations, grew from 254 megawatts (MW) in 2000 to 927MW in 2004, representing a compounded annual growth rate (CAGR) of 30 percent, Solar PV Ter ology A PV cell is a semiconductor device made from a silicon wafer that converts sunlight into electricity by a process known as the photovoltaic effect. Light particles called photons penetrate the cell and knock electrons free from the silicon atoms, creating an electric current. As Jong as light flows into the cell, electrons flow out of the cell. The éell does not use up its electrons and lose power, like a battery; instead, it converts one kind of energy (sunlight) into another (flowing electrons). A PV module is an assembly of PV cells that have been electrically interconnected and encapsulated through a lamination process into a durable and weather-proof package. A PV system consists of one or more PV modules that are physically mounted and electrically interconnected, with system components such as batteries and power electronics, to produce and reserve electricity.’ See Exhibit 1 for a diagram illustrating the solar PV supply chain, highlighting the solar cell and module business. ‘THE SUNTECH STORY After Shi’s visit to China in 2000, he returned to Australia and immediately started thinking about the opportunity of returning to his home country to start a solar energy company. Shi had leamed a lot about solar PV technology during his tenure at Pacific Solar, and was eager to pursue an entrepreneurial career in an industry that was poised for significant growth, as he believed it would soon become a global imperative to reduce carbon emissions. Shi firmly believed that solar had a strong future and he wanted to be a part of it. Concurrently, over the years the Chinese government had become much more willing to underwrite both advanced education abroad and technology start-up businesses headquartered in China. A study abroad sponsorship program started in 1978 had benefited approximately 800,000 Chinese students by 2000. Over that 22 year period, less than one third of those © «What Does Energy Conversion Efficiency Mean?,” Solar Facts ~ Photovoltaics ~ The Basics, U.S. Department of Energy, _ http:/apps I.ere.cnergy.cov/solar/cfim/faqs/thind_level.cfin/name=Photovoltaics/car=The420Basies#O43 11/19/09). ‘Suntech Power Holdings, Form F/IA, November 28, 2005, www.sec.gov. Sid, 7,204. 5 tne course FIN 604 Practice ‘Suntech (A): The Pre-IPO Years E-347-A ps students had returned to work in China. However, from 1990 through 2000, the rate at which they returned had accelerated, spurred by attractive government incentives. Back in Australia, Shi got to work putting together a proposal for a China based solar energy company. His research and thoughts turned into a 200-page business plan, which he then pitched to several different Chinese city governments that were looking to attract and fund high-tech businesses. Shi said, “I came back to China at the right time, and got to gain a lot of support from governments.”"” One of those cities was Wuxi, a fast-growing city outside of Shanghai. The Wuxi government was immediately impressed with Shi’s business plan, primarily because Shi held the core technology and had 14 patents. Wuxi made an offer to him for $6 million in start-up capital." In exchange, government funds and state companies would own 75 percent of ‘the company, and a local official would be appointed to serve as Chairman of the Board of Directors. Shi would contribute the technology he owned and $400,000 of his own money for the remaining 25 percent stake and the role of CEO. “The Wuxi investment committee said to me, ‘we want sons like you to come back and be bosses here.’””? After several months of negotiation, Shi agreed to the terms offered by the government, and Wuxi Suntech Power Co., the original company name, was registered on January 21, 2001. ‘The Start-up Phase Suntech officially commenced operations in May 2002 and completed its first PV cell manufacturing line (1OMW annual capacity) in August of that same year. Commercial sales of PV cells began in September, and Suntech sold its entire initial inventory within nine months and was left scrambling to find ways to expand its manufacturing line. Shi subsequently pioneered the term “low cost expansion,” which entailed reorganizing the entire solar cell manufacturing process to reduce automation. The objective was to utilize less machine work and more people, since labor was so inexpensive in China. He also developed key relationships with different suppliers including many small, unknown Chinese companies and was able to successfully negotiate more competitive prices and contracts. Rather than importing all of the necessary machinery and equipment from abroad, Shi only bought the “core” components and was able to integrate them with China’s domestic and/or foreign used equipment. Two advantages of pursuing this strategy were the ability to customize the manufacturing process and an overall reduction of costs. Six months later, in December 2003, the company’s newly improved manufacturing line (15W) was completed.'? ° Andrew Batson, The Wall Street Joumal, “Chinese Entrepreneur Makes Good at Home,” October 12, 2006, www post-nizette.comi i “China: The Sun King,” Saturday Extra, ABC Radio National, ‘btipl/w.abe.net au/rn/saturdayextra/stories/2008/2 169S88,htm "Y Capital provided to Suntech indirectly via a number of local state-owned enterprises and VCs. '? Bill Powell, Fortune, “China’s New King of Solar,” February 11, 2009, nup:/money.cnn.com/3009/02/1 Vnews/intemnational ifort "Andrew Batson, The Wall Street Journal, op cit. 2 g 2 2 Use outsie tase “~@ copytigh S i 5 E Suntech (A): The Pre-IPO Years E-347-A pS China ‘A Unique Approael Suntech was considered to be a very unique start-up in China because of its manufacturing and marketing strategies. Whereas most of the new high-tech businesses in China, started around the same time as Suntech, were created to service the domestic Chinese market, Suntech was founded with a different vision in mind. Shi wanted to take advantage of the low cost manufacturing environment in China, yet planned from the very beginning to market and sell the vast majority of products and services abroad, where there was demonstrated demand for solar power. The Role of Government ‘The local city government of Wuxi played a critical role in launching Suntech. The government was instrumental in the company’s formation, as it provided the necessary initial start-up capital of $6 million to get the business off the ground.’ Suntech also benefited from favorable policies, low labor costs (just 2 percent of manufacturing costs versus 5 percent at competitors overseas)'’, and inexpensive land and material costs — all of which allowed the company to significantly drive down production costs, achieve profitability in year two, and compete alobally with incumbents. By manufacturing exclusively in China, Suntech shifted the balance of power in the solar industry, since the company had been able to keep its labor costs so much lower than overseas ‘competitors, including large and deep-pocketed companies like Sharp, Siemens, and BP Solar.'* However, Suntech maintained a healthy outlook on competition, and instead of striving for monopoly status, has made continuous efforts to promote development of the entire solar PV industry by hosting technology conferences every year and encouraging greater communication among industry players. Suntech’s competitive strategy has been to increase the size of the overall pie for everyone, rather than to control 100 percent of a smaller pie. BUSINESS STRATEGY Suntech’s overall business strategy was centered on a low cost manufacturing model, whi producing better than industry average PV cell conversion efficiencies. ‘This was prim achieved by pursuing a balanced and flexible silicon sourcing model. Specifically, the company adopted both upstream and downstream strategies to sustain this low cost model. First, Suntech set out to make equity investments in certain suppliers during times when the polysilicon supply was tight and spot market pricing was high, as a means to secure high quality silicon wafer and polysilicon at reasonable costs. To support its capacity expansion plans, the company also developed close relationships with certain suppliers and secured long-term contracts with them in order to lock in large volumes of silicon with a declining price curve. The company’s I Powell, Fortune, op cit. 'S Jonathan Watts, The Guardian, “Bright Future for China's Solar Billionaire,” July 25, 2008, Siw guardian.co.ukialobal/2008%ju wer. alternativeens "6 Bil Powell, Fortune, op cit Jun 23,2014 o Jun 27, 2014 Monga bya ory of Albena aug i's copyright vols 2 of invostient Bang at U Use outs the course FIN 604 P 5 a pare ‘Suntech (A): The Pre-IPO Years E-347-A pb downstream strategy involved building relationships with channel partners to improve downstream efficiency and reduce “balance of system costs.”"” As a result of these strategies, Suntech was able to sell its solar panels for far less than the industry average ($2.80 per watt versus $4.50 per watt in 2005), while maintaining 20 percent profit margins.'® The company also established an international presence with regional offices around the world to target specific growth markets (i.e. Germany, Spain, the U.S., ete.). ‘Another important aspect of the business model was the reliance on government support in the form of subsidies and other incentives to make solar energy more economically viable and compelling for consumers and businesses to implement. Because the solar industry had not yet reached grid parity, government support was a critical component of keeping Suntech and other solar companies in business. Government intervention was required to ensure an adequate adoption of renewable energy, at least in the short run The Global Deci Shi was well aware of global market conditions when he made the decision to launch Suntech and manufacture exclusively in China. Specifically, global demand was growing quickly, but there was very little demand for solar energy domestically in China. Foreign governments like Germany, Spain, and the U.S. had subsidy programs in place to reduce the cost for the end user to install a solar energy system. This was not the case in China (in 2002), where the government had yet to start promoting or subsidizing renewable energy sources. As a result, the majority of Suntech’s revenues (approximately 92 percent in 2004) were generated outside of China.'® Suntech sold its products outside of China through distributors, whereas it primarily sold directly, to end users in China, Shi took it upon himself to make efforts to educate the domestic market about the benefits of solar energy, but he had no expectations for sizable demand in China until the price fell to grid parity, which he hoped Suntech would achieve by 2012. Shi was also an advisor to the Chinese government on renewable energy policies. Another aspect of the company’s global strategy was the early focus on obtaining international standards technology certificates, such as IS09001, TU, CE, UL, and IEC, all well known quality certificates in the solar energy industry. These certificates enabled the company to gain credibility and prove the quality of the product without significant marketing expenses. " Balance of system costs are any costs associated with building a solar system other than solar modules (which can account for up to 50% of a solar system's total cost)— i.e. mounting structures, cables, power conditioning units, inverters, installation, labor, and operating expenses. °* Bill Powell, Fortune, op cit. "Ibid. ‘Suntech (A): The Pre-IPO Years E347-A pe MAKING ROOM For NEW INVESTORS In 2004, after just two years of operations, Suntech had been performing very well and was on track for continued rapid growth into 2005 and beyond. (See Appendix A for Suntech’s income statement and other financial data). While Shi was more than happy with the company’s results and future growth prospects, he was beginning to feel at odds with the government investors and owners of Suntech. Wuxi officials, including the government appointed Chairman, had paid close attention to Suntech’s impressive operating and financial results, and began to press the Board of Directors to take on a more active role in the company. Shi and the Chairman could not agree on how rapidly to grow the business and on the amount Shi had to spend on equipment purchases. After several months of deliberations, the Board declared its support for Shi, and appointed him as the company’s new Chairman, Shortly thereafter, Shi realized that having government equity holders was no longer in Suntech’s best interest. Suntech director Zhang Weiguo said, “The Chinese shareholders couldn’t provide a lot of support. They were just having meetings.” Alternatively, Shi had a grand vision for his company, and determined that getting new investors, outside of China, ‘would help Suntech get on the right path to achieve that vision. Shi commented, “That's when I realized that having a controlling position in the company was critical. I didn’t want this kind of complexity again.””' And so Shi set out to convince the state-sponsored shareholders that Suntech would be able to expand faster, hire more people, and pay more taxes if they agreed to give up their equity stake in the company. After six months of negotiations, Shi reached an agreement with the shareholders for a buy-out of $100 million (financed by an $80 million share offering to the venture capital community) in May 2005. “From that point onward I felt free,” Shi commented.” The company’s name was subsequently changed to Suntech Power Holdings Co. Ltd. LOOKING AHEAD Business Update Suntech achieved profitability in 2003 after one year of operations. For the nine’ months ended September 30, 2005, company revenues reached $137 million, representing year over year growth of 188 percent. Net income for the same period was $21.4 million, a 145 percent increase over the prior year.’ See Appendix A for detailed financial information. By 2004, Suntech had become one of the world’s top ten manufacturers of PV cells based on annual production output, and number eight in 2005. Suntech increased its manufacturing capacity by 12 times in less than three years, and grew its employee base from 162 at year-end 2002 to 1,282 as of September 2005. ‘The company operated five PV cell manufacturing lines with an aggregate annual capacity of 120 MW, and Shi had plans to double the aggregate 2 Andrew Batson, The Wall Street Journal, op ct 2! Bill Powell, Fortune, op cit. 2 Ibid, ® Suntech Power Holdings, Form F1/A, November 28, 2008, p. 16. 7,204 Suntech (A): The Pre-IPO Years E-347-A ps manufacturing capacity of PV cells by the end of 2006 (to 240 MW)." Figure 1 below highlights Suntech’s five manufacturing lines, as of September 2005. Figure 1 ‘Commencement ‘Annualized PV Cell Date of Manufacturing Capacity Utilization Manufacturing Line Manufacturing Capacity (in MW) Rate Line 4 ‘Aug-02 15 97.1% Line 2 Deco3 15 97.2% Line 3 Aug-04 30 97.9% Line 4 Jun-05 30 99.5% Line 5 sun-05 30 99.5% TOTAL 120 98.2% Source: Suntech Power Holdings, Form F1/A, November 28, 2005, p. 75. Since 2002, the average conversion efficiency rates of Suntech's multicrystalline and monocrystalline silicon PV cells improved from 14.0 to 15.0 percent and from 14.5 to 16.5 percent, respectively, as of September 2005. The company’s goal is to cost effectively improve the conversion efficiency from the current levels to 18 percent (multicrystalline) and 20 percent (monocrystalline).”5 ‘The company also laid out plans to increase domestic sales in China. Recent legislation and policies enacted, including China’s Renewable Energy Law in February 2005, which Shi advised the government on, were a solid indication that the PV market in China was poised for future growth. The Renewable Energy Law authorized the relevant pricing authorities to set favorable prices for the purchase of surplus electricity generated by solar and other renewable power ‘generation systems. It also provided financial incentives, including national funding, preferential loans, and tax preferences for the development of renewable energy projects. Elect generated from solar enetgy annually in China was expected to increase from 60MW in 2004 to 400MW in 2010 and 10,000MW in 2020, representing a CAGR of 37.2 percent and 37.7 percent, respectively.’ Industry Update Over the same time period of 2002 — 2005, global demand for solar energy rose rapidly, as oil prices set record highs and climate change initiatives were at the forefront of many government’s environmental agendas. Alternative energy also became popular on Wall Street, evidenced by a rising number of initial public offerings (IPOs) of “green tech” companies. PV production 2 Suntech Power Holings S tbia, Ibid, ‘orm F/1A, November 28, 2005, www.sec.gov. ‘Suntech (A): The Pre-IPO Years B-347A ps. increased by an average of 48 percent annually since 2002, making it the world’s fastest growing energy technology.” Exhibit 2 shows total global production capacity and PV installed capacity (GW) from 1995~ 2005. World solar PV market installations reached 927 MW in 2004, representing growth of 62 percent cover 2003. Once again, Germany stood out from other countries with 152 percent growth. Germany has taken over market leadership from Japan. ‘The Japanese, German and U.S, markets accounted for a combined 78 percent of the world market.”* Exhibit 3 illustrates global PV production and market shares by country/region in 2004. In 2005 the global solar PV market generated revenues of $6.49 billion, fueled by a record high number of installations totaling 1,460 MW, representing annual growth of 34 percent over 2004. Solar cell production reached 1,656 MW in 2005, up from 1,146 MW. Japan represented 46 percent of the market, while Europe accounted for 28 percent, and China jumped to 8 percent.” Exhibit 4 shows global PV cell manufacturing capacity (MW) by country/region in 2005. Meanwhile the PV industry raised more than $1.8 billion inthe eapital markets throughout 2005 as attractive valuations of solar energy companies lured investors to the industry.” In response to the increasing demand for solar power, intense competition emerged as new solar PV cell and module manufacturers were started around the world. At the end of 2004 there were approximately 90 PV cell manufacturers and 130 PV module manufacturers globally.”' Several large semiconductor manufacturers also announced their intention to start to manufacture PV cells. Exhibit 5 below shows the top ten PV cell manufacturers in the world in 2004 and 2005. The greatest concem for the solar industry was the shortage of silicon which hindered growth in the market, In 2004 and 2005, the global production of solar cells and PV modules was not enough to meet market demand, a situation that was expected to persist for several years. GOING PUBLIC DECISION As Shi concluded his tour of Suntech’s new manufacturing line, he was busy thinking about what the future held for his company. Since the Chinese government was no longer a shareholder and Shi was in full control of Suntech, he could think freely about different ways to grow the company and finance the expansion plans he planned for. His plan was to take Suntech public on the New York Stock Exchange (NYSE) with American depositary shares (ADSs), and he was curious about what the appropriate valuation was for the company given its rapid growth and the 7 Robert Kropp, “Solar Expected to Maintain its Status asthe World's Fastest-Growing Energy Technology.” March 3, 2009, tpl, soialfunds com /news/aticl.eg/2630 Mul > Mfarketbuzz™ 2005: Annual World Solar Photovoltaic Industry Report,” (see hitp/www.chriscom.com/valleyafthesunsolar/uploads/rticle0SMarkethuzz220200S_%20Annual%20World%20S sarts20PV620Mark%420Repor. pd. ce Makbuza™ 2006: Annual World Solar Photovoltaic Industry Report,” Solarbuz2, www, cetbu722006-intro,hkm aia * Suntech Power Holdings, Form F/1A, November 28, 2005, www-seegov. i sun 27, 2014 23,201 Monga ise ulate hase parame ine course IN 604 Practice of Invastment Bankig at Ur ‘Suntech (A): The PresPO Years E-347-4 plo general industry dynamics.” See Exhibit 6 for an overview of available data on publicly traded solar companies at the time. By mid 2005 Shi and the Board of Suntech had concluded that it was now opportune to take Suntech public. Their preferred route was a New York Stock Exchange (NYSE) with American depository shares (ADS’s). After filing a S-1 on XX 2005, there was much debate on the valuation of Suntech at IPO. This discussion included (a) the valuation that was “justified” by Suntech’s “fundamentals” and by its comparables, and (b) any “discount” or “premium” the investment banker may recommend be used in setting the “list price” to be charged to the investors signing up during/after the pre-IPO road show. ® See Appendix B for a description of Ameri courge FIN 604 Pract 3 i i Suntech (A): The Pre-IPO Years E-347-A pl e APPENDIX A PROSPECTUS SUMMARY You should read she following summary together withthe more detailed information regarding owr company the ADSs being sold in this offering, and our consolidated financial statements ad related notes appearing elsewhere ths prospects Overview ‘We are one ofthe leading solar energy companies inthe work! as measured by production cup in 2008. Since we ‘commenced business operations in May 2002, we have grown rapidly to become one ofthe word's top 10 manufactres of photovoliaic, or PV, cells in 2004, based on production output, according tothe Mares 2005 ssue of Photon Intemational, 2 ‘magazine covering te ineatioal PV industy- We desig, develop, manfactare and market avaity of PV cell and modules, ‘which are devies that conver sunlight into electricity through a process noun as the photovoltaic effect, We ago provide PV sjstem integration service in Chins. Our products are used io provide reliable and environmentally fitendly electri power for ‘residential commercial, industrial and public uihtysppiction in vicious markets worlwide, inching 9 umber of European ‘ovnities such as Germsny an Spain, as well ag China andthe United States, We ell our products outside of China primarily through distributors and in China primarily to end users directly ‘We believe that we have been abe to grow rapidly because oF our ability to capitalize on the PY markets demand for high eicieney products atthe lowest possible cost pet watt. Our strong research and development capabilites havs enabled ws to develop advanced proces technologies and manufacture, cost-effectively and on a large scale, PV cells and modes with high ‘conversion efficiencies, which measure the ability of PV prot ta convert sunlight ino electricity. The nverage conversion efficiency rates of our menocrystalline and muitcrystallne silicon PV ells teach 165% and 15.08% as of September 30, 2008, respectively. In comparison, acording to a report publishes by the International Energy Agency in September 2004, the conversion efficiency ates of monocrystalline and mlticrystaline silicon PV cells generally range betvecn 12.0% and 17.0%, apd between 11.0% and 16.0% respectively ‘We believe our Chins-based design, development and manufacturing facilites provide us wth several competitive ‘advantages, including cess to low-cost technical expertise, labor an faites. We Leverage or cost advantages ty optimizing ‘he balance between aviomation and mani operations in our manufacturing processes, which we believe lowers i operating ‘ont and capital expenditures and enables ust expand our manwfactringeapacty i cost-effective manner We have increased our manufacturing capacity by 12 times in less than thee yes. In Augsst 2002, we completed ou ist PY cell manufacturing line with a anol manufacturing capacity oF 10 meyawats, or MW. Through continuous technology innovation and capacity expansion, we have established five PV cell manufacturing lines with an agarepate capacity of 120 MW et year as of September 30, 2003, We pla fo double our aggregate manufacturing capacity of PV eels by the end of 2006. We Sold 0.9 MW, 6.4 MI. 29.5 MW and 4.3 MW of our produc in 2002, 2003, 2008 and forthe wine months ended September 30, 2005, respectively (Our net revemes increased fiom $3.0 milion in 2002 to $13.9 million in 2003 and to $85.3 milion in 2004, representing @ ‘compound annual grow rate of CAGR, of 31.0% from 2002 to 2004. We have Been profitable since 2003, Our et income mounted 1 $09 milion in 2003 and $198 milion in 2003, representing net mann f 6.7% and 232%, respecvaly. For the rine months ended Sepember 30, 2005, our ret revenues and tet income ameuited to $137.0 million and $20.1 milion, respectively, presenting increases of 87 8% and 129.2%, respectively, ver the sane period i 2008, eon Bankig at University of Abeta taught by Amit Monga fom Jun 22,2014 w Jun 27, 2014 3 é § 5 Industry Background ‘The PV inusiry hes experienced sinifcant growth over the past decade. According o Solarbuzz, an independent soir

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