Nexolon Targets Mono Wafers For Efficiency Growth

The company points to the price gap between mono and multi wafers to seize the opportunity to supply the market with mono n-type and full square mono wafers produced from large-diameter ingots

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Ever since last year’s IPO, Nexolon has had a bumpy road. The global slump in pricing had made this largest South Korean solar wafer manufacturer feel the pressure of ASP deterioration, which the company could not match with cost reductions.  The situation has improved in the last quarter, but there is no relief on the horizon.  In Q4 2011, gross margins dropped to a negative 49% due to heavy inventory write-offs, but that is still better than wafer competitor LDK Solar’s (NYSE: LDK) negative 65%. In Q1, Nexolon's improvement was a negative 20% GM, with a lot fewer inventory write-offs; however, it is clear that Nexolon is selling below cost. Renesola (NYSE: SOL), who is also competing in the space, had 3.8% gross margins but only due to module sales. The wafer market reality is that with the exception of GCL Poly, no company can make a profit.

Even so, the global wafer capacity is around 51GW this year, with around 37GW slotted to bankable. There is also 10GW of inventory, all competing for a 31 to 35GW demand. It's no surprise that fierce rivalry is steering Nexolon into high conversion products, with the objective being to lower its costs. The company points to the price gap between mono and multi wafers to seize the opportunity to supply the market with mono n-type and full square mono wafers produced from large-diameter ingots.  Cost reductions are anticipated with the use of diamond wire to reduce wafer thickness; better material optimization and higher conversion rates for the final product are seen in case of multi wafers. Other efforts will give a 10% boost to productivity without additional capital injection. To keep abreast with technological advancement, Nexolon has bought GT Advanced Technologies' (NASDAQ: GTAT) mono-like casting furnaces, which enable production of quasi-mono wafers.

Saving efforts produced their first success in Q1 with a 7% cost reduction and the increase of n-type mono and FSQM (full square) wafer shipments by 3M units (~12MW).  Regrettably, only n-type mono wafer has costs below the ASP, and it's expected to make up only 5% of shipments in 2012.  Costs per watt in Q1 were at $0.22 and there is a focus to bring them down to $0.17 by Q4 2012. This is 2 cents above Renesola’s and 4 cents above GCL Poly's objectives.

Nexolon has teamed up with OCI Solar to supply modules for the US market. San Antonio, Texas, is planned to house headquarters and a module assembly plant, bringing 800 jobs to the area in anticipation of 400MW of solar plants for local utility CPS Energy.  OCI Solar operates in nine US states and Canada, and has 150MW of projects.

In the contrast to the US plans, in the Philippines Nexolon is asking Lopez Group to buy back a 30% interest it has in the joint venture called First Philec Nexolon Corp. a culmination of recent events , which started with an apparent breach of contract by the venture. First PV Ventures Corp. (FPV), the parent company, brought the case to international arbitration arguing that Nexolon’s claims are without grounds.  Nexolon’s financial condition may be the reason for this move. The combination of long- and short-term debt is around $556M, while cash is only at $10M. Having negative earnings, Nexolon may be looking for liquidity. The company sold around 840MW of wafers last year, and had 1.5GW of wafer capacity on December 31, 2011.