Bloomberg News

Sinovel Profits to Fall 50% as Competition Drives Down Prices

January 31, 2012

Jan. 31 (Bloomberg) -- Sinovel Wind Group Co., China’s biggest wind-turbine maker, expects its 2011 earnings to fall by more than 50 percent as heightened competition at home and abroad dragged down prices.

Rivalry within the market depressed prices, trimming revenue and profit margins, the Beijing-based company said yesterday in a statement. “Cyclical fluctuations” in the world economy also delayed some projects, curbing income, it said.

Sinovel has been buffeted by Western rivals including Vestas Wind Systems A/S of Denmark and Gamesa Corp. Technologica SA of Spain, which have reduced costs to compete with Chinese manufacturers. Vestas announced plans to lower expenses by more than 150 million euros ($197 million) this month, losing 2,335 jobs, and said it may cut 1,600 more in the U.S. if a tax credit isn’t extended.

“It’s difficult for these guys to drive costs down at the same pace as revenue, so margins are getting squeezed,” Aaron Chew, an analyst with Maxim Group LLC in New York, said by telephone. Sinovel may still fare better than European counterparts such as Vestas because of lower labor expenses and more advantageous government subsidies in China, he said.

Lower Support

Vestas has cut sales forecasts twice since October after Asian competitors grabbed market share and U.S. and European governments reined in support for renewable power to curb budget deficits.

Sinovel shares were unchanged at 15.53 yuan at the close in Shanghai. The Bloomberg World Energy-Alternate Sources Index of 37 stocks fell 1.8 percent to $96.53.

The wind-turbine industry faces falling profits, according to Sean McLoughlin, an analyst at HSBC Bank Plc in London. Manufacturers are grappling with overcapacity and competitive pricing as well as dwindling subsidies for renewable energy, he said by e-mail.

A tighter government approval process for projects in China has intensified competition further, spurring domestic companies to study expansion elsewhere. “We do not expect growth in wind installations in China in 2012 to 2014,” so growth abroad would allow the main Chinese players to boost sales, McLoughlin said.

Vestas announced 346 megawatts of new Chinese orders in the first half of 2011 and 48 megawatts in the second, Haakon Levy, an Oslo-based analyst at DnB NOR ASA, said in an e-mail. That compares with 331 megawatts of new orders in the second half of 2010, indicating a “slowing Chinese market,” he said.

Goldwind Expansion

Xinjiang Goldwind Science & Technology Co., China’s second- largest wind-turbine maker, bought two 10-megawatt wind farms in Montana this month and has taken orders in seven other U.S. states since it started sales in the region in June 2010.

The U.S. wind industry may install more than 9 gigawatts of turbines this year, up from about 6.5 gigawatts in 2011, as developers rush to get tax breaks due to expire at year-end, according to researcher Bloomberg New Energy Finance.

Sinovel used to be the largest customer of turbine-part maker American Superconductor Corp. The Devens, Massachusetts- based manufacturer is now suing the Chinese company over a contractual and intellectual-property dispute.

“Sinovel’s attempts to expand abroad have been hampered with the ongoing dispute with AMSC, while Goldwind has been acquiring wind-farm projects in the U.S. to build track- record,” Levy said.

Sinovel had a profit of 2.86 billion yuan ($451.6 million) in 2010. The Chinese government has promoted investment in clean energy generation to diversify away from coal, which fuels 70 percent of the economy and contributes to pollution that blankets industrial areas from Hong Kong to Beijing.

--Editors: Will Wade, Charles Siler

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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