Solar Operating Margins Compared to Other Industries
Update: as this post by Christian Rolseund of Solar Server shows, operating margins vary greatly within the solar industry, and they have varied greatly this year due to falling demand from policy changes or policy uncertainty and oversupply — while some larger PV companies had operating margins of 10% (Trina Solar), 14% (Yingli), and 18% (First Solar) in the first half of 2011, the average for the top six PV cell and module manufacturers in the world was 8.4% in the first quarter of 2011 and -15.9% in the second quarter (or 11.7% and 0.3% when leaving Germany’s struggling Q-Cells out). However, even in the second quarter of 2011, some companies thrived — JinkoSolar had an 18% operating margin, “Wacker Chemie AG reported a 47% operating margin from its polysilicon division,” and “REC’s polysilicon division reported a 55% operating margin.” First Solar’s third-quarter operating margin is now reported to be 22%.
Compare these numbers to those in the lists below and they don’t fare too badly.
In addition to the original list (still below), I’ve found and added a list for operating margins as of January 2011. However, while 2008 was an exceptional year for some industries (i.e. airlines and real estate), 2011 has also been an exceptional year for solar.
What’s the bottom line? It’s still what it was originally — while some companies are getting quite hurt or killed off by maturation of the industry and temporary oversupply, there are others that are doing fine; and while global solar demand weakened with changing or uncertain policies, solar power is expected to grow tremendously in coming years and numerous companies will see great profits from that.
Fortune/CNN 2009 list of industry operating margins:
After-tax Operating Margins (EBIT(1-t)/ Sales) by Industry
- R.E.I.T.: 138.72%
- Canadian Energy: 33.51%
- Natural Gas (Div.): 32.41%
- Petroleum (Producing): 32.05%
- Maritime: 30.96%
- Telecom. Services: 28.64%
- Telecom. Utility: 26.67%
- Precious Metals: 25.01%
- Railroad: 24.7%
- Water Utility: 24.33%
- Drug: 23.85%
- Oilfield Svcs/Equip.: 23.32%
- Metals & Mining (Div.): 22.33%
- Property Management: 22.07%
- Cable TV: 21.19%
- Oil/Gas Distribution: 20.98%
- Financial Svcs. (Div.): 20.57%
- Computer Software/Svcs: 19.61%
- Securities Brokerage: 19.56%
- Electric Utility (West): 19.23%
- Electric Utility (East): 18.99%
- Coal: 18.89%
- Electric Util. (Central): 18.55%
- Semiconductor: 18.35%
- Diversified Co.: 17.08%
- Information Services: 16.37%
- Beverage: 16.12%
- Tobacco: 15.7%
- Household Products: 15.54%
- Internet: 15.52%
- Power: 15.44%
- Entertainment: 15.41%
- Biotechnology: 15.1%
- Steel (Integrated): 15.05%
- Total Market: 14.84%
- Pipeline MLPs: 14.78%
- Wireless Networking: 14.73%
- Chemical (Basic): 14.35%
- Environmental: 14.29%
- Recreation: 14.1%
- Building Materials: 13.86%
- Restaurant: 13.45%
- Hotel/Gaming: 13.37%
- Funeral Services: 13.17%
- Chemical (Diversified): 13.12%
- Publishing: 12.72%
- Electrical Equipment: 12.66%
- Paper/Forest Products: 12.31%
- Metal Fabricating: 11.91%
- Educational Services: 11.77%
- Precision Instrument: 11.77%
- Natural Gas Utility: 11.26%
- Packaging & Container: 10.66%
- Computers/Peripherals: 10.57%
- Chemical (Specialty): 10.52%
- Machinery: 10.1%
- Healthcare Information: 10.01%
- Telecom. Equipment: 9.1%
- Medical Supplies: 9.02%
- Petroleum (Integrated): 8.91%
- Toiletries/Cosmetics: 8.81%
- Apparel: 8.7%
- Shoe: 8.66%
- Utility (Foreign): 8.62%
- Newspaper: 8.25%
- E-Commerce: 8.15%
- Aerospace/Defense: 8.02%
- Food Processing: 7.81%
- Advertising: 7.7%
- Semiconductor Equip: 7.18%
- Industrial Services: 7.14%
- Heavy Truck/Equip Makers: 6.7%
- Automotive: 6.66%
- Retail Building Supply: 6.49%
- Entertainment Tech: 6.38%
- Medical Services: 6.13%
- Trucking: 6.09%
- Furn/Home Furnishings: 5.98%
- Retail (Special Lines): 5.86%
- Air Transport: 5.83%
- Auto Parts: 5.79%
- Office Equip/Supplies: 5.75%
- Electronics: 5.62%
- Foreign Electronics: 5.38%
- Retail Automotive: 5.07%
- Engineering & Const: 4.58%
- Retail Store: 4.41%
- Pharmacy Services: 4.32%
- Retail/Wholesale Food: 3.63%
- Steel (General): 3.01%
- Human Resources: 1.83%
- Homebuilding: -17.12%
- Public/Private Equity: -83.38%
The bottom line message: there may be a “shakeout” in the solar industry in the months and years to come and many companies may not make it, but that doesn’t mean the industry is collapsing — the industry is maturing. The solar industry is the fastest-growing industry in the U.S., growing approximately 10 times faster than the U.S. economy as a whole! Globally, the industry is booming as well. Margins are coming down (for now, at least), but sales volume is going up.
“Yes, narrowing margins are making life difficult for smaller, higher cost producers,” Garvin Jabusch of Alt Energy Stocks writes. “But this is and has always been a standard part of the evolution of any industry from niche to growth to mainstream.”
Demand for solar is increasing. Costs are dropping. And competition is rising (as well as collaboration). Good luck to all those trying to make a living in this industry with what they hope will be the next best product, but, clearly, there can’t be 1000 bests.
Let me know if I’m missing something here — this is an area of the industry I don’t normally delve into.
Profit fluctuation image via shutterstock
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