ABB, a significant player in the worldwide solar market, is paying $470 million to unload the business to Italian company Fimer — an acknowledgement of ongoing challenges in a market driven by fierce competition and increasing cost pressure.
Tuesday’s deal will cost ABB an estimated nonoperational cost of about $430 million in the next quarter, with up to 75 percent to be paid in cash to Fimer. Another $40 million in separation costs are expected in the first quarter of 2020.
However, according to a ABB spokesperson who spoke to Reuters about the deal, the margin improvement in the future will reevaluate the cash effect of the transaction. According to Reuters, earnings for the solar power firm have dropped considerably since ABB purchased it in 2013.
“The divestment is in line with our approach of ongoing systematic portfolio management to strengthen competitiveness, focus on quality of revenue and higher growth segments,” Tarak Mehta, president of ABB’s electrification firm, said in a prepared statement.
Lindsay Cherry, analyst for Wood Mackenzie Power & Renewables, noted that ABB’s move comes amid broader shakeups in the solar inverter market. “Due to cost pressure and these low margins in the solar inverter industry, we’re seeing businesses looking to get margins in different ways,” she said.
In January, as an instance, German company Kaco announced it was exiting the central inverter business by selling South Korean subsidiary Kaco New Energy Inc., to OCI Power, which functions from the utility and distributed generation solar niches. Kaco said the transfer would let it concentrate on its series inverter business, together with energy storage. But in February, Kaco marketed its own solar PV string inverter company, Kaco fresh energy GmbH, to Siemens.
And in March, Schneider Electric verified that it is departing the utility-scale inverter business, to reposition toward the residential and commercial and industrial sections, as well as its own internet-of-things platform, EcoStruxure.
“We’re seeing an increasing number of companies expand or launch their IOT platforms as a means to stay competitive,” Cherry said. “We have seen that with Schneider as they drop their utility-scale company to focus in part on their IOT platform and with Siemens, which acquired Kaco’s string inverter business as a way to fill out its IOT platform.”
ABB shuttered its U.S. manufacturing center in 2016 and is no longer an active player in the market. The majority of its shipments are located in Europe and the Asia-Pacific area, as well as some Latin American and Middle Eastern markets, Cherry said. The organization’s diverse product lineup includes string inverters, fundamental inverters, and electricity storage and hybrid inverters.
By acquiring ABB’s inverter business, Fimer will reinforce its current product line of three-phase series and fundamental inverters, she noted. It is going to also gain a much broader geographic reach, compared to its current economies in Latin America and Turkey, ” she said. “I feel the ABB acquisition will surely assist them.”
According to the latest WoodMac global solar inverter report released in April, China’s Huawei and Sungrow are ranked second and first in global PV inverter market shipments, with roughly 22 percent and 15 percent of the market, respectively, also Germany’s SMA is ranked third, with roughly 8 percent of the marketplace. ABB had approximately 5 percent of the current market, according to the report.
Huawei and Sungrow are equally”undoubtedly much more price-competitive” than many of their opponents, and lower prices are probably the driver behind their predominance in the market, Cherry said. Huawei, the world’s largest telecommunications provider, can also be capable”to draw on some of those other specialties for being a really innovative business, and fulfill what the market needs” from the solar inverter area, she said.
Of course, Huawei’s prospects in the U.S. solar inverter market have now been thrown into doubt in recent weeks, since U.S. authorities have accused the company of intellectual property theft and ties to Chinese intelligence services, and have proposed an outright ban on Huawei’s inverters. In late June, Huawei laid off its U.S. employees and is said to stop its sales in the U.S. market.
However, in the past month, President Donald Trump has announced plans to unwind these restrictions, and on Tuesday announced the administration would allow certain American companies to continue doing business with Huawei.
