Green Energy Technology Inc.
Tatung Dons a Cloak of Green
Last April, the Tatung Group announced a full-scale foray into solar power. After founding Green Energy Technology four years ago, how has this conglomerate fared in seizing green opportunities?
Tatung Dons a Cloak of GreenBy Ching-Hsuan Huang
From CommonWealth Magazine (vol. 404 )
Amidst the shade trees lining Zhongshan North Road, the squat, non-descript lime-green building housing the Tatung Group's old headquarters has remained silently unchanged for decades, its corridors lined with the offices of the group's various corporate cross-investments, including Tatung's environmental golden goose at the end of the hall – Green Energy Technology, a maker of silicon wafers, an upstream material used in the manufacture of solar cells.
The 90 year-old Tatung has seen its core business and cross-investments on a roller coaster ride in recent years. After two consecutive years of posting losses in excess of NT$10 billion, last year Chunghwa Picture Tubes Ltd., the group's highest market cap LCD panel maker, was able to struggle into the black and the group's overall bottom line showed a modest profit. For many of the group's affiliates, however, including Chunghwa Picture Tubes, earnings per share (EPS) remain less than NT$1. In contrast, after just four years of operation and with less than one-thirtieth the operating revenue of Chunghwa Picture Tubes, Green Energy Technology posted an EPS of NT$7.4 and is projected to more than recoup the initial capitalization this year.
The burden of responsibility for Tatung's new cash cow is not only to earn, however, but also to lead the group's charge on so-called green opportunities.
Seizing the Downstream Initiative
Tatung's most recent annual report reveals that the focus of its future development – aside from putting its massive real property holdings into play and running its core LCD panel businesses led by Chunghwa Picture Tubes, Ltd. – will be expanding into new energy and energy conservation.
Presiding over ceremonies marking Green Energy Technology's investment in a thin film silicon solar cell manufacturing facility in April, Tatung Group chairman Lin Wei-shan publicly indicated that the solar power sector would be the primary focus of Tatung's future development. In addition to its solid position in upstream solar power industries, Tatung this year plans a foray into downstream end-user solar systems, developing lines of solar energy products for both home and industrial use.
With annual operating revenue of NT$5 billion, Green Energy Technology began producing Taiwan's first polycrystal solar silicon ingots in 2005, and has since expanded its crystal growing capacity from its original 13 furnaces to 80 furnaces as of last year, yielding a production capacity of 200 megawatts per year, and now ranks among the world's seven largest makers of solar silicon wafers. The company also set up a production facility in the Hohhot, the capital of China's Inner Mongolia region, this year to capitalize on opportunities arising from China's vigorous development of its solar power industry.
Tatung's venture into green industry now stretches from the upstream to the downstream, from Taipei to Inner Mongolia, but just four years ago the story was not quite playing out that way.
Raising Tatung's Green Baby
University professor Hur-Lon Lin, the man who rewrote the script, eight years ago took the helm of San Chih Semiconductor Co., Ltd., another Tatung subsidiary, and now serves as president of Green Energy Technology.
Originally a professor with Tatung University's Department of Material Science, Lin had also served as a consultant to Tatung Group subsidiaries, later taking the helm of San Chih Semiconductor when the company was spun off from Tatung's Silicon Applications Center. Formed in 1995, San Chih was at the time swimming in red ink.
Recalling those days eight years ago, when no one dared accept the post, the company didn't have even a single order and NT$20 million was leaking from the coffers every month, Lin can't help but be self-deprecating.
"That's why they brought in a professor," he says. "There was a way out – if I did a bad job, I could always go back to teaching."
In his round-rimmed spectacles, Lin has a decidedly scholarly air about him, but he is not the type to simply bury himself in academic research. In fact, Lin has a passion for riding heavy-duty motorcycles, occasionally ratcheting his beloved 1,200 cc crotch rocket up to more than 200 kph.
In Lin, Tatung expected that it had found the man who could take San Chih from its mounting losses to high-speed growth opportunities.
San Chih was engaged in crystal growth and wafer dicing businesses, but hit with the downturn of the global semiconductor market in 2000, the company remained mired in a swamp of red ink. Lin brought his inquisitive nature to bear, burying himself in seminars and technological research papers, eventually deciding that the thing to do would be to extrapolate on the existing experience of San Chih and develop upstream solar silicon wafers, thereby leading to the establishment of Green Energy Technology.
Green Energy Technology focuses on a "blue sea strategy," taking advantage of its applied materials expertise and the corporate power of the Tatung Group.
There are currently only three Taiwanese companies that are able to achieve economies of scale in the production of solar silicon wafers, far deeper waters in which to swim than the production of solar cells, an intensely competitive business sector in which more than 30 Taiwanese companies are currently vying for supremacy. It is in this sector that Lin and San Chih are best able to exploit their specific expertise.
With the production phase from raw silica to the silicon wafer largely involving the areas of chemistry and applied materials, the company's wealth of personnel possessing the relevant backgrounds and other associated resources poises it particularly well for success.
"We have a lot of experience in applied materials," says Lin, himself a former professor of applied materials. "Even when it comes to relatively low-end materials, we can find a use for them."
Just two years after its founding, Green Energy was already posting returns to the group. For example, with its 60-percent stake in Green Energy, San Chih moved from the red to the black in 2006.
Nonetheless, of Taiwan's three silicon wafer producers, Green Energy is the only company almost entirely focused on solar silicon wafers with no semiconductor crystal growth business. While this approach offers benefits in the short term, over the long haul the risks are great. In the current stage of development, there is a severe shortage of the most upstream raw materials, so competition among wafer producers remains less than heated, and companies are able to pass their costs on to downstream solar cell producers. It has been forecast, however, that by 2010 when global production capacity of high-grade silica raw materials will be running full tilt, gross profits at wafer producers will be razor thin, as global prices plummet.
With his expertise in applied materials, Lin recognized early on that silicon wafer production businesses were hamstrung by the supply and demand of silica raw materials. Reluctant to limit the company he had single-handedly built to just a few short years of prosperity, Lin embarked two years ago on research into the production of thin film silicon solar cells. At its inception, the company began developing a Generation 8.5 solar module production line, Taiwan's first, and expects to go into mass production by the end of the year, becoming Taiwan's first producer of super-sized thin film solar cell units.
Leveraging Group Power
Putting the synergies and power of the Tatung Group into play is a focal point of Green Energy's strategy.
The production process for thin film solar cells is similar to that of LCD panels. Thus, Sharp, a major producer of LCD panels and the world's number two solar energy company, has recently been pushing its development of thin film technology and has even built a major production facility that can jointly produce both thin film solar cells and LCD panels.
Green Energy's future emphasis on thin film solar cells will actually be an extension of Tatung Group company Chunghwa Picture Tubes' core competency.
"They've realized that they will face future competition, so they hastened the development of thin film solar cells. And because Chunghwa Picture Tubes is also a group company, they can leverage that power," says R.C. Liang, chairman of DelSolar Co., Ltd., Taiwan's most profitable maker of solar cells and a downstream buyer of Green Energy's solar silicon wafers, affirming Green Energy's steps to stay ahead of the game.
The synergy between Green Energy and Chunghwa Picture Tubes is evident. Because of the Tatung Group's massive real property holdings, land costs for the construction of Green Energy's plant were virtually nil and even Green Energy's thin film solar cell development team came over from Chunghwa Picture Tubes.
"In applying existing TFT experience to production of thin film solar cells, the learning curve was shortened dramatically," says Alan Kang, a researcher in the New Energy Research Department at the Industrial Technology Research Institute's Industrial Economics and Knowledge Center.
But even with the benefits of a solid downstream footing, the competition remains intense. UMC, Chimei, CMC, Tayih and other major semiconductor and optical technology players are all getting involved in the thin film solar cell market, and in China alone there are more than 30 companies vying for a piece of the action.
With its technologically savvy subsidiary, Tatung has successfully cloaked itself in a mantle of green. But the path ahead for environmental business remains fraught with peril.
Translated from the Chinese by Brian Kennedy
Chinese Version: 大同綠寶寶 領集團披綠衣