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EU PVSEC Parallel Event EU PVSEC Business Forum 2011 Are PV Industry’s Business Models of Today suitable for Tomorrow’s Markets? Wednesday, 7 September 2011 14:00 – 17:30 Speaker: Paul Brody Global Electronics Industry Leader IBM Global Business Services

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Why does IBM care about PV? •  IBM has been heavily involved in the technical evolution of solar

technologies •  IBM serves clients in the industry on a wide range of issues from business

strategy to operational excellence and business analytics •  Solar is key to IBM‘s vision of a cleaner, greener, Smarter Planet •  IBM provides key solutions to the industry including manufacturing

technology, manufacturing management software (SolarView) and consulting.

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By many standards, we’re in a period of growth and turbulence:

•  CAGR 27% for global cumulative installed PV capacity (2010~15) •  Global oversupply: Supply : Demand=28:16.6GW (2010) •  Chinese and US gaining the market share (2009) •  Germany becoming the biggest market (2004) •  Japanese companies leading the market (early 2000s) •  Maturity is different in different countries / geos „IF THIS IS GROWTH – GIVE ME BACK THE RECESSION“ Many industries are developing in much the same way. Initially, a few new companies with innovative ideas entered the market. But as the industry grow and mature, consolidation began. Many companies go out of business, leaving only the handful of car manufacturers that dominate the market. [ Introduction ] . A stage when product offering has been developed newly . A few players in the industry . Market development efforts are made to create awareness . Growth ] . Industry-wide acceptance of the product . Fast growth of sales . Emergence of new entrants and intense competition . Requires a significant amount of capital for continued investment to meet the demand . Maturity ] . Sales volume reaches a steady state, but sales velocity is dramatically reduced . Focus on efficiency as competitive advantage . Marketing efforts continue to differentiate products from competitors . Decline ] . Sales are decreasing at an accelerating rate . Mergers and consolidations become the industry norm

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There are remarkable parallels between the growth and emergence of the global Semiconductor industry and the rise of the global photovoltaic industry. 25 Years ago, the largest semiconductor companies were about the same size as the largest solar companies are today. -  today, 15 of the 20 semiconductor companies from 1987 no longer exist in

any recognizable form -  A tough commodity-driven shake-out has affected the entire industry -  We see many parallels in the economic structure and strategic challenges in

the Photovoltaic industry -  We think we can draw some lessons and share them from our own

experience in this industry

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Similar to Photovoltaic is not, we realize, the same as Photovoltaic. We know the two industries are not identical. But, given our observations of the industry, our discussions with clients, and analysis, we conclude that successful survivors in PV will have three key characteristics: 1.  Global Integration 2.  Strong collaboration skills 3.  Intense focus on customers (or clients)

IBM’s own history is one of evolution from an international company to a multi-national, towards a globally integrated organization. Globally integrated organizations manage supply, demand, and operations on a global level, identifying the best places to do specific types of work.

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Being a globally integrated organization is very difficult. To parse out work and activity globally, you have to have a strong strategy and clear enterprise values. This makes it possible for people in different parts of the world to all make similar decisions when faced with challenges. On the foundation of a common strategy and values, we’re able to drive significant organizational change, productivity gains, and growth.

As part of our program of global integration, IBM has consolidated our shared services from nationally oriented into integrated global organizations. To these global organizations, we’ve applied more than a decade of year-on-year cost take out. The result: dramatic gains in efficiency. Though IBM is about the same size by revenue that it was a decade ago, key costs such as IT are dramatically lower as a result of this process. Business process, services, and operations for IT and other shared services are run on a global basis with high levels of commonality across countries.

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In 2010, Intel was #1 in semicondcutor @ 40bn in revenue In 1987, NEC was #1 @ $3.5bn Of the top 20 in 1987, only 6 of those are with us today. The soaring cost of capacity and scale in semiconductor had a huge impact on shaking out the industry. •  High fixed costs and sunk capital expense creates an incentive to use every

drop of available capacity •  The result is brutal price competition and relentless effort by the market

leaders to “out capex” the competition •  We see a very similar dynamic in the PV industry, with the industry leader

position changing on nearly a yearly basis and every year bringing a new announcement of the next mega-fab for PV

The soaring cost of keeping up with subsequent generations of technology has had a big impact on the semiconductor industry – raising costs much faster than revenue and squeezing margins.

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The only way we know how to survive this cycle is to become intensely collaborative. IBM is one of the few “sub-scale” survivors in the industry. We use partnerships with Samsugn and Chartered and many other to keep pace with the state of the art without having to commit the full capital expense. IBM’s research and development skills are aligned with volume production skills in our partners. We believe that to survive PV companies must collaborate and pool resources to keep up the pace of development and process innovation.

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There are three major types of customers in this industry. Each have very different sets of needs. -  Serving multiple sets of customers is complex and difficult -  Companies that think they serve all three are probably not sustainable -  IBM’s experience shows that service, operations, and support for different

customer basis are not easily sustained inside a single organization

IBM’s own experience shows that we achieved much better results once we decided to focus purely on the enterprise. -  More than just enterprises in general, we want to serve innovators and

leaders -  The mission clarity helps us think about our business model and improve

our client relationships

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Companies have an endless capacity to lie to themselves. Go and read Solyndra’s last annual report. It probably said something like “Things are tough, but we’ve got a plan to survive.” In the semiconductor industry, we used to tell ourselves lots of entertaining lies: -  Profitability is just around the corner, all we need to do is get to the next

point on the yield curve -  Our commodity product is priced at a premium, but it’s worth it because of

the quality In it’s final year of operations, Pan Am flew more passengers at a lower cost per seat mile than it had ever done in the past. It didn’t matter – the rest of the industry had passed them by and so while it was their own best performance, it was not good enough to survive. IBM suffered the same problems in the 1990s – we measured our performance against ourselves, not the market.

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