First Solar’s Downsizing Highlights Industry Challenges

by Trefis Team
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First Solar
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Thin cell panel manufacturer First Solar (NASDAQ:FSLR) announced that it would be closing down its manufacturing facility in Germany and reduce its global work force by 30% in light of the changing dynamics in the solar market. [1] With major subsidy cuts taking effect in Germany, the company plans to shift focus to other markets and strengthen its large scale systems installations business. First Solar became the second player to announce changes in its manufacturing business this week, following SunPower (NASDAQ:SPWR), which also announced plans to cut costs to stay competitive.

Click here for our full analysis of First Solar.

Pull back in Europe

Europe constituted a major share of the global demand for solar installations over the past few years. Governments in Germany, Italy and a few other countries encouraged the solar industry by providing generous subsidies. With the deteriorating fiscal situation of many of the countries in the block and falling module prices resulting in excess installations, countries are pulling back on support; resulting in lower demand.

First Solar’s operations in Germany have also been hit by new regulations on the use of arable land and on ground mounted, large-scale utility plants, which will impact the company’s systems installations business. [1] First Solar has been focusing on the systems business to counter falling margins in panel manufacturing. The closure of the plant will result in First Solar writing down a $150 million in assets and returning $30 million in government grants. The company will also spend about $55 million on severance packages for the employees at the facilities.

First Solar’s cost advantage over silicon based panels has been eroding with a fall in polysilicon prices. Chinese competition has put pressure on the margins of solar players and resulted in the bankruptcy of a few U.S. based firms. First Solar has looked to expand in the installations business by undertaking multiple mega projects in the U.S. to withstand the shakeup in the solar industry. The closure of its manufacturing facilities in Germany seems to be in line with its broader strategy. Pull backs in expansion plans and cuts in capacity are seen as being a part of the broad consolidation that is expected in the solar sector.

We are looking to reviseĀ our $53.73 price estimate for First Solar, which is currently more than double its market price.

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Notes:
  1. Solar Company to Cut 2,000 Jobs and Close a German Factory, NY Times [] []
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