SunPower Closes Capacity And Cuts Workforce To Cope With Downturn

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On Wednesday, SunPower (NASDAQ:SPWR), the second largest U.S. solar panel manufacturer, announced that it would shut down a large manufacturing plant in the Phillipines, while laying off 25% of its workforce, as it looks to cut costs and stabilize its business amid a slump in demand for solar panels. Below we outline some of the recent announcements from the firm.

We have a $10 price estimate for SunPower, which is roughly 20% ahead of the current market price.

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Focusing On Lower Cost Facilities, Cutting 25% Of Workforce

SunPower intends to shut down its Fab 2 facility in the Philippines, removing roughly 700 MW of older, higher cost solar cell manufacturing capacity, which is utilized in the firm’s lower margin E-Series modules. SunPower has ramped up capacity at its latest Fab 4 cell production facility, which caters to its high-end X Series modules – which offer the highest conversion efficiencies in the industry. The increasing production mix of higher-value X-Series modules should bode well for SunPower’s margins in the long run. Additionally, SunPower will tap into its P-Series module technology – which utilizes third-party polycrystalline cells – to provide low-cost volume flexibility and greater capital efficiency. SunPower expects to have 400 MW of  P-Series production capacity in 2017.

The firm also announced that it would lay off about 2,500 employees, with 75% of the cuts coming from the Fab 2 plant and the remaining 25% of the cuts occuring at the corporate level. This workforce reduction would be in addition to the reduction of about 1,200 employees announced in August.

2017 Outlook

  • SunPower has guided for adjusted revenues of between $2.1 billion to $2.6 billion for 2017, marking a decline of roughly 9% at the mid-point, versus its 2016 projections. The figure also comes below analyst’s average estimate of $2.70 billion, per Thomson Reuters.
  • SunPower will book restructuring charges of between $225 – $275 million through the end of 2017, out of which roughly 30% would be in cash.
  • The firm also noted that it would slash its operating costs to roughly $350 million in 2017, versus $451 million in 2015. The firm also reduced its capital budget for 2017 by more to 50%, to between $90 million to $110 million.

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