First Solar Cuts 2,000 Jobs and Closes Plant in Major Restructuring Effort

April 17, 2012
Company accelerates its plan to exit the subsidized European market and focus on utility-scale projects.

Solar module manufacturer First Solar Inc. (IW 500/274) will cut 2,000 jobs and close a plant in Germany in response to falling demand in Europe, the company said Tuesday.

The restructuring is the second the company has announced in the past year as it seeks ways to remain competitive while many European nations cut renewable-energy subsidies.

The move will reduce the company's total workforce by about 30% and result in the closing of its Frankfurt, Germany, plant. The Tempe-Ariz.-based company will also indefinitely idle four of its 24 production lines at its manufacturing center in Kulim, Malaysia.

First Solar expects the restructuring to cut costs by $30 million to $60 million this year and $100 million to $120 million annually going forward.

First Solar and other alternative-energy manufacturers benefited in the past from subsidies in many European countries known as feed-in tariffs. But planned cuts to those subsidies have forced many solar manufacturers to shift their market focus.

"After a thorough analysis, it is clear the European market has deteriorated to the extent that our operations there are no longer economically sustainable, and maintaining those operations is not in the best long-term interests of our stakeholders," Mark Ahearn, First Solar's chairman and interim CEO, said in a prepared statement.

In December First Solar said it would transition away from government-subsidized markets and focus production on large utility-scale systems as part of a three-year strategic plan.

As part of the move, the company cut 100 employees from its staff, including 60 at its Santa Clara, Calif., research and development center.

Future Competitiveness

In addition to incentive cuts, the solar industry faces more competitive pressure from China and an abundance of low-cost natural gas.

First Solar's restructuring should make the company more cost competitive in the future, said Fatima Toor, an analyst with emerging technology data firm Lux Research.

"I think it's a smart move by First Solar because the reason they're doing this is to reduce their cost and we think once the industry stabilizes in a few years the winners will be those who have the sustainable cost structure to generate PV-based electricity at a competitive rate," Toor said.

The restructuring will allow First Solar to reduce its module manufacturing costs by as much as 12 cents per watt, the company said.

First Solar produces solar panels using cadmium telluride technology, while producers in China use polysilicon.

Cadmium telluride is more efficient for use in utility-scale projects, Toor said.

But First Solar's technology may not be as efficient as some industry experts had previously assumed, said Gordon Johnson, managing director and senior equity research analyst with Axiom Capital Management Inc.

"People are starting to question whether their modules actually work or not," said Johnson referring to claims made against the efficiency of the company's modules.

The company disclosed in its fourth-quarter earnings report Feb. 28 that it incurred a $164 million charge for warranty payments.

The recent restructuring developments may signal a future exit from all manufacturing activities for First Solar, Johnson said.

"First Solar was seen as a low-cost leader and with them getting out of the module manufacturing business they're admitting what we've been suggesting for quite some time - that they're not the low-cost leader," Johnson said. "They're going from a high multiple, low-cost leader solar company to a low-multiple, high-risk engineering, procurement and construction company in the solar space where clearly there has been a lot of risks in projects actually getting constructed."

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