Will First Solar suffer like Solyndra?
After announcing a change of its board of directors last week, First Solar is restructuring due to deteriorating market conditions in Europe. As part of this program, First Solar will close its manufacturing operations in, Oder, Frankfurt, Germany, in the fourth quarter of 2012. What's more, the company will indefinitely idle four production lines at its manufacturing centre in Kulim, Malaysia, on May 1, 2012. These actions, combined with other personnel reductions in Europe and the U.S., will reduce First Solar's global workforce by approximately 2,000 positions, about 30 percent of the total. The restructuring initiatives are expected to reduce First Solar's costs by $30-60 million this year and $100-120 million annually moving forward. The company's average manufacturing cost is expected to improve to $0.70-$0.72 per watt in 2012 as a result of the changes, below prior expectations of $0.74 per watt. In 2013 the Company estimates average module manufacturing costs will range from $0.60 to $0.64 per watt. To achieve these cost savings, First Solar will record restructuring and other related charges of $245-370 million, of which $80-120 million are cash expenditures. These include $150-250 million in asset impairment, primarily related to the Oder plants and $50-70 million in severance and $30 million for repayment of a government grant related to the Oder operations. Another $15-$20 million for other charges represents valuation allowances for deferred tax assets in Europe and costs associated with the repayment of the German debt. First Solar expects to incur these charges primarily during the first quarter of 2012 and the rest over the course of this year. In addition, the firm has voluntarily paid down approximately $145 million of debt ahead of schedule in 2012, which represents repayment in full for outstanding amounts under the Company's German loan agreement. "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 interest of our stakeholders," says Mike Ahearn, Chairman and Interim CEO of First Solar. "Decisions like this are not easy, especially given how important the European markets and our associates in Europe have been to the development of our Company and the solar industry as a whole. We are committed to treating all affected associates fairly, and to building our relationships with European business partners that are aligned with our strategy of pursuing utility-scale solar opportunities in sustainable markets around the world." "The solar market has fundamentally changed, and we are quickly adapting our market approach and operations to maintain and build upon our competitive advantage," adds Ahearn. "After a period of robust growth, First Solar is scaled to operate at higher volumes than currently exist following the reduction of subsidies in key legacy markets. As a result, it is essential that we reduce production and decrease expenses to reflect the smaller volume of high-probability demand we forecast. These actions will enable us to focus our resources on developing the markets where we expect to generate significant growth in coming years." First Solar held a conference call yesterday to discuss this announcement. An audio replay of the conference call will remain available until Tuesday, April 26, 2012 at 2 p.m. EDT and can be accessed by dialling: 888-203-1112 (from within the United States) +1-719-457-0820 (from outside the United States ) and entering the replay pass code 6656447. A replay of the webcast will be available on the Investors section of the company's web site for approximately 90 calendar days.
