First Solar cuts dramatic, but not unexpected


First Solar today announced that it would wind up its module production in Germany, and bring its production operations into line with market demand. Executives speaking on a conference call hours after the announcement explained that the company will now focus on new "sustainable" markets.

In November of 2011, First Solar opened its second fab (FO2) at its Frankfurt (Oder) site in the east of Germany. Today it announced that the same 250-megawatt (MW) fab, along with its adjacent, older sister (FO1) – also with a capacity of 250 MW – will be closed. First Solar said that it will incur impairment charges of US$150 to US$250 million because of the plant closures.

In a conference call held hours after the announcement was made, Chief Financial Officer Mark Widmar said that equipment from the FO1 fab might be redeployed elsewhere in the world, if opportunities in the market present. The impairment amount indicated was therefore, "mainly the building as some assets (from FO2) will be retained on the books," said Widmar.

The First Solar executives were also asked about the redundancy process resultant from the job losses in Frankfurt (Oder) and Widmar admitted that many First Solar managers were currently in Germany, working through procedures with administrators and local officials. "Clearly something that we’re going to have to manage," Widmar summarized.

Industry analysts reacted by saying that with the changes to the German FIT scheme, demand from within Europe is set to drop. Matt Feinstein from Lux Research told pv magazine that he was certainly not surprised by the announcement. "We’ve seen similar news out of tier-1 players like REC and even Chinese players like Suntech Power. Large or small, thin-film or silicon, all of the major players have had to re-think strategy with the sudden change in incentives that drove the majority of the market through Germany and Italy."

Malaysian production

While the most drastic component of the First Solar restructure, the German operations are not the only ones affected. First Solar also announced today that it would idle four production lines at its Kulim plant, in Malaysia, as of May 1. Widmar and Vice President of Treasury and Investor Relations David Brady also announced some detail in terms of Malaysia in today’s conference call.

Answering a question about the future operation of the fab, Widmar explained that while four production lines have been idled, other lines might follow suit in the future, in the pursuit of higher module efficiencies. "We’re trying to accelerate our efficiency roadmap," Widmar said, "so we may upgrade some of those lines depending on market demand." In order to carry out the upgrades, the lines would have to be idled.

Efficiency is king

Efficiency gains, or further cost reductions, will be necessary for First Solar to compete with crystalline manufacturers said IMS Research’s Sam Wilkinson, a senior market analyst, in reacting to the restructure. "First Solar’s decision to permanently close its German production facility and indefinitely close four lines at its Malaysian facility once again demonstrates the intense pressure that even the ‘lowest cost’ PV producers are under today to reduce their manufacturing costs."

While First Solar has long lauded its low cost profile, Wilkinson continued that this competitive difference may be fading. "First Solar’s costs (per watt) had been around 50 percent lower than a typical Chinese tier-1 c-Si manufacturer in 2009. Following rapid declines in polysilicon pricing, that difference is now less than $0.10/W and is predicted to close further throughout 2012."

Both First Solar executives chose to emphasize the company’s healthy geographic profile and its activity in emerging markets. "The solar market has changed and so must we," said Widmar.

Industry segment challenge

However Wilkinson indicates that it may be market segment, rather than geography, that is a problem First Solar must face. The changes in FIT and photovoltaic support schemes have all seemed to target ground mounted applications, he continued. "All of these changes have also been made in such a way as to particularly limit the growth of large ground-mount projects. This is of course further bad news to First Solar, as this is predominantly its target market."

Despite all of this, First Solar pointed to its multi-GW project pipeline, that it claimed was worth between US$3.4 billion in cash receipts, after project costs – however not including operating expenses. With a reduced manufacturing capacity in the realm of 1.2 to 1.5 GW, First Solar plans for that pipeline to be served by its production more effectively.

First Solar’s Widmar and Brady denied that the restructuring was an effort to "window dress" the company, in preparation for sale. "Not at all, we’re very well positioned," said Widmar, "there’s no reason for looking at other strategic options."

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