I’m a firm believer that one day, “alternative energy” will one day just be energy.
However, a variety of factors have continued to push that day further into the future. Everything from an abundance of oil and natural gas flooding storage facilities in the U.S. to recent policy moves across major markets in the European Union have conspired against the renewable-energy sector. It seems that every breakthrough is followed by a huge step backward. The latest could be seen as a major blow to the overall sector.
After a year of slumping earning reports and seeing its share price plummet (down another 6%-plus in afternoon trading today), solar-industry stalwart First Solar (NASDAQ:FSLR) recently announced a vast restructuring plan. By idling production and reducing headcount, the thin-film pioneer hopes to align its manufacturing operations with the general negative long-term view on Europe and the immediate demand/pricing environment. Management views these reductions as necessary in order to survive in this challenging marketplace.
That marketplace is certainly getting more challenging by the day. The First Solar news is just the latest in a series of setbacks for the industry. Bankruptcies and plant closures are quickly becoming commonplace.
For investors in the sector, seeing one of its leaders struggle is an ominous sign. And there’s no way to know if First Solar’s moves will enable it to escape the carnage facing the industry.
The bulk of First Solar’s efforts will involve shutting down or idling capacity at its thin-film factories. The giant will shutter all of its factories across Germany as well as indefinitely idle four of 24 production lines in Malaysia. This follows reductions already taking place across the rest of Europe and the U.S.
Overall, this will eliminate about 30% of First Solar’s workforce — about 2,000 employees — and reduce production capacity to the 1.5-to-1.8 gigawatt range. The company estimates that it will save about $60 million this year and grow those savings to $100 million-$120 million in 2013.
Chairman and Interim Chief Executive Mike Ahearn said of the restructuring: “After a thorough analysis, it’s 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.”
How did we get here?
First Solar was the talk of the town when it was founded back in 1999, and the company thrived in the mid-2000s. Several factors, including an abundance of cheap gas, feed-in tariff cuts, Chinese competition and falling silicon prices, played a part in First Solar’s downturn.