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First Solar Trims Manufacturing, Cuts Global Staff By 30%

04/17/2012 | 01:56pm US/Eastern
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--First Solar says it will shut its German solar-panel factory and cut production at its Malaysia facilities

--The company will also cut 2,000 jobs, nearly one-third of its work force

--The moves, estimated to save up to $60 million this year, come at a difficult time for solar-panel makers

(Updates with comments from First Solar spokesman in third paragraph, analyst in tenth paragraph and other details)

By Cassandra Sweet and Melodie Warner

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First Solar Inc. (>> First Solar, Inc.) said Tuesday it will close its German factory, cut production at its factory complex in Malaysia and trim almost a third of its workforce, in a sign that falling prices and a global oversupply of solar panels have increasingly taken a toll on the industry giant.

First Solar, of Tempe, Ariz., said that it would cut 2,000 jobs, or about 30% of its workforce and shut down its solar-panel factory near Frankfurt this fall as part of a restructuring of its operations in the face of "deteriorating market conditions in Europe," which has been the world's largest solar market.

"We're essentially re-sizing our production output for what we view as sustainable, high-visibility demand," said First Solar spokesman Ted Meyer.

First Solar shares were trading 11.3% higher at about $23.17 amid a broad rise in the stock market, which pushed up most solar stocks. The company's stock has plunged by about 85% from a year ago.

First Solar, which was one of the world's top solar-panel suppliers in recent years, has seen its fortunes decline amid fierce competition from well-financed rivals in China that have grown quickly and competed fiercely for markets where demand has been largely dependent on government subsidies.

The rise of China's solar-power industry prompted a group of U.S. solar-panel makers, led by SolarWorld AG (>> SolarWorld AG), to file a trade complaint against Chinese solar-panel makers with the U.S. government. That case is still pending.

The falling prices and solar-panel glut have also prompted solar-panel makers such German-based Q-Cells and Solon Inc. to file for bankruptcy.

To secure a competitive edge, First solar has built a solar-farm development business that has about 2,800 megawatts of projects in the pipeline. First Solar has obtained government loans for some of the solar projects, and has sold several of the projects to large energy companies, including NRG Energy Inc. (NRG), Exelon Corp. (>> Exelon Corporation) and Berkshire Hathaway Inc.'s (BRKA, BRKB) MidAmerican Energy Co. unit.

First Solar's manufacturing cuts were welcomed on Wall Street, where investors have worried about the company's exposure to the global solar-panel glut.

But the move could be a sign that First Solar is having trouble competing against Chinese rivals, as the global solar-power market moves toward rooftop solar-power system, rather than large-scale utility power plants, which are First Solar's forte, said Jesse Pichel, an analyst at Jefferies Group Inc.

"This was a market leader, but its technology is being usurped or surpassed by the Chinese," Pichel said. "Their product is not competitive in the most economic and sustainable solar market, which is rooftop."

First Solar sees the utility-scale solar-power market "as the most cost-effective way to integrate solar to the grid," Meyer said. He added that the company "may at some point in the future revisit the rooftop solar market," but that it wasn't the company's "strategic focus right now."

The company's earnings have mostly slumped over the past year as reduced government subsidies and heated competition forces most solar-panel producers to retrench.

First Solar expects the restructuring initiatives to cut its costs by $30 million to $60 million this year, and by $100 million to $120 million a year afterward.

The company will book restructuring and other related charges of $245 million to $370 million, and expects to record the costs primarily in the first quarter.

"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," said Chairman and Interim Chief Executive Mike Ahearn.

First Solar reported in February it swung to a fourth-quarter loss on write-downs and other charges as net sales climbed 8%. The company had also cut its 2012 revenue guidance, saying it would cut back production at its factories to match supply with weaker-than-expected global solar-power demand.

-By Cassandra Sweet and Melodie Warner, Dow Jones Newswires; 212-416-2283; melodie.warner@dowjones.com

Stocks mentioned in the article : First Solar, Inc., Exelon Corporation, SolarWorld AG
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