Market Overview

First Solar Shares Soar on Restructuring Announcement


First Solar (NASDAQ: FSLR), the largest US solar manufacturer, announced early on Tuesday that it was undertaking a major restructuring in its operations in order to make its operations sustainable in the face current market conditions.

The company announced it would indefinitely idle four production lines in Malaysia, while it was shuttering its manufacturing operations in Germany. Anticipated to cost between $245 to $370 million in 2012, the program should yield expected annual savings in the range of $100 to $120 million, the company expects. Workforce will shed about 30 percent of its ranks, about 2,000 positions.

In a statement released while shares were halted, First Solar said it was taking these measures to adapt to deteriorating market conditions in Europe. The company had scaled its capacities to meet growth that until recently had been robust, in significant part to government subsidies in key legacy markets such as Germany and Italy. The notable reduction in such subsidies left the company with higher capacities - and expenses - in markets where demand once considered a sure thing no longer is.

Solar demand grew about 40 percent, according to Reuter, in 2011 before it was hit by an overabundance of supply and declines in government subsidies in its two biggest markets, Germany and Italy. This, according to Reuter, has resulted in favorable prices for consumers, especially in lieu of reduced subsidies, but has put tremendous pressures on margins. Although First Solar is one of the lowest-cost producers in the world, lower volumes have made the depressed margins unsustainable.

FSLR shares resumed trading at $22.07, up 6 percent on yesterday's close as investors appear satisfied to see the company trim excess fat. Shares have shed well over 90 percent of their value from their 2008 heyday, and are down about 88 percent from their high last year.

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