First Solar lays off 2,000 people; where's the bottom?

First Solar lays off 2,000 people, shutters a facility and idles four production lines. Is there a way for solar companies to escape the economic death spiral?
Written by Andrew Nusca, Contributor

As solar energy equipment manufacturers continue to drop like flies in the wake of economic duress, you've got to wonder: where's the bottom?

Sun-powered favorite First Solar this morning announced that it would lay off 2,000 people worldwide, or 30 percent of its overall headcount. The cuts are a combination of personnel reductions in Europe and the U.S., the idling of four (!) production lines in Kulim, Malaysia and the outright closing of a plant in Frankfurt, Germany.

That's a sobering reality for a company who planned on scaling up and building out just two years ago.

Interim CEO Mike Ahearn explains where the pain is coming from:

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. 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. 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.

It's quite a turnaround. In 2010, the company planned to invest $365 million for eight new production lines in Malaysia, build a two-line factory in France, and increase capacity from 23 to 34 product lines by 2012.

The economy was hardly in good shape then, but we're still seeing the penny-pinching, deleveraging effects of the 2008 global downturn as various regions cope at their own speeds -- in particular Europe, whose governments reduced or ended solar subsidies as they sought to get their own financial houses in order. Add to that the growing dominance of Chinese manufacturers, who have been particularly adept at driving down the price of solar products, and you've got a downward death spiral few companies have the coffers to withstand.

Which prompts the question: where's the bottom? And is there a way for any company to climb out of this hole on their own?

Chart: From First Solar's 2010 Guidance

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