SunPower, First Solar Reorganize as Prices, Demand Decline

SunPower Corp. (SPWRA) and First Solar Inc. (FSLR), the two largest U.S. solar manufacturers, will reorganize as increased competition from China drives down prices and pushes weaker companies into bankruptcy.

SunPower is seeking to cut operating expenses as much as 10 percent next year, it said yesterday in a statement. First Solar said it will consolidate its manufacturing in response to slowing global demand for panels. They’ve both cut their profit forecasts since last week, as did MEMC Electronic Materials Inc (WFR), the second-largest U.S. polysilicon maker.

Three U.S. solar companies including Solyndra LLC have filed for bankruptcy this year as a surge in manufacturing capacity in China cut margins across the industry. The Chinese companies are hurting too, with China Sunergy Co. today reporting its gross margin turned negative in the third quarter.

“The Chinese guys are building out capacity hoping the customers will come and that’s caused this huge oversupply situation,” said Hari Chandra Polavarapu, an analyst at Auriga USA in New York “What we need to see a focus on is more market development, and to layer in capacity to meet that demand.”

First Solar rose 2.9 percent to $49.59 in New York. SunPower was unchanged at $8.76.

Sunergy Slump

China Sunergy, updating its forecast today, said its gross margin will be “around negative 14 percent,” compared with its previous forecast of positive 4 percent to 5 percent. It cut its expectation for shipments to 115 megawatts for the quarter from its previous plan to sell at least 140 megawatts.

SunPower expects a net loss of 5 cents to income of 20 cents a share for 2011, on sales of $2.40 billion to $2.45 billion, the San Jose, California-based company said in the statement. It said in August it expected income of 75 cents to $1.25 a share for the year.

SunPower also reported a writedown of goodwill, of $349.8 million, related to “the change in public market valuation of the solar sector,” according to the statement.

That led to a third-quarter loss of $3.77 a share. Adjusted net income, excluding the charge, was 16 cents. Analysts had expected income of 5 cents, based on data compiled by Bloomberg.

SunPower CFO Leaving

As part of the restructuring, SunPower will eliminate redundant positions and prioritize “where we invest our resources,” Chief Financial Officer Dennis Arriola said yesterday in a conference call with analysts. “These activities are expected to reduce our non-manufacturing operating expenses by as much as 10 percent in 2012.”

Under the plan, Arriola will leave the company in March and Jim Pape, president of SunPower’s residential and commercial unit, will leave this month.

First Solar, the world’s biggest thin-film solar company, will delay completion of a factory in Vietnam “until global supply and demand dynamics support the additional capacity.”

The delay demonstrates that demand is less than anticipated, Daniel Ries, an analyst at Collins Stewart LLC in New York, said today in an interview. “The industry, including First Solar, got way ahead of its self in terms of manufacturing.”

First Solar said yesterday that its plant in Frankfurt an der Oder, Germany, has reached full capacity, producing as many as 500 megawatts of panels a year.

First Solar ousted its Chief Executive Officer Rob Gillette Oct. 25. Chairman Mike Ahearn stepped in as interim chief and the following day reduced the Tempe, Arizona-based company’s forecast. It expects full-year profit of $6.50 to $7.50 a share, down from an Aug. 4 forecast of as much as $9.50, and sales of $3 billion to $3.3 billion, compared with the earlier forecast of $3.6 billion to $3.7 billion.

MEMC Slump

MEMC said Nov. 2 that sales this year will be lower than analysts had anticipated after prices for solar wafers fell “sharply.” The company expects a net loss of 35 cents to 55 cents a share and sales of $2.7 billion to $3 billion for the year. Analysts had expected net income of 28 cents a share and sales of $3.35 billion, according to data compiled by Bloomberg.

Prices for polysilicon are dropping. Spot-market prices fell 9.1 percent to $37.40 a kilogram in the week ending Oct. 24, according to Bloomberg New Energy Finance.

MEMC reported a one-time charge of $56.4 million to write off goodwill in its solar materials unit.

To contact the reporters on this story: Ehren Goossens in New York at egoossens1@bloomberg.net; Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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