Suntech Power Holdings Company Ltd.
(
STP
) has announced its plans to improve processes while strengthening
its global industry leadership. The company intends to exercise its
new plans to reduce imbalance between demand and supply, and
improve trade protectionism, which will subsequently decrease the
level of competition and generate higher profitability.
Suntech's current strategy includes 5 important facets, such as
technology and customer-service, right-sizing of production
capacity, drive down cost, streamline its operating structure and
improve its financial position.
As a part of this initiative, Suntech will carry on its existing
technological innovations along with concentrating toward offering
excellent products and services to its solar industry partners.
Secondly, Suntech's operational solar cell capacity will be
temporarily reduced to 1.8 gigawatt ("GW"). The module capacity and
wafer capacity will remain at 2.4GW and 1.6GW, respectively. The
company will leverage its strength on global supply chain to manage
volatile demand and trade protectionism. At the same time, this
consolidation process will affect approximately 1,500 employees in
China. However, the company is planning to offer positions to
majority of its employees at other production facilities.
Thirdly, Suntech will continue to estimate performance against
best-in-class benchmarks, assess cost inputs and retain a highly
competitive cost structure, without negotiating on the existing
quality and performance.
Fourthly, Suntech intends to reduce its operating expenses by 20%
year over year. In addition, the company targets to create a
sustainable business model and return to positive operating cash
flow in 2013. The company currently assesses the impairment charges
related to the closure of facilities, severance payments and other
related expenses. Suntech plans to reveal those expenses during its
third-quarter 2012 earnings results.
Lastly, Suntech also plans to strengthen its financial position,
which includes extension of the maturity of credit facilities,
while continuing to reduce total debt and related interest
expenses.
The requirement to adopt this type of strategy comes in light of
the preliminary U.S. anti-dumping tariff, the European anti-dumping
investigation, and oversupply of solar modules. Suntech tries to
right-size its production capacity and continues to make best use
of the resources. In addition, the company aims to make its
manufacturing base small in order to lower the cost of production,
increase utilization rates and improve product performance.
Moreover, Suntech expects to improve panel cost as the production
will be made at the company's lowest cost manufacturing facilities
with highest efficiency.
We believe that the restructuring initiatives taken up by Suntech
will enable to reduce its expenses, resulting in improvement of
profits. However, we are skeptical about rising competition, weak
module demand in Europe and financial instability of its customers.
Suntech Power Holdings Company Ltd. currently has a short-term
Zacks #3 Rank (Hold rating).
Wuxi, China-based Suntech Power Holdings Company Ltd. is a solar
energy company that designs, develops, manufactures and markets a
variety of photovoltaic ("PV") products, including a broad range of
value-added building-integrated photovoltaic ("BIPV") products. The
company manufactures silicon wafers and ingots used in
manufacturing its PV cells and modules. Some of its main
competitors are
First Solar Inc.
(
FSLR
) and
SunPower Corporation
(
SPWR
).
FIRST SOLAR INC (FSLR): Free Stock Analysis
Report
SUNPOWER CORP-A (SPWR): Free Stock Analysis
Report
SUNTECH PWR HLD (STP): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research