Suntech Power Holdings Co. Ltd. ( STP ) has closed a portion of its solar cell production capacity in Wuxi, China for the time being. The move comes after the company plans to reduce production cost and operating expenses.
As a result of the initiative, the company's operational solar cell capacity will be temporarily reduced to 1.8GW. However, module capacity and wafer capacity will remain at 2.4GW and 1.6GW, respectively. This consolidation process will affect approximately 1,500 employees in China. However, the company is planning to offer positions to majority of the employees at other production facilities.
Excluding non-recurring items, the company intends to reduce its operating expenses by 20% year over year. Also, the company targets to create a sustainable business model as well as return to positive operating cash flow in 2013 with the help of these attempts. The company is currently assessing the impairment charges related to the closure of facilities, severance payments and other related expenses. It plans to disclose those expenses with the third quarter of 2012 earnings results.
The need to take up such program comes in light of the preliminary U.S. anti-dumping tariff, the European anti-dumping investigation, and oversupply of solar modules. The company aims at right-sizing its production capacity and continues to make best use of the resources of the organization. The company aims to make its manufacturing base small in order to lower the production cost, increase utilization rates and improve product performance. Moreover, it expects panel cost to improve as the production will be concentrated at the company's highest efficiency and lowest cost manufacturing facilities.
Suntech Power Holdings is one of the largest producers of crystalline solar cells and modules, serving geographically-diversified customers. The company is prudently expanding its revenue base to divergent markets around the globe, while increasing megawatts shipped. Positive factors include ongoing expansion programs, higher conversion efficiency through its Pluto technology-enabled modules, China's subsidy program and improving operating efficiencies.
These positives are overshadowed by fears of tepid module demand in Europe, rising competition, the volatile euro and the financial stability of its customers. However, we believe that the restructuring initiatives taken up by the company will help it in reducing their expenses, resulting in improvement of profits.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Wuxi, China, based Suntech Power Holdings Company 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 photovoltaics, or BIPV, products. The company manufactures silicon wafers and ingots used in manufacturing its PV cells and modules.