The China Effect

Recent announcements by two giant US solar manufacturers raise more questions about whether American companies can compete with China.

When Fremont solar manufacturer Solyndra collapsed in September, most everyone — including the Express — attributed it to the company’s whole-hog investment in a costly silicon alternative bound for failure when silicon prices plummeted. Yet a grim new earnings report from San Jose-based solar energy company SunPower, which has offices and a plant in Richmond, appears to show that even manufacturers of traditional silicon panels are being hurt by the glut of low-cost silicon panels coming out of China.

SunPower, which on September 30 was awarded a $1.2 billion loan guarantee similar to the $535 million federal loan given to now-bankrupt Solyndra, announced last week that it lost $370.8 million in the third quarter of 2011, more than double its second-quarter losses of $147.9 million and reversing its third-quarter 2010 gains of $20.1 million.

Increased competition from heavily subsidized Chinese factories resulting in oversupply, reduced demand, and dropping prices worldwide clearly poses a serious challenge for the company’s future. And recent news suggests that even well-established US silicon-panel manufacturers like SunPower, which produces one of the world’s most efficient cells and is the country’s second-largest solar manufacturer, will have a difficult time competing with Chinese operations, which also benefit from cheap labor. Concurrent with the earnings announcement, SunPower reported that it would reorganize its executive board and restructure the company to improve operating efficiency, “consistent with the more competitive marketplace,” said chief executive Tom Werner.

SunPower isn’t the only local powerhouse to be hurt by China this year. Tempe, Arizona-based First Solar, the world’s biggest thin-film manufacturer and the lone US solar company larger than SunPower, canned CEO Rob Gilette without explanation on October 25. A week later, it too announced a restructuring plan designed to trim operating costs, and added that it would be holding off on building a new plant in Vietnam. In August and September, First Solar received three loan guarantees from the federal government totaling $3 billion.

First Solar, which has an office in downtown Oakland, manufactures photovoltaic modules that, like Solyndra’s, rely on an alternative to silicon — in this case, low-cost cadmium telluride. Yet the company’s position as an industry leader is being threatened by the declining cost of silicon cells, which this year fell nearly 40 percent to as low as $1.10 per watt. First Solar, meanwhile, currently produces thin-film cells for approximately $0.75 per watt. While First Solar’s second-quarter 2011 financial statement reflected a dismal 62 percent dip in profits, its most recent report showed slight improvements in both sales and revenues.


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