Chinese solar companies have begun a round of belt-tightening as they struggle to maintain operations and pay down looming debt obligations,but layoffs might impede their ability to build market share if global demand for solar-powered electricity continues to rise.
Suntech Power Holdings Co.,STP+0.97%the world's largest manufacturer of solar panels,said Monday that it would temporarily idle one-quarter of its capacity due to pressure from an oversupply of panels,preliminary antidumping tariffs in the U.S.and an antidumping probe in the European Union.
Suntech's announcement followed similar statements in recent days by other Chinese solar companies whose profitability and shares have also tumbled.
At the end of the first quarter of 2012,China's top 10 listed solar companies were saddled with a combined debt of$17.5 billion,investment bank Maxim Group said.Suntech has$541 million in convertible notes due next March.
Suntech said it would cut 1,500 jobs in China to reduce solar-cell capacity to 1.8 gigawatts,from 2.4 gigawatts in 2011,as part of efforts to cut operating costs 20%this year.
It said solar-panel and wafer capacity will be left unchanged at 1.6 gigawatts.Solar panels are made from solar cells,which in turn are made from solar wafers.
Although industry-wide layoffs might address oversupply and provide temporary relief to balance sheets,analysts say prices for solar panels are unlikely to rebound fully because solar companies need to match the lower electricity-generating costs of coal and natural gas to be competitive.
The average price of solar panels in Europe has fallen at least 20%in the past year,market-research firm Solarbuzz said.
"The paradox of solar is that manufacturers need to produce more,not less,to help lower their average costs and become profitable again,"said Aaron Chew,an analyst at Maxim Group."The irony is that this just further exacerbates the oversupply situation."
Demand isn't the problem,with rising shipments to the U.S.,China and Japan more than offsetting weaker demand from Europe,which has cut subsidies for renewable energy,Mr.Chew said.China exported$35.8 billion of solar panels last year,with more than 60%going to the European Union.
However,gross margins for solar panels have fallen to less than 10%from above 30%in 2010,and Chinese companies will need to shift to a high-volume,low-margin business if they want to survive,he said.
Global demand for solar equipment could exceed 30 gigawatts in 2012,a rise of 8%from 2011,due to stronger demand from Asian countries such as China,Solarbuzz said.
Last week,Trina Solar Ltd.,TSL+1.60%the world's third-largest panel maker,stopped short of reducing capacity but said it would cut about 200 jobs in management—roughly 1.5%of the company's workforce—after it swung to a second-quarter loss.
Despite efforts by some companies to reorganize and cut costs,China's solar-power sector might experience a wave of mergers,restructurings and company failures in the years ahead,Trina Solar Chief Executive Gao Jifan said.
Canadian Solar Inc.,CSIQ+1.01%the world's fourth-largest solar-panel maker,said it had no plans to downsize.However,the company"couldn't guarantee"full employment in the future due to the impact of trade protectionism,said Shen Yangzi,a company spokeswoman.
LDK Solar Co.,LDK+4.17%the world's second-largest maker of solar wafers,said Monday that it sold some real estate and land-use rights to the local government as part of its strategy to raise cash.
