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China’s Overproduction of Solar Panels Floods Market

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Solar panel technology has been enjoying an increase in use over the past several years and, therefore, higher sales around the world have been a result. China manufacturing companies of solar panels have been turning them out beyond capacity on the anticipation that customers will buy from China rather than manufacturers in other countries such as the United States.

However, this plan has backfired causing a flood in supply that has surpassed demand. China’s overzealousness in producing solar panels has hurt the sales of two of the top U.S. manufactures, First Solar Inc and SunPower Corp. These giants of solar panel production are being forced to lower prices and reorganize and smaller manufacturers are being driven completely out of business.

SunPower announced the beginning of November that it was looking to reduce its operating expenses by up to 10 percent by 2013 due to the current market flooding. For the same period, First Solar said it will consolidate its manufacturing process in order to reduce supply. These two solar panel producers have both decreased future profit forecasts, as has the one of the leading polysilicon producers in the U.S., MEMC Electronic Materials Inc.

On top of the slimming by top U.S. manufacturers of solar panels, three others have filed for bankruptcy in 2012 due to the overproduction by the Chinese. One of those affected is Solyndra LLC.

It’s not just U.S. companies that are feeling the sting, but China products based around solar panels are also seeing a decline in sales. China Sunergy Co, one of the largest solar panel producers in that country, released a November report stating that in the third quarter they saw their gross margin sink into the red. They said that their previous forecast of 4 to 5 percent in the black would be replaced with an outlook diving to around minus 14 percent. The company said that it expects to reduce shipments to clients doing business in China from its anticipated 140 megawatts or more down to around 115 megawatts.

Early data gathered by Bloomberg had analysts looking forward to a five cent income on SunPower shares. However, the third quarter instead saw a drop of $3.77 per share due to the surge in solar panel production with the company having to writedown its almost $350 million goodwill. Such a move was taken in order to bring about a change in the solar sector due to overzealous China sourcing by manipulating the valuation of the public market.

SunPower will seek to prioritize investment resources and shed positions within the company that are redundant as a part of their restructuring plan. Their prospective goal is to carve away around 10 percent from the operating expenses of their non-manufacturing portion of the company by the end of 2012.

First Solar, on the other hand, has announced a delay in the completion and start-up of their Vietnam factory which was under construction. The company, which is the largest thin-film solar panel producer in the world, says that further development of the Vietnam factory will remain on hold until demand catches up to current output when the new factory’s capacity can then be justified for use.

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