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It’s not a new story: A high-tech manufacturing company decides to shutter an older, less-efficient manufacturing plant and concentrate its production efforts in a purpose-built, highly efficient facility, thus getting economies of scale and cost reductions impossible to achieve in the more mature factory. Such decisions are often seen as exemplifying pragmatic, hard-nosed corner-office leadership in the face of a highly competitive market sector.
Yet the news that Solyndra will be shuttering its Fab 1, laying off a small number of full timers, and focusing the front-end fabrication of its tubular CIGS PV modules in its brand-new Fab 2 has been characterized as some kind of worst-case scenario. Such a reaction is understandable, given the bull’s-eye on the company’s back as an on-again/off-again IPO candidate, beneficiary of a handsome DOE loan guarantee, and alleged inability to be cost competitive with its products.
But this time, the circling naysayers have missed the point, as this news actually may be good for the embattled company: Solyndra’s decision to close down its original production line in Fremont, CA, could be just what the cost-reduction doctor ordered.
Here’s Solyndra’s side of the story.
“Since Brian Harrison came on board three months ago [as president/CEO], we’ve been looking at costs very aggressively as he met with our customers,” said Dave Miller, director of corporate communications, during a phone interview. “The primary concern with our product has been cost and our ability to stay competitive, as the Chinese in particular and all panel manufacturers have driven their costs down aggressively.”
“What we figured out as we brought Fab 2 online—we’ve been bringing it up ahead of schedule—is that the cost profile and the ability to use the automation and the scale of that facility allow us to pretty dramatically reduce costs,” he continued. “What we decided to do is to move the tools from the existing Fab 1 into Fab 2, which accelerates and doubles our planned production in that facility and allows us to do it at a more cost-efficient price point. We think that will put us in a position to be very price-competitive going forward.”
Miller characterized Fab 2 as “highly automated, designed for volume manufacturing, it’s got kind of a central core to move product around, it very efficiently moves the materials through the factory with a high level of quality. It’s really optimized to produce our new 200 Series product, and in every way it’s a better manufacturing situation for us.”
“We’re going to move the majority of the equipment [from Fab 1] over to the new fab. The flow of the [older] fab is very different, it was our pilot fab, so by moving the equipment over into the new facility, we get a better economy of scale there,” he explained.
Solyndra will save at least $60 million in capex, by repositioning most of Fab 1’s gear—including one of those big, customized CIGS coating tools--in Fab 2.
The original facility’s less-than-optimal production floor layout provided a topic of discussion when I visited Fab 1 in fall 2008. Former Solyndra exec and tour guide Kelly Truman told me that the building, which had hosted a succession of hard-disk drive operations prior to Solyndra taking possession, “was not built from scratch to fit the tools.” He envisioned a second factory where the layout would be done “optimally for the logistics.”
Miller couldn’t offer a manufacturing cost-per-watt percentage differential between the two fabs. Instead, he provided a projected total installed system cost that Solyndra expects to hit.
“Our plan would be by the end of next year to be able to offer sort of an all-in pricing on the rooftop of somewhere around $3.50/W, which would include a little margin, panel price, and the installed cost. We think that’s very competitive, and our goal is to then drive that down further, so we’d have an all-in cost, in 2013, of about $2/W on the rooftop, which we think would be highly competitive.”
As for the production scale-up in Fab 2, Miller said that “next year it will be in about the 140MW [run-rate] range, and we would expect that to ramp up to about 300MW by 2013.”
And if market conditions dictate a further capacity add? “We have the plan that exists that we could add a second phase of Fab 2, and we’ll also have the flexibility to go back into Fab 1 should we need to. We could bring the facility back online and would change the process flow to match the one we have in Fab 2. It would allow us to rebuild it in a way with more flow in the design, using the knowledge we’ve gained in the past couple of years.”
While Miller said the company does not disclose its actual backlog of orders or break down its revenues by quarter, he did reveal that “by the end of the year we’ll do about $148 million in revenues,” a number the company expects to nearly double in 2011.
Solyndra may not be in the black yet and probably won’t be cash positive for awhile, but nearly $150 million in sales is not an insubstantial amount for a young PV company just hitting its production stride.
Unfortunately, as a result of the shutdown—which will be completed by the end of 2010—some folks will be laid off, especially in the temporary and contractor ranks. But Solyndra is in hiring mode on other fronts.
“In terms of the people who will be affected, there are about 135 temps and contractors whose contracts won’t be renewed, and those people will be impacted in the fourth quarter before the end of the year,” according to Miller. “There’s somewhere between 20 and 40 full-time employees who’ll be impacted, and they’ll be notified in the next few weeks, but they’ll be with the company until the first quarter of next year.”
He said that they have been “working hard” to find other jobs within the company for the affected employees, hence the swing of 20 potential slots. But other positions, such as those in the tool design area, “are no longer necessary,” since the equipment sets “have been designed, built, and implemented” in the fab. However, “we’re adding sales and marketing people to more aggressively address the segments and get out there and sell this capacity we’ve added.”
I asked Miller about his response to the critical shellacking that the company has taken, to tell me what he would say to people about what the company is doing and how it’s going to be able to turn the corner into becoming a successful company.
“I would consider us a pretty good success so far,” he replied in positive-spin mode. “We doubled over last year, and we’re going to double our production and close to double revenues next year. We clearly had a situation where we had to be very aggressive and very competitive on pricing, we can command somewhat of a premium price on the rooftop because of some of our capabilities, but that can’t get out of balance. This [move] allows us to be very competitive on pricing, which should be great for our long-term prospects.”
Solyndra has taken a lot of heat because the table stakes—a billion and change in venture funding, the half-billion-plus Fed loan, its bellwether/poster child role in the renewable sector, the stalled IPO—are so high.
But when you compare Harrison and Co.’s progress with the rest of the CIGS choir, the company’s track record actually looks pretty good, despite the setbacks and missteps. With dozens of megawatts of product shipped this year, deployed in more than 500 installations and counting, and a state-of-the-art facility poised to crank out second-generation panels, Solyndra’s performance to date exceeds all but a few of its brethren.
Do I remain skeptical of Solyndra’s chances? Skeptical, yes, but not cynical. Some interpret the latest move by the company as a harbinger of impending disaster; my inner optimist sees a strategically sound consolidation of resources and an encouraging sign of corporate maturation.