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First Solar (FSLR) Sells North American O&M Business to NovaSource

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First Solar, Inc. (FSLR - Free Report) recently completed the sale of its North American Operations and Maintenance (O&M) business to NovaSource Power Services (NovaSource). The sale now makes NovaSource the largest O&M provider globally, and approximately 270 First Solar O&M associates have joined NovaSource, post this transaction.

Rationale Behind the Divestment

In recent times, the company's O&M business has been witnessing stiff competition, and has also been exposed to broader disruptions arising from the coronavirus mayhem. According to a top official of the company, fall in power-purchase agreement prices for its utility-scale solar projects has been a major headwind, as it creates hindrances in scaling businesses and enhancing the range of O&M product and service offerings. Evidently, as First Solar's O&M business gross margins shrunk to the 10% range lately, from the 30% gross margins in 2017, it decided to divest the business to NovaSource as the ideal strategy at this time.

A Look at Some Major Divestments

Alongside First Solar, interestingly this March, ABB Ltd (ABB - Free Report) completed the divestment of its solar inverter business to the Italian company FIMER SpA, in order to improve the focus of the company’s business portfolio on priority growth markets. In May 2020, Clairvest Group Inc. acquired the solar O&M business of SunPower Corporation (SPWR - Free Report) to create NovaSource Power Services.

How will the Divestment Impact First Solar?

First Solar's divestment of its O&M business is in line with the company’s objective of streamlining operations and focusing on the core business making thin-film solar modules, and serving its commercial and utility portfolios. The company has already started initial production of its Series 6 modules at the second factory in Malaysia in February, and anticipates the Malaysia factories to have a nameplate capacity of 3 GW. In 2021, it plans to invest around $425-$475 million for expanding its module wattage, as well as capacity and throughput at the company’s manufacturing facilities.

First Solar is also keen on improving the efficiency of its Series 6 modules from 440+ watts to 500 watts over the next four years, in a bid to compete against competitors manufacturing crystalline silicon modules, such as Jinko Solar (JKS - Free Report) and Maxeon SolarTechnologies. To this end, we expect the O&M business divestment to play a significant role in achieving such goals.

Zacks Rank & Price Performance

In the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 29.9% compared with the industry’s 6.5% growth.

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