Reuters is reporting that although solar power is the fastest growing source of electricity generation, equipment prices have fallen in recent years in the face of Chinese competition and increased production.
Sales at the inverter business, which makes units that convert direct power from solar panels into alternating current that can be fed into the electricity grid, have dropped since it was bought by the Swiss engineering company in 2013.
ABB declined to say if it had attempted to sell the business before deciding to give it to FIMER but said it expected the operational EBITA margin at its electrification division to rise by more than 50 basis points after the divestment.
“The margin improvement in the future outweighs the cash impact of the transaction,” said ABB spokesman Daniel Smith, who declined to comment on the business’s profitability.
ABB will take an after-tax non-operational charge of approximately US$430 million in the second quarter of 2019 to get rid of the business, with up to three quarters of the money being cash paid to FIMER. An extra US$40 million will come in separation costs with the deal due to be completed in the first quarter of 2020.
“The divestment is in line with our strategy of ongoing systematic portfolio management to strengthen competitiveness, focus on quality of revenue and higher growth segments,” said Tarak Mehta, President of ABB’s Electrification business, its largest unit since selling the power grids operation to Hitachi last year.
High cost
Analysts viewed the exit positively, but said ABB’s foray into the solar industry had cost it significantly, while the price of off-loading the business would weigh on second quarter results.
Andreas Willi at JP Morgan said: “ABB’s solar inverter strategy probably cost it close to US$1.5 billion in terms of investments, acquisitions, exit costs and ongoing losses since 2013, trying to benefit from the growth in renewables but through commoditised products."
ABB’s shares were approximately 2% lower by 10:00 GMT.
Solar power has been boosted by governments and companies increasingly introducing clean energy targets but hardware costs have fallen more than 70% in the last decade.
An average-sized residential system in the U.S. has dropped from US$40 000 in 2010 to roughly US$18 000 today, according to the Solar Energy Industries Association.