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First Solar’s Growth Story

Posted on Monday, Sep 15th 2008

Amidst the Energy Policy debates, First Solar (FSLR) is another cleantech company worth watching. Founded in 1999 with the mission to provide an economic solution to the need for alternative energy sources, First Solar is now one of the fastest-growing solar module manufacturers in the world. First Solar is also the world’s largest manufacturer of thin-film solar modules and has managed to achieve the lowest manufacturing cost per watt in the industry at $1.14/watt in Q108.  

Its recently announced Q2 revenues and EPS exceeded all analyst expectations. Revenues for the quarter were $267 million, against the Street’s expectation of $217 million, growing 35.6% sequentially and 246% over the year. EPS grew to $0.85, compared with the Street’s view of $0.57, and grew 49% sequentially. EPS in Q207 was $0.07. 

Production grew 5% over the quarter and 30% over the year to 114.1 megawatts, and conversion efficiency increased to 10.7% from 10.6% in the previous quarter. However, the company’s cost per watt increased marginally to $1.18 from $1.14 in the previous quarter. The cost rise was blamed primarily on the higher set-up costs of the facility in Malaysia, where two plants are expected to be fully operational by the end of the year. 

For the year, the company expects to be able to sell 470-485 megawatts of energy and generate $1.175-$1.225 billion in revenues, with GAAP operating margins of 31%-33%.  

First Solar has a strong presence in European markets, where it is expecting further expansion, especially in Germany, France, and Italy.  

First Solar is also now expanding its presence in the US, where it is seeking to establish pilot projects to enable it to validate and demonstrate the cost and performance of utility-scale PV systems and to establish business relationships with US utilities. The company has already announced a 7.5-megawatt AC pilot project in Blythe, California, which has the potential to ramp to 21 megawatts AC. It will construct and finance this project and sell the power to Southern California Edison, subject to an extension of the federal Investment Tax Credit (ITC). Further, it announced the construction of a 10-megawatt AC project in Nevada in association with Sempra generation and has designed a 2-megawatt AC rooftop project in Southern California, which will be the largest rooftop PV system in the US. First Solar has various commercial models planned for the US, such as build-own-operate or build-own-transfer, but its growth plans in the country depend on how the ITC is structured.  

The company is well positioned to handle the solar industry growth rate with its improving efficiency gains, successful manufacturing ramps, and ability to contain production costs by setting up production facilities in relatively lower cost countries such as Malaysia. 

The stock rose 5% on the announcement of the results but has slipped since and is currently trading at $214.65. Still expensive, but given its prospects, you may want to look for a buying opportunity.

1yr FSLR

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