First Solar Succumbs to Solar Industry Woes

After years of beating analyst estimates, US thin-film solar leader First Solar (Nasdaq: FSLR) succumbed to the multiple pressures impacting the industry as a whole.

Although revenues are in line with estimates for the third quarter at $1 billion, profits are down and the company lowered guidance for the rest of the year. 

Revenues grew appreciably, from $798 million for Q3 2010.

Unlike much of the solar industry, FSLR’s margins remain strong at 37.7%, up from 36.6% last quarter, because of its utility-scale solar projects. 

However, its margins will be under pressure next year as it ramps up R&D to accelerate its efficiency and cost reduction efforts to compete in a cut-throat environment.

First Solar just announced a new efficiency record for thin-film modules in the lab and plans to phase them into production over the next few quarters. The manufacturing technology advances should increase mass production conversion rates from an 11.7% average earlier this year to some 15.3% in the future. The company is the solar industry’s lowest cost producer at 73 cents per watt, which will decline further with the planned 30% efficiency boost.

A very brief press release announced that Rob Gillette, First Solar CEO, is stepping down, after leading the company through two of its hardest years. Founder Mike Ahearn is taking his place temporarily. The company’s solid execution history has come under fire throughout 2011 as it revised guidance downward and made little progress on cost-per-watt reductions. 

"The Board of Directors believes First Solar needs a leadership change to navigate through the industry turmoil and achieve our long-term goals," says Ahearn.

FSLR’s stock crashed 25% to as low as $42.50, hitting levels not seen since early 2007. In 2008, its shares peaked at $317.

Over the past couple of years, First Solar has seen its market value fall over 65% because of the crushing oversupply of solar panels that sliced through margins and prices for the entire industry.

US solar manufacturers blame China for illegally subsidizing its solar industry to the extent that it unleashed a torrent of solar panels at prices that undercut manufacturers from Europe and the US ability to compete.

Prices for conventional crystalline solar dropped some 70% in two years, making many people wonder if thin-film solar remains viable. Thin-film gained market share when a shortage of polysilicon drove crystalline prices up, and First Solar is the low-cost leader. But with prices so low for crystalline, which gets much higher efficiencies than thin-film, thin-film’s advantage is unclear.

And General Electric recently announced it would open the largest thin-film solar plant in the US, directly competing with FSLR. 

Solar Industry Conditions

Before the recession, solar manufacturers were sold out and couldn’t keep up with worldwide demand. Unfortunately, as the industry significantly boosted production capacity … the recession hit.

Weak demand because of the recession – and because  Germany and other EU countries slashed incentives – has resulted in oversupply, intense pricing pressure, and razor thin margins, especially for component and equipment suppliers.

The industry is in for tough period in the short term, with balance sheets being tested and midstream manufacturers operating at losses.

Prices for solar modules are $1.00 per watt for lower priced Chinese modules and just $1.10 per watt for premium suppliers.

Although manufacturers are slugging it out, US installers and distributors had a banner year in 2010, and expect the same this year.

Thanks to federal support in the US under the Stimulus Bill (Recovery Act) and falling project costs, there are multiple, utility scale projects under construction. Investors are also racing to get projects off the ground ahead of the expiration of federal cash grants at the end of this year.

The US development pipeline for non-residential solar PV projects rose from 17 GW to 24 GW in just the last two months, with projects across 44 states.

First Solar received billions in loan guarantees from the Dept of Energy, more than any other company.

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