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First Solar May Report Profit

Brian Hicks

Written By Brian Hicks

Posted August 1, 2012

You already know that the solar power sector is hurting, largely due to highly suppressed prices for Chinese-manufactured panels and other solar technologies.

But First Solar Inc. (NASDAQ: FSLR) may come up with the lone profit report in the second quarter out of all 17 companies on the BI Solar Index.

Ironically, this profit report may be because First Solar was able to sell entire solar farms to Berkshire Hathaway (NYSE: BRK.A) and NextEra Energy Inc. (NYSE: NEE) rather than directly compete with the Chinese imports.

Last year, prices crashed by 47 percent, hurting practically every solar technology operator. First Solar’s chairman Mike Ahearn managed to save some losses by choosing to slow down production and instead ramping up sales of photovoltaic power plants.

The company is now expected to report a net income of about 60.1 cents per share.

Despite this faint good news, however, First Solar isn’t exactly breaking banks. Overall, First Solar’s shares have dropped 88 percent in the past year, but they gained around 9.4 percent to close at $15.54 a share yesterday.

Bloomberg reports:

“The big risk is that they won’t be able to replace the pipeline as existing projects are completed,” said Rob Stone, an analyst at Cowen & Co. in New York who has a neutral rating on the stock. Many of First Solar’s projects relied on government backing to make them profitable, and those programs have expired. “How much longer can their profitability last?”

First Solar’s business model is generally to wait until it receives all permits, financing confirmation, and has a deal set with utility plants regarding sale of electricity. Then it sells its projects to energy companies.

For this it receives a payment upfront—typically confidential and making up just a part of the total development budget. After that, it continually earns revenue for labor, parts, construction, and so on.

Back in April, First Solar cut loose 30 percent of its workforce, stalled four production lines over in Malaysia, and closed down a major plant in Germany. All of this was in order to streamline company operations more toward the model of developing and selling solar farms en masse.

A series of acquisitions also helped this goal; in 2007, First Solar bought Turner Renewable Energy, a construction and engineering firm, for $34 million.

In 2009, they followed up by acquiring OptiSolar Inc. for $400 million in stock, and in 2010, they bought out NextLight Renewable Power for $285 million.

Of course, with these purchases, First Solar also gained solar farms that are under development. Currently, they have contracts to build about 2.7 gigawatts of power plants.

It is anticipated that the company will experience an overall loss of $1.46 this year.

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