First Solar (NASDAQ: FSLR) Bets on Higher Demand

Brian Hicks

Written By Brian Hicks

Posted May 8, 2013

First Solar (NASDAQ: FSLR) has reported that it expects $8 billion in revenue by the end of Q1, the same as its Q4 2012 revenue.

Colorado SolarThe second half of this year is likely to be a bit kinder to the solar company, largely due to acquisitions of new solar farms where First Solar’s panels will be installed. Roughly 5.5 gigawatts are expected to be ordered, and about 700 megawatts of that are already mostly installed. Income for the quarter was $59.1 million, according to Bloomberg.

As of a year ago, First Solar reported $449 million in losses. Therefore, sales are up nearly 52 percent to $755.2 million. It’s pretty good news, though it all falls slightly short of analyst expectations.

However, the market seemed to receive things well; First Solar’s shares were up 3.7 percent to close at $47.69 in New York on Monday, and they closed up another 4 percent today. Thus far in the year, First Solar is up 35 percent.

Solar Market Improvements

First Solar has reason to be optimistic about its future prospects. There was a big crash in solar panel prices over the last few years due to an influx of heavily-subsidized Chinese panels flooding the international market. That seems to have tapered off now.

Indeed, in Q1 this year, photovoltaic panel prices stopped falling for the first time in nearly five years. Signs of this were already apparent in recent months as several U.S. and international solar firms began to either collapse or consolidate.

At the same time, however, demand for solar power has continued to skyrocket. China, for example, hopes to install 10 gigawatts of solar capacity this year alone. Compare that to last year in the U.S., when photovoltaic manufacturers installed 3.3 gigawatts of power.

That alone caused the domestic solar market to grow 76 percent. In the U.S., acceptance of solar power is growing; some 29 states carry requirements that a fraction of the state’s power comes from renewable energy.

On top of all this, solar financing and installation has become a big business. Companies like SolarCity (NASDAQ: SCTY) and SunRun are operating healthy leases. Their business models make it possible for new adopters to enjoy the benefits of solar power without needing to confront the steep upfront costs.

First Solar has an a major advantage in the solar market. Its innovative thin-film solar PV panel manufacture process allows it to use cadmium telluride rather than silicon. In terms of costs, this means First Solar can make its panels for 64 cents per watt, which is the best rate in the entire sector.

The downside to this is that First Solar’s panels are slightly less efficient compared to silicon panels; the difference is on the order of 16 percent versus 13 percent efficiency. First Solar has combated that shortfall by focusing on large-scale utility installations, which by definition require mass installations of panels in large numbers.


First Solar’s Future

CNN reports that CEO Jim Hughes banks on this a lot. By 2016, First Solar’s farms ought to be approaching efficiency levels of 7-8 cents per kilowatt-hour, which would bring it in line with existing fossil fuel numbers. More encouraging is the fact that recent research from First Solar indicates their thin-film panels may soon hit the magic 16 percent efficiency associated with silicon.

The major problems with the U.S. solar market in general have to do with the unending production from various shale regions. For one, the big solar markets—states like California—have already just about approached their quota of renewables. That means solar companies can’t enjoy rapid growth from these any longer.

The other factor, of course, is the continued rock-bottom natural gas prices. Europe remains the world’s biggest solar market, but the economy also continues to display signs of ill-health. If anything, various European nations are reducing emphasis on subsidizing renewable power.

All of that means it will be a difficult time for solar developers in the near future. That’s why First Solar has already begun exploring Asiatic options. Hughes, for example, is looking toward developing markets that do not yet have regular access to energy. These markets could be worth as much as $10-$12 billion a year.

And China, of course, has its ambitious goals—First Solar may well help out there.

In fact, consider that First Solar has shut down its German manufacturing facility and, just recently, signed a memorandum of understanding with the Chinese city of Ordos, in Inner Mongolia, to develop the second phase of a 2 gigawatt plant. First Solar will provide 300-500 megawatts in solar panels, with construction due to begin next year.

What you as an investor should note is that First Solar was among the first in the solar market and has ridden out the fluctuations fairly well. It survived the recession, and then the solar panel crash, and now it has a range of domestic and international projects in progress that should boost its share price a lot closer to the $100-$200 range. 


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