First Solar Edging Closer to U.S. Markets

The Company: First Solar, the largest manufacturer of thin film photovoltaic solar modules.
The Filing: Form 10-Q filed with the SEC on July 31.
The Finding: First Solar reported net income year-over-year rose 57 percent to $69.7 million, as higher-than-expected production from a new plant in Kulim, Malaysia and yield and efficiency improvements helped it meet surging demand. The company, which currently sells most of its modules to European customers, is looking to establish a foothold in the United States.

The Upshot: The Company reported that output in the second quarter increased 30 percent year-on-year to 114.1-megawatts (MW), with actual shipments of about 101 MW. Based on demonstrated run-rate, management also raised its forecast for solar module output to between 470 MW and 485 megawatts, up from prior estimated output of 420 MW to 460 MW in April.

CFO Jens Meyerhoff said on a conference call with analysts last week that on balance, visible growth opportunities remain in Europe, especially in France and Italy. He told listeners to expect 2008 net sales in the range of $1.17 billion to $1.22 billion, up from analyst estimates, on average, of about $1.04 billion, according to Thomson Reuters.

In the U.S. market, the company's stated goal in 2008 is to demonstrate the cost and performance of utility-scale photovoltaic systems, focusing on utilities that are under renewable portfolio standard obligations, in states such as California or Nevada.

In California, First Solar will supply the turnkey system for a 2 MW project to be installed on the roof of a commercial building in Fontana, expecting to connect the photovoltaic power plant to the grid in September 2008. The company also announced plans to build a 10 MW solar generation campus for Sempra Generation near Boulder City, Nevada.

CEO Mike Ahearn said the company would prefer to sell its modules to systems integrators or the utilities -- as opposed to owning and operating the solar generation facilities (under long-term purchase agreements). The company's core competence is built around its low cost position as a solar cell maker, said Ahearn. Nonetheless, to stimulate acceptance of its solar footprint in California, First Solar is building the largest photovoltaic power plant (terms include a 20-year power purchase agreement with Southern California Edison) in the state -- a whopping 7.5 MW. The company said on its recent earnings call that its hurdle-rate to own the power was a five percent spread over invested cost of capital.

Before putting its foot in the water here in the U.S., it looks like First Solar is starting with its little piggie.

The Question: Is it feasible to supply 10 percent of U.S. electricity (with non-hydro) renewable sources by 2020, without incentive-based approaches, such as investment tax credits?

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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