COMPANY DESCRIPTION
First
Solar, Inc. designs, manufactures, and markets
solar modules used largely for centralized
power plants.
Using
a thin-film technology made of cadmium telluride,
First Solar does not require refined silicon
as an input in the manufacturing of its panels.
This gives the Company a distinct cost advantage
over its competitors that rely on crystalline
technology.
First
Solar is based in Phoenix, Arizona, but a
large majority of its business is conducted
overseas. Currently, over 80% of the Company’s
revenue comes from Germany.
Cost
parity feasible and is crucial for FSLR
First
Solar is on track for grid parity. Their recent
announcements support their ability to:
OPINION
FSLR
management team’s December 2007 statement
and guidance on strategy, market, financial,
and manufacturing outlooks is positive.
Grid
parity continues to be the target market from
2010–2012. FSLR anticipates it will
manage its module price below $1.00 per watt,
and system cost to $2.00 per watt.
At
the module level, cost savings should come
from the following areas:
•
Efficiency: One-third of
module cost reduction is predicated upon FSLR’s
ability to obtain 12% conversion efficiency.
With a strong track record of improving efficiency
from 6.2% in 3Q01 to 10.6% in 3Q07 (0.7% increase
per year), FSLR can potentially achieve 12%
conversion efficiency by 2012.
The
best conversion efficiency for a cadmium telluride
(CdTe) module from the National Renewable
Energy Laboratory (NREL) is approximately
16.5%. Incremental efficiency improvements
will require a longer term commitment.
•
Low-cost manufacturing: Another
one-third should come from a greater mix of
manufacturing in low-cost countries such as
the Malaysian expansion. The Company’s
first plant in Malaysia is expected to ramp
in mid-2008.
•
Throughput, plant scale, and spending:
The remainder of the cost savings should come
from scale and throughput, areas in which
FSLR has a strong track record. Throughput
has improved to around 40 MW per line in 3Q07.
The fixed-cost leverage in 3Q07 came from
the ramp of the Frankfurt/Oder facility, and
we expect a similar scenario when the Malaysian
Plant 1 ramps in mid-2008.
FSLR
anticipates it will bring down costs to grid
parity by 2012. Its history of a
disciplined approach to managing gross margins
(40%, long term) and return on net assets
(20%, long term) is expected to be maintained.
The
Company has a number of mechanisms in place
to effectively manage system cost and performance.
To
date, FSLR has allayed any concerns about
module durability by recording
degradation rates within expectations (0.5%
per year). The Company has an extensive pre-commercial
testing program in which modules are inspected
for failure mechanisms and root-cause analysis.
In addition, FSLR has a continuous product
test that incorporates full environmental
testing, proprietary heat and light chambers
for accelerated life testing, and test programs
with leading institutions. In the field, FSLR
monitors 100 individual arrays to obtain data
on module durability and safety. Extensive
testing programs will allow potential performance
hurdles to be scaled in a timely fashion.
FSLR’s
acquisition of Turner Renewable Energy represents
a strong commitment to the U.S. market. After
the close on Friday, November 30, the Company
announced the acquisition of Turner Renewable
Energy for $34 million in a cash and stock
deal (roughly 120,000 shares and $6 million
in cash).
Turner
Renewable Energy has operated under the name
DT Solar in the United States since 2004 as
a solar project manager/designer for utilities
and commercial clients. The announcement was
not a big surprise, as FSLR has recently expressed
interest in moving into the U.S. market. The
transaction has long-term potential. Contacts
within the U.S. utility market will enhance
FSLR’s position in the United States.
FSLR has a business plan for the U.S. market
using parameters such as state incentives,
insolation, and customer base.
FSLR’s
price competitiveness versus its peers provides
a strong advantage in the U.S. market.
There
continues to be a lack of thin-film competition
and proximity to grid parity versus its polysilicon-based
peers.
Conclusion
As FSLR approaches grid parity and continues
to expand into the United States with a strong
price advantage its revenue base should expand
supported by:
