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First Solar Dying a Slow Death in Booming Solar Business

First Solar's (NASDAQ: FSLR  ) slow deterioration continued in the second quarter as financial results exhibited a steady decline. Revenue fell 45.7% from a year ago to $519.8 million, and net income dropped 69.7% to $33.6 million, or $0.38 per share.

To make matters worse, the company lowered both full-year guidance to a sales range of $3.6 billion-$3.8 billion, down $200 million, and earnings per share to a range of $3.50-$4.00, down $0.50 from three months ago. The earnings figure includes an equity offering and General Electric's (NYSE: GE  ) shares, which I'll cover in a moment.  

Backlog has fallen 400 MW this year to 2.2 GW (before an acquisition), capacity utilization is only 75%, and cost per watt of $0.67 is higher than many Chinese manufacturers are selling panels for these days. These trends are in stark contrast to those of industry peer SunPower (NASDAQ: SPWR  ) , who just last week blew its own expectations out of the water, raised guidance, and said it will run at capacity for the next 18 months at least.

General Electric comes aboard
There were two big announcements from First Solar that the company hopes will help its future outlook. It bought General Electric's solar technology for 1.75 million shares of stock, and plans to incorporate that technology into future products.  

What's curious about this move is that GE basically gave up on thin-film solar a year ago when it became apparent that it couldn't compete with polysilicon solar on price or efficiency. Now, First Solar is doubling down on technology that's falling behind the competition and is at the core of its problems.  

A systems developer and little more
What First Solar has become is a systems developer with a dying module business. That's why the acquisition of a 1.5-GW pipeline of U.S. and Mexico projects from Element Power is actually a bigger deal than the GE acquisition. GE has become a systems builder with virtually no panel sales outside of its own systems, so First Solar needs that acquired pipeline just to stay busy.

The solar picture is becoming clear
Don't read into the massive solar sell-off today because First Solar's troubles are not the industry's troubles. First Solar is using technology that's far less efficient than the polysilicon used by competition and is therefore seeing fewer sales and less-profitable system sales. In contrast, SunPower is seeing higher sales in Japan, the U.S., and Europe because it has a highly efficient module that's becoming more cost-effective every quarter.

First Solar is also blocked out of the leasing business that's made SolarCity (NASDAQ: SCTY  ) a market darling and brought more demand to SunPower. Both companies are using more efficient panels than those First Solar builds and they are less costly per unit of energy. Even with GE's technology, First Solar won't be competitive in this space and will continue to fall behind.

The faster First Solar drops its panel business and becomes a systems developer the better. Otherwise it will continue to see floundering results and die a slow death in the solar business.

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Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On August 07, 2013, at 3:22 PM, uptime100 wrote:

    Is it a good or bad deal GE is making with First Solar? Seems GE could do better.

  • Report this Comment On August 07, 2013, at 4:56 PM, clanza875 wrote:

    Sadly these articles have turned into nothing more than a sales pitch for SPWR.

  • Report this Comment On August 07, 2013, at 11:51 PM, mastermiki wrote:

    SPWR is going to dive into Q3 and Q4

  • Report this Comment On August 08, 2013, at 6:38 AM, UKGary wrote:

    First Solar's Cadmium Telluride panels are only slightly less efficient than crystalline silicon panels when their better response to getting hot is taken into account i.e. annual yield per m2 is fairly similar to commodity panels in hot climates. The technology shows promise for rapid gains in efficiency, so could overtake commodity panels.

    First solar needs to concentrate on markets in hot countries with low soft costs where its lower efficiency is less relevant i.e. India and South Africa where its arrays are competitive with other generators without subsidy.

    Also, First Solar acquired a company with designs for high efficiency crystalline silicon panels able to compete with Sun-power on efficiency, so could in a year or two enter the rooftop lease market with these panels.

    Also to be remembered, First solar remains profitable so can ride through a temporary slow down far better than many Chinese manufacturers who are struggling to turn over enough to stay in business, and losing money every day.

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9/30/2016 4:00 PM
FSLR $39.49 Up +0.41 +1.05%
First Solar CAPS Rating: ***
GE $29.62 Up +0.09 +0.30%
General Electric CAPS Rating: ****
SPWR $8.92 Down -0.11 -1.22%
SunPower CAPS Rating: ****