Basking in First Solar's Results

While I've long been a fan of this best-of-breed solar company, First Solar (Nasdaq: FSLR) keeps finding ways to exceed my expectations. I'm not talking about the usual growth figures, either.

Not that there's anything wrong with 30% sales growth compared with the second quarter. That's nothing to sneeze at, Fools. But given that First Solar carefully matches supply to demand, and opts for long-term visibility over full-tilt expansion, there's not a lot of room here for upside surprises.

Execution and efficiency are where First Solar truly flourishes. A year ago, I believed the company's 30% operating margins could not be sustained. They have now pushed north of 37%. This level of profitability simply blows away competitors like Suntech Power (NYSE: STP) and Yingli Green Energy (NYSE: YGE). It also enables First Solar to generate free cash flow even while investing in its major Malaysian expansion.

The reason I thought margins would not hold is that First Solar implements self-imposed price cuts in its long-term contracts. So far, costs are outpacing sales prices in this limbo match. Cost per watt hit $1.08 in the third quarter, and some plants are now producing at under a dollar.

Fans of SunPower (Nasdaq: SPWRA) may scoff at First Solar's module efficiencies, but these aren't keeping the thin-film company out of any end markets -- not even residential solar. The company has just made its first such foray here in the U.S. with a $25 million investment in SolarCity, the top installer in California. Thanks to the extension of the Investment Tax Credit, First Solar and other companies have the visibility they need to commit capital to this market.

SolarCity offers an attractive financing solution, in partnership with Morgan Stanley (NYSE: MS), that lets people lease rather than buy solar installations. In combination with First Solar's low-cost panels, this looks like a pretty strong offering, and I look forward to monitoring its traction with customers in the quarters ahead.