First Solar Soars Once More

By Toby Shute | More Articles
May 1, 2009 | Comments (4)

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The last time First Solar (Nasdaq: FSLR ) reported its quarterly results, all the numbers were strong, but the company scared solar investors straight with talk of a frightening solar freeze. The shares dropped $30, or about 22%, in response.

Following that frank report, we've seen Energy Conversion Devices (Nasdaq: ENER ) stumble and SunPower (Nasdaq: SPWRA ) (Nasdaq: SPWRB ) slump.

All the more surprising, then, were First Solar's first-quarter numbers, which were just a picture of tranquility. First Solar certainly joins Silicon Laboratories (Nasdaq: SLAB ) in the underpromise and overdeliver camp this quarter.

Revenue dipped a mere 4% sequentially, while gross and operating margins fattened. Earnings actually jumped 24% from last quarter, but that was largely attributable to a one-off tax benefit.

It all seems kind of hard to believe, at first. Though First Solar saw some better order flow in the back half of the quarter, not a heck of a lot has changed in the solar sector. Sure, project funding in Germany is looking pretty good, with money flowing to sub-megawatt rooftop systems, plus some reported signs of life in the larger project space. Beyond that, though, visibility remains very limited on the financing front.

The company also continues to consider 10% to 15% of current customer contracts to be at risk of default. That's a potential problem when you're not much of a spot market player.

Aha! This is the moment when the solar-powered light bulb lit up above my head. Much like Yingli Green Energy (NYSE: YGE ) , First Solar is quite heavily levered to a core European clientele, with which it maintains ongoing supply relationships. For example, 75% of sales went to these existing customers, while the rest was split between U.S. utilities and a freshly subsidized Ontario market. I think you need look no further to explain the mystery of the resilient top line.

As for margins, First Solar managed to drive down its manufacturing cost to $0.93/watt -- an 18% year-over-year improvement, and 5% better sequentially. Those Malaysian factories must truly be a marvel, because they continue to kick costs to the curb.

I don't think this is the first time we've seen other solar stocks take cues from a strong report by First Solar. I can't emphasize enough how misplaced many of those bets are. Once again, this low-cost leader is pulling away from the pack. There is no tide lifting those leakier boats that folks were buying yesterday.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (17)

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Report this Comment On May 01, 2009, at 2:56 PM, catoismymotor wrote:

I will be happy once crucibles are being sold by the tens of thousands by CRDN. I think that is going to be the only way it will be able to start the long climb out of its hole.
Report this Comment On May 02, 2009, at 7:05 PM, smaulcap wrote:

First Solar not only produces green energy, it also produces green envy at Motley Fool.
How they love to knock solar, especially First Solar. At $180 or so, it's out of my range now. But I'll tell ya....For most of March and April while negative fools were writing negative articles concerning First Solar, I was laughing hysterically all the way to the bank. Trading First Solar is by no means "misplaced" as the author states here. "Stop Buying These Stocks!" was the headline of another Motley Fool article of a week or so ago. That author warned that solar is an "unproven technology." As a safer bet, he advised investors to buy shares in the Marvel Comic Book Co. (MVL) instead. Yep...That's right, that's what he wrote. By the way, he published the article a couple days before the day that First Solar skyrocketed up over $30.00 a share.
Report this Comment On May 29, 2009, at 2:50 AM, jrmart wrote:

Mad Money's Cramer always talks about research, yet he sometimes doesn't follow his own advice. Case in point, Cramer is always recommending First Solar, the company that produces the lowest cost per watt thin film solar panels.
I just completed several months of research on another solar company and I just got their quote to install their new system on my own home for $89,000. That seems like a lot of money until you understand that the local power company will front all of the costs. After the system is installed, I will then lease the system back from them for less money per month than I'm paying now for my electric service from them. Any additional power not needed by me will be fed back into their grid.
First of all, lowest cost per watt means very little when roof top space is limited. If I went with Cramer's recommendation of First Solar, I would need to double the size of my roof to get the same power output. More panels would increase install costs, maintenance costs, wiring costs and overall total system costs. As you can see, cost per watt is really a bad way to choose a solar system. By the way, many of the German banks are no longer funding projects using thin film technology because of the above facts.
The German, Spanish, Italian, South Korean and Australian power companies are now using this premium solar company to produce solar power. On a trip to Portugal in October 2008, I visited a large scale solar system from this premium solar company that had just been installed by the local Portuguese power company.

PG&E in California and Florida Light & Power are now using this solar company. Ellis Air Force base, Walmart, Macy's, JC Penny, HP, AMD, Johnson & Johnson and lots of other companies are now using this solar company.
This same company has a patented sun tracking system that follows the sun to also produce 33% more power over a given day.
This same company does over a billion dollars a year in sales and just installed their solar system on the Department of Energy Headquarters roof in Washington DC in 2008.
Once you understand all of the above facts and couple that with the price of silicon dropping like a rock, you now have a real winning premium solar company to invest in. The name of this company is SUNPOWER.
Sunpower holds the world record in solar efficiency, which means their products are up to 50% more efficient than the competition and generate about two times the power with the same roof space.
As a result, SunPower has the largest install base in North America -- including homes, commercial sites and utilities -- and over the last two years, they installed more systems in California homes than any other provider.
When you purchase a SunPower® solar system, you're getting the same technology that still performs on cloudy or rainy days and for longer hours every day.
But their technology isn't the only reason for their success. SunPower® also offers an industry first--a 25-year warranty that can guarantee exceptional system performance
Report this Comment On June 21, 2009, at 10:15 PM, TMFBreakerRob wrote:

Just to reply to smaulcap, the Fool does not direct the content of articles to provide any "viewpoint". That viewpoint is the thinking of the individual writer. The reason the Fool operates this way is that the best ideas come out in an environment where folks can freely share their ideas and discuss the pros and cons with others.
On a related note, I'd like to mention that there are solar companies that are recommendations at the Fool...as evidence that there is not a predisposition against them.
By the way...congratulations on your FSLR investment. I've been tempted to buy more than once, but haven't yet. I really like the low manufacturing cost position they have developed!

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