Business as usual at First Solar: efficiencies up, line run rate up, cost per watt down

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Although First Solar reported a revenue decline compared to the previous quarter as its released fourth-quarter results, manufacturing data strongly indicated that the quarter and full year were simply business as usual for the CdTe thin-film module leader. Production cost for modules produced during the fourth quarter was reduced to US$0.73/watt, down from US$0.75/watt in the previous quarter. Total manufacturing costs also declined to US$0.75/watt. Support from module efficiencies climbing to 11.6%, up from 11.3% in the third quarter and production line run rates increasing from 59.6MW to 62.6MW, attributed to the cost-per-watt decline.

Production improvements

At the heart of First Solar’s 2010 success was its continued focus on production milestones and overall productivity improvements.
First Solar reported that production in the fourth quarter reached 395MW, up 13% compared to the prior quarter. Management said the increase was due to a 5% improvement in the line throughput, coupled with previously implemented conversion efficiency improvements finally coming through the line and producing an overall 0.5% annual efficiency gain with modules now at 11.6% efficiency.

This suggests that 12% efficiencies may well be seen before mid-2011. Management also noted that it benefited from creating six additional production days after moving to a calendar year production timeline. Annual line run rates had improved 17% in the last 12 months.

Total production capacity reached 1.5GW in 2010. However, the company guided a small increase in planned capacity expansions through 2012. The target is to reach a capacity of 2.9GW, up approximately 138MW per quarter due to the line run rate improvements achieved in the fourth quarter. Overall, capacity is expected to approximately 92% higher by the end of 2012 than at the end of last year.

Management said the Malaysia Plant 5 began production in late December and would ramp to full production by the end of the first quarter. The second newest facility, Malaysia Plant 6, was said to be on schedule to ramp in the second quarter. The company’s expansion of its second plant in Franfurt Oder, Germany, would now be ramped one quarter ahead of previously guided plans, which mean the ramp will start in the third quarter of this year. New plants are therefore being ramped in each of the first three quarters of 2011.

The recently announced new plant in Vietnam has broken ground and is expected to ramp in the third quarter of 2012, according to the company. However, management noted that it was investing in land and infrastructure to provide them with options to expand beyond the initial four production lines.

However, its planned plant in Blanquefort, France, remained on hold due to the FiT review being undertaken by the French government. First Solar said that capital expenditure for 2011 is expected to be between US$1 billion to US$1.1 billion, with around 75% of capex allocated to capacity expansion with 15% to 20% for factory maintenance. This also includes productivity improvements and R&D expenditures. The outstanding amount would be allocated to infrastructure spending for IT systems and facilities, etc.

Project pipeline

First Solar may already have one of the biggest PV project pipelines in the industry but that didn’t stop it from adding more to the pipeline in the fourth quarter. Approximately 200MW was added in the quarter to bring the total to 2.4GW by year-end.

The company said that it planned to complete 400MW (AC) of projects in 2011, primarily in North America. This equated to 12 individual projects, up from three completed in 2010, with builds planned for the second half of the year.

Importantly, management noted that it had almost sold all the projects intended to be constructed this year. However, new EPC agreements are expected to be signed with partners this year that could add to growth in 2011.

Strong buyer demand for utility-scale systems projects was continuing due to improving LCOE, with fast lead times cited as a key driver at the moment. First Solar is developing almost 1.7GW of projects with PPAs, with the potential to see that number increase due to some not yet obtaining PPA status.

The drive in lower balance of system costs was said to have declined nearly 30% since 2008 and well ahead of planned BOS targets set for 2014 in its BOS cost reduction roadmap.

The company had continued to target project cycle time reductions as well as cost-per-watt improvements through engineering design. However, improvements in economies of scale were also a positive factor.

Financial performance

First Solar reported fourth-quarter net sales of US$609.8 million, a sharp decline of US$188 million from the third quarter of 2010. Management put this down to the timing of system sales and planned module price declines set for European markets that have been undertaken in recent years to remain in line with FiT cuts and competition from c-Si module manufacturers. Net income was US$156 million or 25.6% of net sales in the quarter.

The company reported net sales of US$2,564 million for 2010, up 24% from US$2,066 million in fiscal year 2009. Operating margin for the year was 29.2%

For the fourth quarter, $105 million of free cash flow was generated, driven by operating cash flow of $350 million. The company spent $212 million for capital expenditure from the depreciation worth $41 million. For 2010, it generated $143 million of free cash flow even after investing $589 million of in capital to execute on capacity expansion plans. Operating cash flow was $705 million.

2011 guidance

First Solar guided 2011 revenue to reach between US$3.7 – US$3.8 billion, narrowing the range, compared to previous expectations. Operating income was guided to be between US$910 and US$980 million.

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