First Solar quarterly sales continue downward trend: capex cut over US$200 million

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(UPDATED) First Solar has reported second-quarter 2011 net sales of US$533 million in the quarter, a decrease of US$34.5 million from the first quarter, which were a decrease of US$42.5 million from the fourth quarter of 2010. The CdTe thin-film leader noted that the sales decline was primarily due to lower average selling prices, which in turn were due to policy uncertainties in Italy, Germany and France, leading to weaker-than-expected demand.

“First Solar continued to execute in the quarter despite a challenging European market, and our 2011 outlook remains solid due to our differentiated and resilient business model,” said Rob Gillette, CEO of First Solar. “We expect stronger performance in the second half of 2011 as we build projects from our systems pipeline, develop promising new markets, execute our cost reduction roadmaps and continue to improve module efficiencies.”

However, First Solar revised downwards its 2011 guidance across most areas. Net sales were revised down to between US$3.6 billion-US$3.7 billion, compared to previous guidance in the first quarter of between US$3.7 billion-US$3.8 billion. Operating income was tweaked to between US$900 million-$960 million, compared to US$900 million-US$970 million.

Capital expenditure was also not immune to the downward revisions. First Solar had previously guided capex in the range of US1.0 billion to US$1.1 billion in 2011. Capex is now expected to be in the range of US$800 million to US$900 million.

Update 1
 
Production Operations
 
First Solar reported module production in the second quarter of 483MW, with annualized run rate per line dipping 2MW quarter on quarter to 62.1MW, but cost-per-watt production costs and module efficiencies remained the same as the last two quarters, at 75 cents per watt and 11.7%, respectively. The company did say during the conference call that costs at its low-cost Malaysian plants had dropped to 69 cents per watt.
 
Ongoing construction at its new manfacturing facilities in Arizona and Vietnam were progressing as planned, with first module shipments expected to begin in the third quarter of 2012.  
 
Capacity expansions in Malaysia for lines 5 and 6 were now completed and the lines fully ramped, while its Frankfurt-Oder 2 facility is ramping earlier than previously expected in the third quarter of 2011.
 
Update 2
 
Project Pipeline 
 
With revenue falling in the first two quarters of 2011, First Solar management highlighted in the conference call the company’s efforts to diversify its pipeline further on a geographical basis. 
 
CEO Rob Gillette noted in the conference call that its increased its project pipeline in places such as India, which had increased from 100MW in the first quarter to 200MW in the second quarter for projects being undertaken with four partners in the emerging market. In total, 250MW of projects in India had already been signed that would be installed in 2011 and into 2012. 
 
In North America, projects expected to be completed in 2011 would be in the range of 450MW with the ‘flexibility’ to increase installations to 500MW this year. 
 
Construction on the 290MW Aqua Caliente project in Arizona is under way, including initial module installation, and the company said it expects to see first revenues from the project in the third quarter.
 
Final verification of feed-in tariffs, especially in key European markets, have seen a renewed potential for increased demand in the second half of the year. A market not expected to significant in 2011 was France. However, First Solar management noted that it expected to undertake 200MW of projects in France this year, nearly half the total megawatts installed in the country in 2010.
 
Gillette also noted the “very positive” news from China about the implementation of a national feed-in tariff of about RMB1.15/KWh. He said the company is working with Chinese government officials to determine how to get through the FIT process and be sure that certain projects–including the Ordos projects that First Solar is involved in–are included in the tariff. Because of this and the possibility of even more aggressive renewable policy goals, he expects to see more volume coming from the Chinese domestic market.
 
Update 3
 
Record module efficiencies and accelerated manufacturing cost reduction roadmap
 
The recently announced new CdTe cell efficiency record of 17.3% set by First Solar has given the company increased confidence in looking at ways to accelerate its efficiency and manufacturing cost reduction roadmaps, potentially beyond the targets of 13.5-14.5% and US$052-US$0.63 cents per watt, respectively, in 2014. 
 
Gillette said the company is taking a little different approach to how it operates and makes changes on its manufacturing lines, which will result in less incremental and more “stair-step” improvements. A softer demand environment allowed the company to take certain lines down for a week or more in order to make process and efficiency improvements.
 
Although the actions led to lower throughputs/run rates in the short term, the rates will show a higher module output over the course of the full year as a result of the changes. He noted that signficant efficiency and production run-rate enhancements should be reported by the end of 2011, after several quarters of being relatively flat.

First Solar also said that through a combination of design, materials sourcing, and productivity improvements, its average balance of systems costs for standard ground-mounted arrays had dropped to 99 cents per watt during the quarter, down from US$1.40 per watt in Q2 2009.

 
In all, the company believes its LCOE is on target to hit between US$0.10-US$0.12/kwh by 2014, which would equate to grid parity in areas such as China, India, Spain, Italy and the Middle East. 
 
Update 4
 
Global market forecast
 
Based on its analysis of available forecasts, First Solar sees global market demand hitting 19.8GW in 2011, with a compound annual growth rate of 12% between 2010 and 2013. The German market is expected to hit around 5GW, with the rest of Europe, North America, and the Asia-Pacific regions all increasing in size this year. In the case of India, First Solar believes the market will reach 500MW in 2011.
 

(Additional editing/reporting by Tom Cheyney)

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