Quarterly revenues down at First Solar; high end of 2011 sales guidance at $3.8 billion

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(Updated) First Solar saw its net sales revenues decline in the second quarter, citing as reasons the allocation of modules to its systems projects in order to meet project contractual deadlines, seven fewer production days during the period, and the full-quarter impact of the pricing changes started in December. The thin-film PV module manufacturer and EPC/project developer's Q1 revenues reached $567 million, which was a decrease of $42.5 million from the fourth quarter of 2010 and just about even with Q1 2010’s $568 million, because of lower ASPs. Conversion efficiencies and production line run rates both increased, although manufacturing costs per watt were flat.

Quarter over quarter net income was also down, primarily driven by lower net sales and gross margin. Year over year, the net income decrease was primarily driven by reduced average selling prices and higher expenses, partially offset by increased module production and lower module cost per watt, the company said.

“Despite European market uncertainties, First Solar has good visibility into our demand for 2011,” said Rob Gillette, CEO of First Solar. “We continue to execute our cost roadmaps, invest in new module capacity, build our project pipeline and develop promising new markets around the world.”

The company updated its 2011 guidance as follows: net sales of $3.7 billion to $3.8 billion; operating income of $900 million to $970 million; earnings per fully diluted share of $9.25 to $9.75; $50 million to $60 million of manufacturing start-up expenses and $10 million to $15 million of factory ramp costs; total capital spending of $1.0 billion to $1.1 billion; and operating cash flow of $0.8 billion to $1.0 billion

Update 1

The company produced 407MW of modules during the first quarter, up 3% from the previous quarter and 26% year over year, and the run rate rose to 64.1MW per line, a 2% increase from Q4 and 15% increase year over year.  Conversion efficiencies ticked up from Q4, moving from 11.6% to 11.7%, while manufacturing costs were flat, remaining at 75 cents per watt.

First Solar said it had successfully ramped its KLM 5 facility in Malaysia during Q1, with KLM 6 ramping during the current quarter. The next phase of production capacity in the Frankfurt-Oder 2 fab in Germany is also ramping and remains on schedule to come online by the third quarter.

The new factory in Vietnam is under construction and should be starting shipments in Q3 2012, while the facility recently announced for Mesa, AZ, remains on track for a Q3 2012 ramp. The two-line factory in France has been put on indefinite hold and removed from the company’s production capacity roadmap, which now has a target of 2.82GW of capacity by the end of 2012.

During the conference call, CEO Rob Gillette also outlined a new strategy that First Solar is taking in building its new facility sites in Vietnam and Arizona. The company will construct more building space than is initially needed, giving it the ability to install and ramp up additional lines with shorter lead times. For example, the Tempe, AZ, plant, with four lines rated at a total of 256MW capacity set to come online to start, will have enough factory space to eventually accommodate 10 lines. (In a follow-up, company spokesman Alan Bernheimer also confirmed that the Vietnam factory will be built to hold 10 lines as well.)

Update 2

On the project side, the company has increased its guidance of North America installations for this year from 400MW to 450MW (DC), and that number could balloon to as much as 600MW, if the lack of transparency in European markets leads to a drop in demand there. Noting how the company’s diversification strategy allows for such flexibility, CEO Gillette characterized First Solar’s large (2.4GW) project pipeline as “a buffer against European uncertainty.”

The largest of those near-term pipeline projects, the 290MW (AC) Agua Caliente project in Arizona built and run by First Solar and tentatively owned by NRG, has encountered some delays in the finalization of its $967 million DOE loan guarantee commitment and therefore the close of the sale to NRG as well. As a result, the company now believes that it won’t be until Q3 for the deal to be completely done on both the debt and equity sides of the ledger—which will contribute to overall net sales being back-end loaded for the fiscal year.

Another large US project, the 230MW (AC) AV Solar Ranch One in Los Angeles County, remains up for sale, and the company expects to complete that transaction in time to begin construction at the site in the second half of 2011.     

Other triple-digit projects in the southwestern US are in the midst of environmental and local government approvals, still working their way down the pipeline toward actual construction. The biggest of them all, the 550MW Topaz site in central California, has received its final environmental impact report and is awaiting a conditional use permit for San Luis Obispo County, while the Sunlight project has completed its final environmental impact statement.

One of the more modest-sized projects in the queue— the 20MW Santa Teresa site in New Mexico, in which First Solar is the EPC contractor and NRG the owner-developer—will feature the first use of trackers on one of the company’s deployments when it is completed later this year. The PV firm acquired tracking system and BOS specialists RayTracker in January 2011.

A pleasant surprise for First Solar is what it sees as the significant growth in a relatively new market—India. The company believes it has a 100MW-plus module supply pipeline potential in the South Asian country in 2011, up from what it saw as around 10MW a few quarters ago.

Australia, China, Saudi Arabia, United Arab Emirates, and Oman were also mentioned as developing markets with strong positive indications for hundreds of megawatts of possible sales.

When asked about last week’s blockbuster announcement of Total’s plan to acquire a majority interest in SunPower, Gillette admitted that the news was a “little bit of a surprise.” He went on to say that he expects to see more and more big players enter the solar space, noting that the industry needs bigger players to help drive it as a whole.  

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