First Solar (
released its Q4 2012 results
. We have updated our model and price estimate for the firm to
incorporate the results and some of the recent trends in the firm's
business. Among the changes, we expect lower sales prices per watt,
better gross margins for modules and higher demand for modules from
the rest of the world. Offsetting some of these favorable changes,
we expect German demand to decline and for growth in PV systems to
slow as it works through its backlog.
price estimate of $27
is roughly in line with the current market price. Here are some of
the key changes to our model and the rationale behind them.
1) Lower Selling Price Per Watt
: First Solar's Cd-Te thin film panels compete with polycrystalline
panels which have better efficiencies. (See Also:
A Comparison Of Solar Technologies And What They
Mean For Companies
) Recently, low polysilcion raw material prices and oversupply have
caused the price of polycrystalline panels to fall significantly.
This in turn has had an adverse effect on First Solar as its
average price per watt fell from around $1.04 in 2011 to around
$0.63 in 2012. Going forward, we expect the selling price per watt
to decline, albeit at a slower rate, to around $0.56 per watt by
the end of the Trefis forecast period as the firm improves
conversion efficiency and makes its panels more competitive with
silicon based panels.
2) Gross Margins For Modules Should Improve
: First Solar's module gross margins have historically been high at
above 40%. However in 2012, since panel prices declined at a much
faster rate than manufacturing costs, gross
margins plummeted to around 12%. We believe that gross
margins can improve to around 20% by the end of the Trefis forecast
period as the firm has been investing in improving its
manufacturing process and boosting conversion efficiency of its
panels, which should help to reduce costs.
3) Germany Module Shipments Look Weak
: In 2012, the German government implemented significant
reductions in feed-in-tariffs (FIT) for projects up to 10 MW and
eliminated FIT's for larger projects. This has had a significant
impact on First Solar's sales in the region with volumes declining
from around 458 MW in 2011 to around 58 MW in 2012 (based on our
estimates). We expect that sales in Germany can grow to around 80
MW by the end of the Trefis forecast period as the firm boosts
efficiency of its modules and also as lower prices help to drive
4) 'Rest of The World' Module Shipments Should Improve
: Sales to the 'Rest of the world' segment also fell by nearly 50%
to around 315 MW in 2012, primarily due to decline in sales to
France. We expect sales to recover to around 700 MW by the end of
the Trefis forecast period as the firm sells more modules to
regions like India, Australia, China and Africa.
5) PV Solar Systems Business Revenues Growth Could Slow
: Systems revenues grew nearly threefold in 2012 to around $2.1
billion, exceeding our estimates. However, we have some doubts as
to whether the firm can sustain this momentum since it has been
executing on projects faster than it has been bagging new ones.
Over 2012, First Solar had a book-to-bill ratio of 0.8, which means
that the firm sold more contracts than it added. To account for
this uncertainty, we have lowered the growth rate for systems
revenues to around 2.5% per year meaning that we
expect revenues to grow to around $2.6 billion by the end
of the Trefis forecast period.
Margins For Systems Business
: Most of the projects for which the company has been
recognizing revenues over the last year were negotiated a few years
ago when the solar sector was healthier and pricing power was still
strong. However, we believe that profitability could be impacted
going forward by the currently weak solar power market which could
lower the pricing on new contracts that the firm signs. We
expect margins for the systems business to decline from around 44%
in 2012 to around 27% by the end of the Trefis forecast period
considering the possibility that new deals are signed at less
attractive rates and also accounting for higher competition.
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