First Solar ( FSLR ) reported a weaker than expected set of Q2 2014 earnings due to delays on some of its large-scale solar projects. Quarterly revenues fell by around 43% sequentially to about $544 million, while net income dropped to around $4.5 million from around $112 million last quarter. Volatile earnings are fairly common in First Solar's business as it derives most of its earnings from project development, which is subject to irregular revenue recognition. Project delays aside, the company had a good quarter, making solid progress in boosting its solar panel efficiency and building its project order books. Here are some of the key takeaways from the earnings release.
Trefis will be revising its $66 price estimate for First Solar to account for the recent earnings release.
First Solar's projects business saw a decline due to lower quarter-on-quarter revenue recognition on the company's two large North American solar projects. While the 230 megawatt ( MW ) AVSR project is approaching completion, the 550 MW Desert Sunlight project experienced some engineering issues related to its inverters. While the company noted that the issue was not material to the company as a whole, it would result in revenues being deferred from Q2 into the second half of the year. The company's order books for module and systems bookings expanded from around 2.7 gigawatts (GW) at the end of last year to around 3.2 GW, driven largely by deals to build power plants in the southwestern United States. ((First Solar Q2 2014 Earnings Call Presentation, First Solar, August 2014)) The company is also expanding its international footprint, with over half of its potential booking opportunities coming from overseas. For instance, in Chile, First Solar looks set to commence work on its 141 MW Luz del Norte power plant after having secured a financing package for the project. In India, the company will be self-developing its first set of projects which will have a total capacity of about 45 MW.
Operation and Maintenance Business Expands With Skytron Acquisition
First Solar has been seeking to grow its operation and maintenance (O&M) business, which provides services to solar power plants that use either First Solar modules or modules manufactured by third parties. Although First Solar doesn't break out the results of its O&M business, we believe that it could be quite valuable in the long run, since it provides for a stable revenue stream via long-term contracts while its capital intensity is also likely low. During the second quarter, First Solar entered into an agreement to acquire Skytron Energy, a company which provides plant management, data monitoring and operation and maintenance services to utility-scale power plants across Europe. Skytron monitors roughly 5 GW (peak) of capacity. Apart from the Skytron acquisition, the company added around 800 MW of O&M bookings year-to-date and noted that it had another 1 GW of late stage opportunities.
Panel Efficiency Improvements
Although First Solar's panels trail silicon-based panels in terms of conversion efficiency, the company has set itself a clear roadmap for efficiency gains and seems to be making good progress on executing on these targets. During Q2, average module efficiency rose by 0.5% sequentially to around 14%, which marks one of the company's biggest quarterly efficiency increases. The quarterly improvement matches the efficiency gains that the company was able to achieve through the whole of last year. Higher efficiencies would benefit the company in two ways. Firstly, it would make its panels more competitive in the rooftop market, where higher energy density panels are valued due to space constraints. Secondly, it could help to prune down manufacturing costs, since higher efficiency panels are likely to require a smaller amount of consumables and raw materials to produce each watt of capacity. Per the company's road map, it expects panel efficiencies to improve to above 19% by the year 2017. Given that Cd-Te thin film panels have a higher theoretical upper limit for efficiency compared to silicon-based panels, First Solar could eventually have among the highest efficiencies in the industry.
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