With the falling price of polysilicon and the resulting fierce price competition from crystalline producers, First Solar has continued to post significant operating losses. As the company restructures towards downstream development outside of Europe, it has increased its 2012 earnings-per-share (EPS) guidance on the back of cost savings of US$94 million.
Reacting to the results and the five-year plan set out by the company, stock analysts Jefferies have said that the plan "lacks credibility". Jefferies continues that First Solar "will likely be removed from the S&P index given its market cap."
First Solars revenue came in at US$497 million, a decrease of US$163 million from Q4 2011 and US$70 million from Q1 2011. The company has attributed the declines to lower module-only sales, indicating that price competition from silicon rivals is biting. As the price of polysilicon continues to decline, major doubts exist as to whether First Solar can reduce costs sufficiently to remain competitive.
In this environment, First Solar is refocusing on its significant downstream business. "We believe that by executing our strategic roadmaps and completing our restructuring program we can achieve our targets of 2.6 to three gigawatts of sales in sustainable markets," said interim CEO and Chairman of the Board Mike Ahearn in a statement announcing the results. He predicted a return on capital investment under First Solars five-year plan of between 13 and 17 percent by 2016.
The restructuring program Ahearn referred to in his statement includes the closure of First Solars two German fabs, F01 and F02 the latter having been officially opened little more than six months before the announcement of its closure. The company had previously shelved plans for a fab in France and will not fit out nor operate a fab currently under construction in Vietnam.
These restructuring measures are aimed at bringing module production in line with predicted demand. In Q1 2012, First Solar reported that restructuring cost the company US$401,065. A further charge of US$41,621 was reported for Warranty and Cost in Excess of Normal Warranty Expense. This is resultant from a "low power module" (LPM) issue that has plagued the company and has required a significant number of modules to be replaced. A second warranty issue has also fed into the charge as a result of modules degrading in hotter climates faster than expected.
In its 2011 Annual Report, First Solar reported that these warranty issues had cost the company US$215 million. It also estimated that LPM remediation would cost the company US$44 million in the future. That the Q1 excess warranty charge already approaches that figure, indicates that the company may have underestimated or is under reporting the significance of the issue. Currently there are a number class action law suits against First Solar relating to, although not exclusive to, the reporting of the LPM issue and its subsequent impact on the companys share price.
First Solar cash reserves were depleted in Q1 by US$38 million and total debt increased by US$200 million. The company reports that it has US$750 million cash and marketable securities.
In more positive news, First Solar and MidAmerican Solar have announced that major construction has begun on the 550 MW at Topaz Solar Farms project. Yesterday, May 3, representatives from the two companies held a groundbreaking celebration at the project site.
Located in San Luis Obispo County, California, the project is expected to employ around 400 workers during the three-year construction period. Overall, it is hoped that the thin film plant will generate enough energy annually to power 160,000 average-sized homes. While MidAmerican owns it, First Solar is working on construction, operation and maintenance.
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