First Solar: Initial moves away from thin film?

What you think about the bounce that First Solar stocks received earlier this week?
We do know that there was some speculation incorporated in that, so some solar short sellers who had to quickly minimize their losses and buy their shares back. So of course that caused an exaggerated reaction. But what we can see is that solar in general is regaining some confidence from the financial community. There were several quite good earnings calls and outlooks from several companies. Of course on the other hand, there’s the effect of Suntech.
What we’ve been seeing since the beginning of this year/end of last year is that there is a turnaround occurring, which doesn’t mean that 2013 will be a great year, but definitely we have the bottom behind us and now it’s getting better. This is becoming more-and-more visible to the financial community, so you can see the spike of the First Solar price as an indication or representation of that trend shift, although the full amount was due to some speculation.
Looking at the First Solar announcements themselves, where do you see the company situated? It does appear to be expanding its project pipeline largely by acquisition.
The interesting thing is that First Solar has always been a little bit ahead of the rest of the market in identifying new growth regions and identifying new growth strategies. For example, a part of the project portfolio that First Solar has bought is in Latin America, so the company has moved away from the mass markets that depend very heavily on government policies. These markets are also where the competition is very tough! So First Solar has moved away from that, concentrated on the domestic U.S. market, the very important emerging regions and now it has complemented that by expanding its portfolio to the rooftop segment. This seems to make perfect sense, to not rely on direct competition with the Trinas and the Yinglis of the world.
But could project pipeline through acquisition prove too expensive?
At the same time as saying that, the downstream business is the segment where a company can still make a margin. That is the part of the business that is saving the upstream suppliers that have a footprint downstream. So I can’t tell in terms of individual acquisitions whether it makes sense, but the general strategy to grow through expanding downstream business – and to think of oneself as an energy company and not as a photovoltaic supplier, which is exactly what First Solar is doing – that makes perfect sense. So First Solar is really transitioning from a panel maker to an energy provider.
Is there any tension between the upstream and downstream business models?
Yes definitely, and there will be more and more tension. In the midterm we might see several business models change here a little bit, in that maybe the manufacturing will be outsourced. Panel manufacturing is a low margin, low cost, high volume business. It can be handled very well by foundries like in the semiconductor business; Jabil Electronics, TSMC, Foxconn Technology maybe. Whereas project development is rather a high margin, high cost business, its value generation is bigger. So it might be hard to implement both business models long term, so we might see some changes.
One strategic shift for First Solar is the TetraSun acquisition, which you’ve touched on. This will presumably allow First Solar to access the Japanese and rooftop markets. The tentative production date is mid-2014 and it will only be relatively small-scale to begin with. But is there anything more to the acquisition, could it be a longer-term strategic shift in terms of technology?
That’s the crucial question and my personal opinion is yes. CdTe is approaching its limits, in the midterm, so the TetraSun acquisition might be not only a shift towards relatively slow but attractive new market segments for First Solar, but it might be the first step of a more fundamental shift away from CdTe.
It has to be noted that this is speculative at this stage and we don’t expect anything soon. First Solar had evaluated CIGS technology a few years ago and stopped it because they didn’t see a potential to scale that at the necessary cost. But the company knew that CdTe’s competitiveness would run out at some point. First Solar has been saying that internally since 2008, so it’s not really a surprise and it’s a very interesting move.
If you look at First Solar’s cost roadmap, it has stated that it targets US$0.40/W by 2017. First Solar didn’t see anything about the product mix at that time, but the cost roadmap of CdTe over the past years wouldn’t really justify $0.40/W. It’s hard to imagine how First Solar could realize this only with CdTe – the technology has been very well developed by First Solar – so there might already be some significant contribution of low-cost high-efficiency c-Si technologies in that cost outlook. It’s a bit speculative but it is another thing that makes me think that the acquisition is a sign of something bigger to come.
It could also mean that GE’s plans to develop a CdTe fab are permanently mothballed. Do you think that’s right?
We have GE with CdTe we have TSMC with CIGS. These are big players that are looking into thin film, but are hesitating. The trend at the moment is that these technologies are keeping stable at best, but the development trend is not pointing in the right direction. It was clear over the past few years that thin film’s prospects depends on the decisions of the two big players, First Solar and Solar Frontier, and one of these two has now made a step away from this technology, so it’s another indicator of thin film slowly phasing out at this point.