Tuesday, February 15, 2011

First Solar (NASDAQ: FSLR): Q4 Earnings Preview 2010

First Solar Inc. (NASDAQ: FSLR), the world's largest maker of thin-film solar-power modules, is scheduled to release its fourth quarter earnings after the closing bell on Thursday, February 24, 2010. Analysts, on average, expect the company to report earnings of $1.76 a share on revenue of $647.37 million. In the year ago period, the company reported earnings of $1.65 per share on revenue of $641.26 million.

First Solar Inc. engages in the design, manufacture, and sale of solar electric power modules using a proprietary thin film semiconductor technology. The company's solar modules employ a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. First Solar has the lowest production costs in the industry for its thin film cadmium telluride panels.

In the preceding third quarter, the Tempe, Arizona-based company's net income was $177 million, compared with a profit of $2.04 a share, from $153 million, or $1.79 a share, in the year-earlier quarter. Revenue surged 66% to $798 million. Analysts, on average, expected the company to report earnings of $1.94 per share on revenue of $778.20 million.

At its last earnings call in October, the company boosted its fiscal 2010 guidance. The company said that it expects full year 2010 earnings per share of $7.50 to $7.65, up from the previous guidance range of $7.00 to $7.40. First Solar anticipates net sales of $2.58 to $2.61 billion, up from the previous guidance range of $2.5 to 2.6 billion. The company said it expects 2010 gross margin of 44% to 45%.

In 2011, First Solar forecasts net sales in the range of $3.7 to $3.9 billion, up about 46% year over year compared to the midpoint of 2010 guidance provided on October 28, 2010. The net sales forecast is comprised of $2.8 to $2.9 billion of module sales and $0.9 to $1.0 billion of EPC/project development sales. EPS is forecasted to grow to between $8.75 to $9.50 per fully diluted share and consolidated operating income is $875 to $975 million. These forecasts include $80 - $85 million of manufacturing start-up expenses and $15-20 million of factory ramp costs associated with plant expansions. The company plans to invest $1.0 to $1.1 billion of capital to nearly double production capacity by year-end 2012, to maintain existing capacity and to add infrastructure to support growth. First Solar expects to generate $1.0 - $1.1 billion of operating cash flow during 2011.

Going forward, the company will be ramping up its production capacity to further lower its cost of production through economies of scale. At the end of the third quarter of 2010, the company operated with an annualized global manufacturing capacity of approximately 1.4 GW. The company expects to increase its manufacturing capacity to 46 production lines by the end of 2012, with an annualized manufacturing capacity of more than 2.7 GW.

First Solar, which makes thin-film solar panels that are cheaper to make but convert less sunlight into electricity than traditional silicon solar panels, was the world's top solar-panel supplier last year. While the company remains a top supplier, it faces increasing competition from low-cost Chinese solar-panel makers that are also expanding production to meet growing global demand.

First Solar remains focused on Europe, where the majority of demand is, as well as the U.S. and Canada, where the company has about 2,000 megawatts of large solar farms in various stages of development. The company is also rapidly expanding in emerging markets like China and India, that have a lot of potential, but where demand isn't yet as strong as it is in Europe.

2010 continued the significant growth of the solar market throughout the country with new markets in China and the USA advancing their demand for solar panels. Solar industry as a whole has benefited from continued strong demand thanks to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. Companies involved in the production of semiconductors used in solar panels have enjoyed a positive quarter. Many have experienced rising shipments over the last few quarters, resulting in a sequence of record quarters. The world is becoming increasingly environmentally conscious. Both commercial and private demand for solar power is rising. Solar options are becoming more attractive as more governments provide better options for buildings producing solar power to feed into and out of the grid as required.

Last month, US President Barack Obama in his State of the Union address called for 80 percent of the nation's electricity to come from clean sources by 2035. Meanwhile, Senator Bernie Sanders submitted a bill to congress titled the "10 Million Solar Roofs and 10 Million Gallons of Solar Hot Water Act". This bill is expected to spur alternative energy growth and create green jobs.

Meanwhile, the largest market for solar, Germany, is slated for a significant decline in 2011. German government officials and industry groups are reaching an agreement over solar-power subsidy cuts for 2011. Hinging on the volume of new solar power capacity additions, the government may cut incentives by almost 12%, effective July 2011. However, if installations exceed 7.5 gigawatts, subsidy cuts may reach almost 15%.

During the quarter in review, First Solar acquired RayTracker, Inc., a tracking technology and photovoltaic or PV balance-of-systems firm that is an operating company of Idealab, a creator and operator of technology companies.

Full Disclosure: None.
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