Alternative Energy IPO: First Solar Files S-1 (FSLR)

First Solar filed an S-1 last Friday. The company manufactures solar panels for use in electricity production. The proposed ticker is (NASDAQ: FSLR). The following are key details from their filing:

Company Description:

We design and manufacture solar modules using a proprietary thin film semiconductor technology that has established us as one of the lowest cost solar module manufacturers in the world. In 2005, our average manufacturing costs were $1.59 per Watt, which we believe is significantly less than those of traditional crystalline silicon solar module manufacturers. We are the first company to integrate non-silicon thin film technology into high volume low cost production. Our manufacturing process transforms an inexpensive 2ft x 4ft (60cm x 120cm) sheet of glass into a complete solar module in less than three hours, using approximately 1% of the semiconductor material used to produce traditional crystalline silicon solar modules. Our ability to attract customers with competitive pricing, in combination with our replicable low cost manufacturing process, afforded us a gross margin of 35% in 2005. By continuing to expand production and improve our technology and manufacturing process, we believe that we can further reduce our manufacturing costs per Watt and improve our cost advantage over traditional crystalline silicon solar module manufacturers. Our objective is to become, by 2010, the first solar module manufacturer to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe and Asia.

Key Financial Details:

Net Sales: Net sales increased by $5.1 million, or 60%, from $8.5 million for the first quarter of 2005 to $13.6 million for the first quarter of 2006. The increase in our net sales was due primarily to a 73% increase in the MW volume of solar modules sold from the first quarter of 2005 to the first quarter of 2006. We were able to increase the MW volume of our solar modules sold primarily as a result of higher throughput and full production ramp of our Base Plant. In addition, we increased the average number of sellable Watts per solar module from approximately 59 Watts in the first quarter of 2005 to approximately 62 Watts in the first quarter of 2006. The increase in net sales was partially offset by foreign currency fluctuations and a decrease in the average sales price per Watt from the first quarter of 2005 to the first quarter of 2006, driven by a weaker Euro. Strong demand from other customers allowed us to reduce our dependence on our largest customer from 86% of net sales in the first quarter of 2005 to 24% of net sales in the first quarter of 2006. In both periods, almost all of our net sales resulted from shipments of solar modules to customers headquartered in Germany.

Cost of Sales: Cost of sales increased by $4.2 million, or 68%, from $6.2 million for the first quarter of 2005 to $10.4 million for the first quarter of 2006. The increase in our cost of sales was due primarily to a $2.1 million increase in manufacturing overhead costs from the first quarter of 2005 to the first quarter of 2006, primarily as a result of $1.0 million of stock-based compensation expense. Salaries and personnel-related expenses increased by $0.4 million due to the conversion from a five day to a seven day production week and overall infrastructure build-out to support our growth. Depreciation expense also increased by $0.2 million from the first quarter of 2005 to the first quarter of 2006, primarily as a result of additional equipment becoming operational at our Base Plant. Warranty and end of life costs relating to the reclamation and recycling of our solar modules increased by $0.6 million as a result of higher sales volumes. We also experienced higher raw material costs required to support the higher production volumes from the Base Plant. Direct material expense increased by $1.5 million from the first quarter of 2005 to the first quarter of 2006. Direct labor decreased by $0.1 million.

Notable Issues to Watch For:

Thin film technology has a limited operating history. The oldest solar module manufactured on our pilot line has only been in use since 2001, and we do not have a large amount of data to validate our estimates of useful life and degradation. If our thin film technology and solar modules perform below expectations, we could lose customers and face high warranty expenses.

Underwriters: Credit Suisse, Morgan Stanley

Select Competitors:

Crystalline silicon PV cell solar module manufacturers: BP Solar (BP), Evergreen Solar (ESLR), Kyocera(KYO).
Thin film solar module manufacturers: Antec, Kaneka (Public, Tokyo), Mitsubishi Heavy Industries (Public, Tokyo)