First Solar Q1 Preview: Project Pipeline And Chilean Operations In Focus

| About: First Solar, (FSLR)

First Solar (NASDAQ:FSLR) is expected to release its Q1 2013 results on May 6. We expect the company to continue its relatively strong performance into this quarter as well as execute on its pipeline of utility scale projects. During Q4 2012, revenues grew by around 60% year-over-year to $1.1 billion while net income came in at $154 million, compared to a net loss of $480 million a year earlier. For this quarter, the firm has guided net sales of between $650 and $750 million which is at least 30% higher than the last year while operating income is expected to be between $70 to $100 million compared to a loss during the same period last year. [1]

There has been a lot of positive news from First Solar over the past few weeks. The firm announced its plans to enter the silicon solar panel business through the acquisition of TetraSun. The move will help to de-risk its product portfolio. Additionally, the firm also provided upbeat guidance figures for 2013, causing its stock price to shoot up by over 45% over the past month. (Related Read: First Solar’s Acquisition Of TetraSun Highlights A More Diversified Strategy) Here are some of the factors we will be watching when First Solar reports earnings Monday.

Clarity On Future Systems Projects

First Solar’s systems business has been performing well of late. Systems revenues (including panels used) were up from around $1.25 billion in 2011 to around $3 billion in 2012. However, First Solar has been executing its systems contracts relatively quickly. In 2012, the firm had a book-to-bill ratio of 0.8, which means that the firm sold more contracts than it added. [2] As per the firm’s long term guidance, overall revenues are expected to be as high as $4.8 billion by 2015; however, around 50% of the guidance for 2014 and 2015 comes from non-committed projects. [3] Since much of the future performance hinges on bagging new projects and replenishing the pipeline, we will be keen to hear of any new developments on this front.

Performance Of Chilean Operations

Developed countries in Europe and North America have traditionally accounted for over 80% of First Solar’s business. However, the firm has been recently making a big push into emerging solar markets such as India, the Middle East and Latin America where solar power is becoming increasingly competitive with conventional sources of energy. During Q1, the firm acquired Solar Chile, a project photovoltaic developer with around 1.5 GW of early-to mid-stage utility-scale power projects in Northern Chile. The acquisition gives First Solar a relatively strong footing in the energy starved Chilean market and could help to boost module sales in the region. We will be watching the progress of the Chilean operations and their contribution to First Solar’s overall results in Q1. (Related Read: How First Solar Benefits From The Solar Chile Acquisition)

Continued Cost and Efficiency Improvements For Cd-Te Panels Is Important

We have been a little concerned about the fact that First Solar’s bread and butter Cd-Te panels, which drive most of its business, could be losing their edge at least in the near term as they have been facing severe price competition from Chinese polycrystalline panel manufacturers. Through 2012, polycrystalline panel prices fell by over 30% to less than $0.70 per watt. In comparison, First Solar’s panel cost per watt has declined from around $0.73 to around $0.67 (barely 10%) over the past year. (Related Read: Are First Solar’s Thin-Film Panels Falling Behind?) Since First Solar’s panels actually have a slight disadvantage in terms of conversion efficiency when compared to polycrystalline panels, the narrowing price gap could mean that third-party customers would prefer polycrystalline panels over First Solar’s panels.

While the Tetra Sun acquisition is definitely a step in the right direction since it gives First Solar access to innovative polycrystalline technology, commercial production for First Solar’s polycrystalline panels will only begin sometime in the second half of 2014. In the meantime, it is imperative that the firm continues making progress with cost reductions and efficiency improvements for its thin-film panels.

Disclosure: No positions.