First Solar Takes the Next Step in Solar Vertical Integration

Includes: FSLR, SPWR, STP
by: The Green Investor

First Solar, Inc. (NASDAQ:FSLR) announced Monday (7/12/2010) the completion of its acquisition of NextLight Renewable Power, LLC. In our analysis, this opens a new era in the solar photovoltaic market structure, one full of rich rewards for the winners.

Sure, large photovoltaic manufacturers like First Solar and competitors such as SunPower Corp. (SPWRA) and Suntech Power Holdings Co. (NYSE:STP) have all dabbled with utility-scale projects. But the recent moves by First Solar, the eight-hundred-pound gorilla in the solar sector, are bound to change the playing field.

Since 2007, the company has a history of acquiring solar project pipelines. This announcement brings First Solar’s North American utility-scale power purchase agreements to 2.2 gigawatts, nearly two years of production at their current worldwide capacity. Beyond the projects pipeline, First Solar gets the know-how that comes with NextLight’s brain trust and project developers.

First Solar has been one of our top solar favorites for various reasons. In particular, because it has continued to lead the industry in the most crucial measure, Cost per Watt. This measure gives First Solar the highest gross margins: 48.85% in the trailing twelve months. That's more than twice that of the sector (See “Picking Solar Energy Winners” for details.) Firshave mercilessly cut costs at all levels of manufacturing solar panels, including the so-called BOS (Balance Of System) which includes items such as mounting hardware and power control and conversion systems needed to complete an installation.

With the economies of scale and further vertical integration coming from the Utility Systems Business Group announced earlier this month, we can expect strong revenue growth and further margin improvement opportunities for the foreseeable future.

Disclosure: No positions

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