First Solar: Cuts solar manufacturing costs; Sees strong global demand

First Solar, a leader in photovoltaic module manufacturing, said that it can navigate the end of generous German solar power subsidies since demand in Italy, France and other areas remains strong.

First Solar, a leader in photovoltaic module manufacturing, said that it can navigate the end of generous German solar power subsidies since demand in Italy, France and other areas remains strong. In the meantime, First Solar is focused on cutting manufacturing costs in an effort to stoke demand and eventually get to parity with fossil fuels.

In the second quarter, First Solar said its photovoltaic module manufacturing costs were 76 cents per watt, down 12 percent from a year ago.

First Solar's second quarter results crushed Wall Street estimates. The company reported earnings of $1.84 a share on revenue of $587 million. Wall Street was looking for earnings of $1.60 a share on revenue of $545 million. Those profits, however, were down from earnings of $2.11 a share in the second quarter a year ago. The company said lower profits were driven "by lower module average selling prices, and higher operating expenses that were partially offset by increased module production and lower module cost per watt."

For 2010, First Solar said its net sales will be about $2.5 billion to $2.6 billion, roughly in line with expectations.

Among the key themes outlined by First Solar CEO Rob Gillette on the company's earnings conference call:

Solar operating costs have to come down. Gillette said:

With our goal of providing solutions at the lowest cost of our utility customers, and to ultimately provide an asset which competes with fossil fuel sources, we have to consider all aspects of the value chain. We want to minimize LCOE (Levelized Cost of Energy) while at the same time maximize the return for our project owners. And First Solar is uniquely positioned to provide both through driving and performance and execution from the module through the balance of systems, project development, and financing. All four of these elements must be optimized to achieve our goal of future cost parity.

Germany has pulled subsidies for solar power, but lower prices can keep demand going in Europe. Germany is No. 1 in sales for First Solar, followed by the U.S., France and Italy. "We expect the German market to remain strong for the remainder of 2010. We implemented some price adjustments in the second half to ensure sellthrough, and to position us for 2011 and beyond project sales," said Gillette. Demand in Italy, Spain and France is growing as the European Union is aiming to get 20 percent of its energy from renewable sources by 2020. That goal should keep demand humming for solar modules. "The markets in Europe outside of Germany are going to grow more rapidly than Germany," said Gillette.

Demand in the U.S. for solar modules will be a state-by-state affair since the proposed U.S energy bill doesn't include renewable energy standards or perks for solar. Gillette said:

I think that development is clearly a local effort, and one that requires local knowledge and relationships. So it still is driven quite a bit both locally and from a state standpoint. We have -- continue to refine our definition of what we believe will be a sustainable market. Our focus and strategy, as we've put together and presented before, is to maximize our penetration in the markets that are subsidized and focus on markets that are in transition that we believe will be sustainable over time. So that relates to a certain amount of available solar resource combined with what we believe about the future cost of energy in given regions. That is South -- southern United States; it's definitely the Southwest. France, as you know, has a lot of good insulation and good support from a feed-in tariff standpoint, especially in the South, as does Italy and Spain. India, we've had a number of visits and conversations with how do we grow that market and work with partners there to do so? And we mentioned what we're doing in China, as well as some efforts underway in Australia. So those are all markets I would highlight that are in transition.

Among the key slides from First Solar's conference call:

Source: First Solar presentation, earnings release


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