First Solar Inc. (FSLR) has signed contract volume expansion agreements with seven customers leading to a 380 megawatt (MW) increase in its order backlog for 2011 over previously announced volumes. The expanded contracts are with existing customers and will serve predominantly European markets.
The new contracts are in line with First Solar’s plan to add manufacturing capacity in Germany and France to better meet local demand and encourage the development of the market for utility-scale solar electricity. The company generates a lion’s share of its sales from Germany (65% in 2009).
First Solar employs more than 4,700 associates worldwide. With an expected annual production capacity in excess of 1.3 gigawatts (GW) in Germany, the U.S. and Malaysia in 2010, First Solar is one of the world’s leading producers of photovoltaic modules. The company has three additional factories under construction in France and Malaysia. When these facilities become fully operational in 2012, the company will have more than 2.1 GW of capacity.
Based in Phoenix, Arizona, First Solar designs, manufactures and sells 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 designs and manufactures solar modules using a proprietary thin-film-semiconductor technology, which allows it to reduce its average solar module manufacturing costs to one of the lowest in the world.
At the end of the first half of 2010, First Solar’s average manufacturing cost amounted to $0.76 per watt; this is significantly below that of traditional crystalline silicon solar module manufacturers. Going forward, the company will be ramping up its production capacity to further lower its cost of production through economies of scale.
However, the advantage is dwindling fast due to falling polysilicon prices. First Solar’s growth potential and that of the solar industry on the whole require a prudent long-term focus on technological enhancements, capacity build-out and cost minimization. Balancing all the three aspects will take some effort.
First Solar will benefit from the steady recovery in the economy as well as favorable legislations supporting PV installations. The company is focused on capacity build-outs, technological enhancements and cost minimization, and also enjoys technological superiority over its silicon-based solar peers.
However, its short-term growth may be partially hampered by the volatile euro, apprehension over reduction in German subsidies, falling crystalline silicon prices and the modules oversupply situation in the market.
Also competition in the industry is becoming tougher by the day for U.S. solar players such as First Solar, who have a huge German exposure in their top line compared to Suntech Power Holdings Company Ltd. (STP), SunPower Corporation (SPWRA) and ReneSola Ltd. (SOL) whose markets are more diversified.
We currently have a market Neutral recommendation on the Zacks #2 Rank (Buy) First Solar stock.
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