First Solar and SunPower Report Drops in Revenues; Eyeing Asia for Growth

Commenting on the results, Mr. Hughes said, "Despite continued uncertainties and over-supply conditions in the market, we delivered another strong quarterly performance." 

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Arizona-based First Solar, Inc. (NASDAQ:FSLR), the world’s leading thin film solar panel producer, has reported massive 55.27% year-on-year and 21% sequential drops in profits in the third quarter to $87.9M, while its revenues also slumped by almost 17% year-on-year and 12% sequentially to $839.1M. However, the profits translated into $1 EPS, which was better than the analysts’ expectation of $0.87 per share. The decline in sales and profits has come as it finished some of its major projects including the 50MW Silver State North solar PV plant in Nevada, and slowed construction work at the massive 290MW Agua Caliente plant in Arizona.

The business, under the leadership of its new CEO James Hughes, has made a strategic shift from traditional solar panel manufacturing to solar power plant development. Factory utilization improved to an impressive 83%, representing a 20% sequential increase, as it produced 490MW of PV in the third quarter for $0.67 per watt, while it achieved a conversion efficiency of 12.7%.  This figure excludes the performance of the German facility, as this facility is going to be shut down by the end of the current year. Shipments have seen a one-third increase as compared to the previous quarter, but they have fallen by 11% from 551MW in Q3 2011. The company had targeted 12.8% efficiency by the end of the year and it’s on track to meet its goal.

Commenting on the results, Mr. Hughes said, "Despite continued uncertainties and over-supply conditions in the market, we delivered another strong quarterly performance." However, total year-end guidance has been reduced from $3.6B-$3.9B to $3.5B-$3.8B. Hurricane Sandy has also prompted First Solar to reduce their operational cash flow guidance from $850M - $950M to $650M - $850M.

Despite the falling revenues, First Solar has been able to move deeper into Asia. It has been awarded the 13MW solar power plant project by Dubai Electricity & Water Authority; it will sell approximately 75MW of solar panels, which includes its cadmium-telluride panels, to local developers in Rajasthan, India, and it has recently signed an MoU with PJB Services, Indonesia, to jointly work on 100MW of utility-scale power plants in the country. For India, First Solar is aiming to contribute one-fifth of the total PV as the country moves forward on its National Solar Mission. Meanwhile, First Solar is already working on two Australian projects with a combined capacity of 159MW. For 2012, First Solar expects to make shipments of 1.9GW, 63% of which will go to its system business.

However, the company currently has enormous projects in its pipeline, the likes of which, the analysts are expecting, are not going to come in the near future. Once these projects are completed, while demand in Europe remains low, there is going to be a dip in revenues, but the business is looking to offset this by raising its stakes in Australia and Asia. Hughes is also optimistic about the future. "Our quarterly performance coupled with our recent project wins in sustainable markets demonstrates we are making meaningful progress in achieving our strategic plan for long-term growth and value creation," he said.

On the other hand, the other leading U.S.-based solar panel producer, SunPower Corporation (NASDAQ:SPWR), has also released its third-quarter results. The company has reported an 8% fall in revenues to $649M year-on-year as its sales dropped by 70% in the EMEA (Europe Middle East and Africa) region, particularly due to the weak demand in Europe amid the persistent debt crisis.  Its total shipments for the third quarter stood at 210MW, which shows a 9.5% sequential and 11.4% year-on-year decline.

On a positive note, SunPower’s revenues (non-GAAP) in the Americas and the APAC (Asia Pacific) region have increased year-on-year by 24.8% and 32% respectively, to a combined $518M, which was attributed to the 250MW California Valley Solar Ranch project and the 600MW Antelope power plant project. Unlike First Solar, SunPower could not post any profits this quarter, but it shortened its losses by 42.4% sequentially and 86.9% year-on-year to $48.5M, which translated into a loss per share of $0.41 in Q3, which is significantly better than the loss per share of $0.71 in Q2 and $3.77 in Q3 2011. Tom Werner, SunPower president and CEO, believes that the current results “reflect the success of our diversified end market strategy and good execution on both our technology and cost roadmaps, all enabling us to exceed our margin and earnings targets for the quarter."

The poor performance in Europe in particular is dragging down the profits. For its third quarter, SunPower has reported positive gross margins of 18.8% and 18.5% in APAC and the Americas, going up from 14% and 16.8% in Q2. But in EMEA, it posted a negative margin of 26.1%, falling from a positive 0.6% in the previous quarter. Although the company’s overall gross margin has consistently improved over the previous quarters and now stands at a positive 12.4%, it still continues to generate operational losses.

For its fourth quarter, SunPower is expecting to hit shipments of 200 - 250MW, which would make the full-year shipments of 840 - 890MW with more than 50% sales in the Americas region. Like its peer, SunPower also has a similar strategy, to expand further outside of the U.S. and Europe. Werner said that his company is “also starting to monetize our project pipeline in Israel.” The business has been able to increase its Japanese shipments by 30% sequentially, and its recent supplier agreement with Toshiba will ensure that demand in that region remains strong.

Both American solar firms are looking to tap into the growing demand for Solar in emerging markets. A recent IHS report has also highlighted that the Southeast Asian PV market will grow rapidly, at a pace of 50% annual growth for the next five years, and would touch the 5GW mark by 2016. Traditionally, this area has been dominated by Chinese firms such as Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP) or Trina Solar Limited (ADR) (NYSE:TSL).