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Guest Klothilde

First Solar (FSLR)

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I actually got a rare response from investor relations.  However, it was totally useless.  I inquired about the S6 production issue to see if there was any progress/update there.  And also suggested that they be more liberal with putting out press releases like the CNs do in regards to supply agreements or project sales or whatever else.  I had also asked about contracts and what they're seeing in pricing since the last call, but they ignored that question.  The response to the other 2 questions:

Thanks for your email.  Regarding the current status of Series 6 production and recent orders or bookings, First Solar has not provided any updates since our previous earnings call on these topics.  Given the nature of these items, updates are generally provided to investors at our quarterly calls, so that the information is available in real-time to all interested parties.

Lastly, as it relates to press releases the timing and frequency of these announcements is dependent on a number of factors including whether information is substantive enough to warrant a public announcement.

 

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Hi all, I'm new here. I'm a reporter in grad school writing a stocks trend story on U.S. manufacturers. Although I've already learned a ton by just reading everyone's posts, I'd love to speak with some of you individually about what sorts of trends you're seeing. I'm mainly focusing on FSLR and SPWR. Thanks so much in advance. If you have any questions for me, please feel to ask! 

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Gordon speaks

 

https://finance.yahoo.com/news/vertical-groups-gordon-johnson-solar-173832421.html

 

As for U.S. solar stocks, Johnson said First Solar, Inc. (NASDAQ: FSLR) is facing near-term threats from contract cancellations and longer-term threats based on the company’s ability to stay competitive in the market.

Chinese companies are currently producing modules at a cost of 23 cents per watt, Johnson said. President Donald Trump’s 25-percent tariffs on Chinese solar imports are the only thing keeping First Solar competitive, he said, especially given that the company is targeting costs of 22 cents per watt for its next-generation module.

“If the Chinese have prices of 23 cents and their costs are 22 cents, you understand how that could be a problem." 

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Which Gordon?  The one that put a sell rating and a PT of $21 on the stock in Feb 2017 before it ran up to $81?  That one or another one?

Let's see what happens to CN companies over the next quarters.  How long can somebody like JKS survive selling for 23 cents?

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12 hours ago, Klothilde said:

Which Gordon?  The one that put a sell rating and a PT of $21 on the stock in Feb 2017 before it ran up to $81?  That one or another one?

Let's see what happens to CN companies over the next quarters.  How long can somebody like JKS survive selling for 23 cents?

They should do quite well as they are migrating quickly  from junk poly wafers to high efficiency perc and mono.

The spread on Poly Perc Cells to Poly  Perc Modules is   $0.17  or 25% margins (0.11/0.28).

The spread on Mono Perc Cells to Mono Perc Modules is   $0.155  or 18.2% margins (0.147/0.302).

Compare those margin potentials with the current S4 costs of $0.27 production costs for FSLR and the average Thin Film ASP at $0.265. 

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1 hour ago, SCSolar said:

They should do quite well as they are migrating quickly  from junk poly wafers to high efficiency perc and mono.

The spread on Poly Perc Cells to Poly  Perc Modules is   $0.17  or 25% margins (0.11/0.28).

The spread on Mono Perc Cells to Mono Perc Modules is   $0.155  or 18.2% margins (0.147/0.302).

Compare those margin potentials with the current S4 costs of $0.27 production costs for FSLR and the average Thin Film ASP at $0.265. 

I'm on my way out so just a few lines.  Why dontcha calculate spreads and try to fit in JKS' OPEX & INT using the energytrend numbers?
https://pv.energytrend.com/pricequotes.html

FSLR can reap a way higher ASP than what you are quoting thanks to the juicy trumponian tariff.

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On 9/22/2018 at 7:34 AM, Klothilde said:

I'm on my way out so just a few lines.  Why dontcha calculate spreads and try to fit in JKS' OPEX & INT using the energytrend numbers?
https://pv.energytrend.com/pricequotes.html

FSLR can reap a way higher ASP than what you are quoting thanks to the juicy trumponian tariff.

Those fat tarfifs are not as much an impact with the Costs basis dropping like a rock. 30% on a cost basis of $0.35 was significant pushing the average ASP  to around $0.45-$0.48. Now with production costs in the $0.23 and could be as low as $0.21 the dynamics change. The average ASP with freight Tarrif and Opex + profit is now at around $0.36-$0.37. That is soon to drop by   a penny or 2 as the tariff gets reduced by 5% in a few months. That places the new ASP at $0.345+/- with tariffs, freight, opex and profits.

 

Those ASP could be lower as there is 2.5GW  of tariff free modules. Those modules carry  another 6-8 cents in gross . That means that they can basically cut a penny or 2 off the ASP and still have decent profits from the U.S when all are blended.

 

Slap the $0.034  on FSLRs  $0.27  S4 cost basis  and you are profitless and operating at a loss with their near $100M a quarter in Opex.  That $0.34-$0.36 ASP is significantly down from the $0.50 you were expecting before the ASP collapse.

 

There is good concern  which  Godron Johnson mentioned  that FSLR might be looking at cancellations of contracts due to the ASP declines. FSLR a while back indicated 2 or 3 cent premium on a module would not kill a sale,. They are now looking at  a $0.10-$0.15 swing certainly that certainly could.

 

And we have not even discussed the ability of FSLR to compete outside of the U.S. markets where there are no  tariff impacts and the ASP is sub $0.30.

 

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14 hours ago, SCSolar said:

Those fat tarfifs are not as much an impact with the Costs basis dropping like a rock. 30% on a cost basis of $0.35 was significant pushing the average ASP  to around $0.45-$0.48. Now with production costs in the $0.23 and could be as low as $0.21 the dynamics change. The average ASP with freight Tarrif and Opex + profit is now at around $0.36-$0.37. That is soon to drop by   a penny or 2 as the tariff gets reduced by 5% in a few months. That places the new ASP at $0.345+/- with tariffs, freight, opex and profits.

 Those ASP could be lower as there is 2.5GW  of tariff free modules. Those modules carry  another 6-8 cents in gross . That means that they can basically cut a penny or 2 off the ASP and still have decent profits from the U.S when all are blended.

Slap the $0.034  on FSLRs  $0.27  S4 cost basis  and you are profitless and operating at a loss with their near $100M a quarter in Opex.  That $0.34-$0.36 ASP is significantly down from the $0.50 you were expecting before the ASP collapse.

There is good concern  which  Godron Johnson mentioned  that FSLR might be looking at cancellations of contracts due to the ASP declines. FSLR a while back indicated 2 or 3 cent premium on a module would not kill a sale,. They are now looking at  a $0.10-$0.15 swing certainly that certainly could.

And we have not even discussed the ability of FSLR to compete outside of the U.S. markets where there are no  tariff impacts and the ASP is sub $0.30.

The ASP of FSLR's module backlog is 36 cts/W. (p.37) and not 50 cts/W.  I think that reduces the risk of renegotiation vis a vis market prices quite a bit.  Based on energy intensity FSLR's modules currently are roughly at par with standard mono.  Standard mono currently sells for ~25 cts in China.  With freight and tariff (25%) you get to about 36 cts/W in the U.S., i.e. about equal to the backlog ASP.

In terms of FSLR cost bear in mind that we are only a few months away from economics being determined by S6 and not S4.  Going into 2019 55% 0f nameplate capacity will be S6 and full year production will be 70-75% S6.  That should push cost down noticeably from the 27 cts once ramp-up hiccups are resolved.

I don't expect FSLR to be profitable with the above in the short term because of the OPEX drag.  That should get resolved in 2020 with further scaling.

I do believe FSLR's position, though challenging, is paradisaical compared to most CN peers who truly face a fight for survival in the short term.  I don't know if Gordon bothered to do a comparative assessment.  Take a look at JKS for instance.  They may evade losses for a quarter or so by idling production and switching to cheap 3rd party cells (which have fallen earlier and faster in price than modules).  However as modules catch up in ASP drop and the cell-module spread narrows again they will be screwed both in-house and with 3rd party cells.  It will be no-time before they start bleeding like a stuck pig.

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7 hours ago, Klothilde said:

I don't expect FSLR to be profitable with the above in the short term because of the OPEX drag.  That should get resolved in 2020 with further scaling.

I do believe FSLR's position, though challenging, is paradisaical compared to most CN peers who truly face a fight for survival in the short term. 

Kothilde, can you elaborate a little further on your timelines here?  Are you saying you don't expect FSLR to become profitable until 2020?  That's not short-term from right now.

And where do you see the CN peers by 2020?

Thanks!

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Thanks for that.  We hit his price target, so he can rest easy.  When these goons make calls like this or like JP Morgan's CSIQ call a few days (or HOURS?!?!) ahead of earnings, it infuriates me.  Have some integrity and wait for the actual report to clarify what things look like. 

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Blue Wave thesis - Doesn't this fly in the face of what he said earlier this year, when he said one of the reasons he'd change his mind on FSLR was if Trump extended the tariffs farther out?  Dems would work to get rid of those.  Granted, Trump can just shut that down.  I don't see how a Blue Wave helps FSLR.  California is moving ahead on their own, don't need a blue wave for that.

Series 6 execution - One can only guess he means that margins will be juicy, because I see S6 as downside risk at the moment.  What if they don't have the line issues fixed?  What if they're not getting as much wattage out of them as hoped?  What if they had to pump more cash into fixing the line or otherwise rolling these out?  

Sale of JP project - I'm ignorant on this one.  Is this because of higher margins in Japan?  And is it really that big of a difference that would make for a catalyst beyond what they'll be doing with other plants state-side?

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After listening to the call, this just seems like a repeat of what we've seen and heard over and over and over.  Everything seems and sounds great, except for lumpy revenue recognition.  Talking margin expansion of S6 as things move along, not really the fear of order cancellations Gordo wanted us to believe a few weeks back, fractions of pennies when it comes to pricing pressure from customers, still a healthy project environment in the US, still healthy bookings (were they better than you expected Klothilde?)... dunno, maybe I'm missing a devil in the details, but this selloff seems like yet another bogus selloff thanks to delayed sale of Japan project.  Future seems bright here, still, and little seems to have changed for them in light of the China situation.  Oh, except then we were at 80 bucks and now we're at 40.

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Not sure how all of the other manufacturers are going to do, but it sounds like FSLR is on their game. Bookings growth continues now into 2021, and system's bookings continue to grow. Their wattage is now hitting 430, and there seems to be implication of further increases in the coming months and years. 

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Sounds like the delay in sale of the Ishikawa project may provide a higher IRR. So delayed cash flow/profit, but had a higher clip. Sounds like good judgement to me as CEO.

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Anyone catch what the CFO was saying about safe harbor towards the end of the call? This came up during Credit Suisse asking about cash return/M&A, etc. 

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IDK...

Mark went into more detail on margins of series 6 vs 4 on Gordon's questions.  Seems like it's not that great?

Also, the Ohio line still "buffering" and using more manual labor than they want.  

No more certifications...

 

Did anyone else think that Mark sort of danced around the "is the technology done yet" question?

 

And I think this was the first time he mentioned what the "2 way contract" means:  FSLR gets a 20% non-refundable deposit.  And we heard that someone in China broke their contract.  Also Turkey is being resold out of Turkey.

Definitely sounds like they are pressured.

 

It would be great to hear from others here who are more focused on Series 6 margins.. was there new "good" news here or some new "bad" news?

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4 minutes ago, sunnypease said:

IDK...

No more certifications...

What are the certifications that the series 6 is supposedly lacking? If you look at the datasheet the series 6 seems to have about the same certifications as the series 4.

http://www.firstsolar.com/-/media/First-Solar/Technical-Documents/Series-6-Datasheets/Series-6-Datasheet.ashx

http://www.firstsolar.com/-/media/First-Solar/Technical-Documents/Series-4-Datasheets/Series-4V3-Module-Datasheet.ashx

6 minutes ago, sunnypease said:

And I think this was the first time he mentioned what the "2 way contract" means:  FSLR gets a 20% non-refundable deposit.  And we heard that someone in China broke their contract.  Also Turkey is being resold out of Turkey.

Definitely sounds like they are pressured.

Are canceled contracts a bad thing? It seems like pocketing the 20% deposit is an even better deal than selling an S4 module for a mid-teens gross profit.

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