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First Solar (FSLR)

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Anyone else here a trader that keeps CNBC on all day?  I do and there's been an abundance of chatter over the last few weeks/months (ramping up too) on ESG... Environmental, Social and Governance index funds and how that's the trend among millenials and even us older folks.  They wanna invest in ESG companies that are making a difference.

I set out in search of FSLR and CSIQ in particular in the most popular funds.  Know what I found? Surprise, surprise, they're nearly non-existent. The most popular or the best performing (I forget which offhand) fund had ZERO solar companies in it. But who DID I find in it and in most of the large ones I looked at... Exxon, BP, Chevron... let me tell you how disgusted I was going through those fund holdings and seeing that.  

Let's hope these ESG funds are taking the selloff in all these names as an opportunity to buy in and help all of us make the world a slightly less bad place.

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5 hours ago, SCSolar said:

S6 Costs = $0.34=$0.0967 = $0.2433

S6 margins = $0.0967/$0.34 = 28.4% margins.

 

They have indicated that their target costs are in line with where they were looking at for the end of the year. This does not look like it is inline with $0.21 targets.

Do you realize that First Solar counts warranty and shipping as a COGS while the c-Si companies consider it OPEX?

Also, the company had module revenue of $371M and that appears to be for around 1GW of panels. So the actual numbers are likely higher than your calculation.

With yields at 95% and efficiency ~17.4%, there is plenty of room to get the costs down. The factories have been built and utilization is at 100%. Now the improvements can begin.

Degradation is the bane of PERC cells and when FSLR is able to remove copper and improve CdTe degradation rates, that will be a huge deal and should allow FSLR to sell panels at a premium to silicon.

https://www.nrel.gov/news/program/2019/nrel-first-solar-collaboration-improves-thin-film-solar-cells.html

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4 minutes ago, Luz del Norte said:

Degradation is the bane of PERC cells and when FSLR is able to remove copper and improve CdTe degradation rates, that will be a huge deal and should allow FSLR to sell panels at a premium to silicon.

 

So this is why they made a big deal of the copper removal yesterday?  It was a bit in the weeds for me.  It's a big deal?  Or were they just pumping something with a marginal benefit?

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21 hours ago, SCSolar said:

Kloth

My model:

FSLR ASP $0.345 and appx 1075MW of modules

60/40 split S6/S4

645MW S6 

430MW S4

Gross margins modules 39.8%

Revenue $371.2 modules

Gross Profits  $371.2*.398=$147.8M

Gross Profits less $80.0M reversal plus $6.0M ramp = 73.8M 

S4 Module costs = $0.300

S4 gross/watt = $0.345-$0.300 = $0.045

S4 Gross profit = 430*.045=$19.3M

S6 Gross profit = $73.8-$19.3=$54.5M

S6 Gross per Watt = $54.5/645 = $0.0845

S6 Costs = $0.345-$0.0845 = $0.261

S6 margins = $0.0845/$0.345 = 24.5% margins

Based on their indication on deferred revenue recognition (con call) I assume the 26 cts above is roughly their Q2 production cost.  Based on cost progression guidance given in Q4 18 con call Q4 production cost is approx. 14% below Q2, i.e. 22.4 cts.  This should be reflected in Q1 20 numbers. 

In summary I see costs minimally above my own expectations but deviation is irrelevant given their strong cost reduction momentum.

 

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3 hours ago, Klothilde said:

My model:

FSLR ASP $0.345 and appx 1075MW of modules

60/40 split S6/S4

645MW S6 

430MW S4

Gross margins modules 39.8%

Revenue $371.2 modules

Gross Profits  $371.2*.398=$147.8M

Gross Profits less $80.0M reversal plus $6.0M ramp = 73.8M 

S4 Module costs = $0.300

S4 gross/watt = $0.345-$0.300 = $0.045

S4 Gross profit = 430*.045=$19.3M

S6 Gross profit = $73.8-$19.3=$54.5M

S6 Gross per Watt = $54.5/645 = $0.0845

S6 Costs = $0.345-$0.0845 = $0.261

S6 margins = $0.0845/$0.345 = 24.5% margins

Based on their indication on deferred revenue recognition (con call) I assume the 26 cts above is roughly their Q2 production cost.  Based on cost progression guidance given in Q4 18 con call Q4 production cost is approx. 14% below Q2, i.e. 22.4 cts.  This should be reflected in Q1 20 numbers. 

In summary I see costs minimally above my own expectations but deviation is irrelevant given their strong cost reduction momentum.

 

With these numbers they are still afloat thanks to only one factor - Trump (tariffs). If Democratic president will be elected next year, who shares similar views on PV development as Europeans (no import tariffs for PV modules = hundred of thousands installation jobs) - then FSLR simply is not competitive. Period. It is very risky investment. Do you agree with me Klothilde or not? Especially if Michael Bloomberg decides to run, he will win, no doubts about it. And he is Pro-Solar big time!

Edited by MVA

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1 hour ago, MVA said:

With these numbers they are still afloat thanks to only one factor - Trump (tariffs). If Democratic president will be elected next year, who shares similar views on PV development as Europeans (no import tariffs for PV modules = hundred of thousands installation jobs) - then FSLR simply is not competitive. Period. It is very risky investment. Do you agree with me Klothilde or not? 

Without the tariffs the company would be at serious risk just like JKS and CSIQ are right now.

But you forgot it was Obama who slapped the first AD/CVD tariffs on Chinese modules, so there goes your logic.  Some day the tariffs will be gone, but this is mid- to longterm and not likely to have any significant impact on company financials or S6 advancement over the next two years.  Also don't forget FSLR is not only insulated by the tariffs but also by the 12GW backlog at fixed prices.

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8 hours ago, Klothilde said:

Based on cost progression guidance given in Q4 18 con call Q4 production cost is approx. 14% below Q2, i.e. 22.4 cts. 

Assuming First Solar winds down the systems business and only sells modules to 3rd parties, this means:

2020 - 3rd party module sales of 5GW at 34 cents with a 22 cent cost -> $600M gross profit - $300M OPEX = $300M pretax + around 500MW of systems.

2021 - Assuming yields improve and efficiency goes up to 450W/module leading to a cost of 20 cents. Nameplate capacity increases to 1.4GW/factory or 7.7GW total shipments. With an ASP of 33 cents (already signed contracts) -> $1B gross profit - $300M OPEX = $700M pretax.

2022 - Copperless modules at 500W, nameplate capacity at 1.55GW/factory, 8.5GW total shipments, cost at 18 cents.

In addition, FSLR will start to get another $2/share of cash flow due to the factories depreciating. The company is going to be a cash cow over the next 10 quarters and should have plenty of reserves for when it steps out from tariff protections.

Edited by Luz del Norte
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23 hours ago, MVA said:

With these numbers they are still afloat thanks to only one factor - Trump (tariffs). If Democratic president will be elected next year, who shares similar views on PV development as Europeans (no import tariffs for PV modules = hundred of thousands installation jobs) - then FSLR simply is not competitive. Period. It is very risky investment. Do you agree with me Klothilde or not? Especially if Michael Bloomberg decides to run, he will win, no doubts about it. And he is Pro-Solar big time!

Bloomberg gets my vote over Warren.

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JMP Securities analyst Joseph Osha upgraded First Solar to Outperform from Market Perform with a $70 price target. The analyst believes that the market is not valuing the company's competitive U.S. position appropriately. Osha further notes that First Solar's manufacturing transition plan is proceeding while its backlog coverage has now extended "well into 2021", adding that the 22% pullback in its stock price over the past month is offering investors an attractive entry opportunity.

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Meanwhile, the CTO dumped a ton of shares... insiders at FSLR just hate holding their own company stock.

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1 hour ago, MVA said:

Klothilde, somebody is challenging you... FSLR group needs your protection.... Hurry...

First Solar Is Falling Down - Let It

https://seekingalpha.com/article/4306469-first-solar-falling-let?app=1

I think these two sentences summarize it well:

The company has to prove to us that it can deliver.

The company switched to the "overpromise and underdeliver" mode in recent years when it comes to sales and profit.

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55 minutes ago, solarpete said:

I think these two sentences summarize it well:

The company has to prove to us that it can deliver.

The company switched to the "overpromise and underdeliver" mode in recent years when it comes to sales and profit.

Once again, I will take the opinion of Finlay Colville over a guy who seems to have little understanding of the company.

https://www.pv-tech.org/editors-blog/pv-celltech-2020-to-explain-huge-shift-in-pv-production-landscape

"The success of First Solar’s Series 6 roll-out in the past 12 months in particular must come as even a pleasant surprise to the most optimistic proponents within the company. It is perhaps the most significant technology move undertaken ever in the PV industry, for a whole host of reasons that I will not go into here, as many of these have been discussed in features I have written on PV-Tech over the past couple of years.

Let’s frame this to get some perspective however.

Imagine you are a 2-3 GW scale module supplier today to the sector, and not based in China. How to you compete with a 100-GW China machine working at arms-length to own the industry globally? Not just from a cost standpoint, but a technology-one now that the industry has made the critical multi-to-mono transition.

Now add in here having a company-specific manufacturing/equipment/materials based PV module technology that requires 100% of the R&D and factory optimization has to be done in-house.

And finally – go spend $1billion setting up multi-GW scale factories across different countries/regions globally, get the factories running within 12 months, and secure firm orders within 6 months that cover output from all factories for the next two years?

Oh, and not to mention one more thing… Make sure module ASPs are 10-20% above global averages, and blended production costs (or COGs) are as good (or better) than the best-in-class c-Si producer in China.

Okay – this is what First Solar has done in the past few years with its Series 6 technology. In looking at all the investments by all the companies in PV manufacturing over the past couple of decades, I cannot recall anything that comes remotely close to this in terms of success."

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You guys just don't like it when I smell a rat in some of the companies you invest in.  So you post cheap and trashy articles hoping to attack First.  Do you think it's working?

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58 minutes ago, Luz del Norte said:

this is what First Solar has done in the past few years with its Series 6 technology.

A good point.  But the question is, how much money have they made doing this?  So far, the answer is not much.  THAT is the concern some of us have with this company, and that's what I see as the point of the Seeking Alpha article.  The greatest tech in the world doesn't do an investor any good if the company can't monetize it.

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34 minutes ago, Klothilde said:

So you post cheap and trashy articles hoping to attack First.

You consider ANY article criticizing FSLR's recent financial performance as "cheap and trashy."  I'll turn your own criticism right back on you:  you just don't like it when I smell a rat in the (financial performance of the) company you invest in.

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12 minutes ago, solarpete said:

A good point.  But the question is, how much money have they made doing this?  So far, the answer is not much.  THAT is the concern some of us have with this company, and that's what I see as the point of the Seeking Alpha article.  The greatest tech in the world doesn't do an investor any good if the company can't monetize it.

You don't make money by building factories, you make money selling the product that is made in those factories. I really don't understand why this is so hard a concept for some to understand.

First Solar only started shipping Series 6 modules to 3rd parties in Q1. Last quarter was the first time a large quantity of S6 was sold and the numbers were impressive. Next year the company will sell twice as many modules every quarter.

First Solar's transition to the S6 is something that will likely be studied in business schools for the next few decades. It is an amazing accomplishment that has been overlooked because analysts misjudged the quarter a few projects would be sold in.

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51 minutes ago, Luz del Norte said:

You don't make money by building factories, you make money selling the product that is made in those factories. I really don't understand why this is so hard a concept for some to understand.

Precisely!!  The point is, THEY HAVEN'T DONE THAT YET.

Yes, I know that's the plan, but the plan is LATE.  In the meantime, as Klothilde points out, the price from the competition keeps falling.  By the time they finally get their production ramped to the promised levels, what will be THEIR ASP?  The danger is, not nearly as much as they originally anticipated.

The article in question advocates for remaining on the sidelines, until investors have more visibility into what those earnings will actually be, because there is significant risk they will be less than expected.  I think that's sound advice, because if this risk materializes, the stock will certainly drop sharply, if not crater outright.  The danger is by the time you know the earnings are as good as expected (if that turns out to be the case), you will have missed the initial part of what should be a longer-term rise.  Personally, I'm OK with that--I'd rather miss out on part of a gain, if that means avoiding the potential of a huge loss.  So I interpret this article to just be a discussion of risk management in FSLR stock--nothing more, nothing less.  It's not an "attack" on anybody or anything.

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17 minutes ago, solarpete said:

Precisely!!  The point is, THEY HAVEN'T DONE THAT YET.

Yes, I know that's the plan, but the plan is LATE.  In the meantime, as Klothilde points out, the price from the competition keeps falling.  By the time they finally get their production ramped to the promised levels, what will be THEIR ASP?  The danger is, not nearly as much as they originally anticipated.

From the latest 10Q the company says, "As of September 30, 2019, we had entered into contracts with customers for the future sale of 11.7 GWDC of solar modules for an aggregate transaction price of $4.0 billion." That seems to indicate the company has an ASP of around 34.1 cents for the next two years. With the factories at full capacity and two years worth of orders, not sure what the risk is.

For those who want to criticize the company, I am surprised why no one has jumped on the $80M warranty liability reserves reduction last quarter. That seemed like an "in case of emergency break glass" kind of thing. Without that out of the blue occurrence last quarter would have been red again.

In addition, FSLR seems to be getting out of systems development. For now they say they are only closing the EPC business but the pipeline has shrunk and early stage projects were sold in Q2. The writing is on the wall. Losing systems revenue will hurt but it would lessen the need for cash which could be returned to shareholders.

Their push into O&M seems odd, too. That business is fairly low margin and only brings in around $100M in revenue. Maybe they will come up with an O&M+ business that addresses curtailment. A lot of energy is being wasted and there could be a market opportunity there.

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21 minutes ago, Luz del Norte said:

not sure what the risk is

The risk is the same that it has been three quarters in a row now--that somehow, someway, all the pie-in-the-sky prognostications notwithstanding, come time to report earnings, they su… er, are less than expected.

If investing was as simple as believing every company management's expectations, we'd all be stock market millionaires.

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3 hours ago, Luz del Norte said:

You don't make money by building factories, you make money selling the product that is made in those factories. I really don't understand why this is so hard a concept for some to understand.

First Solar only started shipping Series 6 modules to 3rd parties in Q1. Last quarter was the first time a large quantity of S6 was sold and the numbers were impressive. Next year the company will sell twice as many modules every quarter.

First Solar's transition to the S6 is something that will likely be studied in business schools for the next few decades. It is an amazing accomplishment that has been overlooked because analysts misjudged the quarter a few projects would be sold in.

I will use a Klothilde script. Thin film solar panels have an average price of $0.237. How profitable will FSLR be selling 5GW with $0.03 profit? That is $150M a year. Where do they get the rest to cover their $440M in Opex and Interest?

 

Oh wait they are in a protected market  unless the courts overturn the Bifacial module exemption reversal. If that happens, that protected market is gone and the $0.39 ASP they enjoy in the U.S. will quickly be negotiated down.

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1 hour ago, Luz del Norte said:

With the factories at full capacity and two years worth of orders, not sure what the risk is.

 

risk? The risk is that they are signed for 3 years at $0.34. The bifacial modules exemption reversal has been dened in the courts and they are being allowed into the U.S. without tariffs until the courts determine why they were suddenly made not exempt. There has to be legal justification of this reversal of the exemption.

 

If the courts overturn the exemption reversal and make them exempt from tariffs,  suddenly that $0.34  for the next 3 years becomes $0.26  in 2020 and closer to $0.24 or less  for the next 3 years. That means their 11GW of  contracts will have customers lining up for renegotiation. $0.02-$0.03 is not an issue, but $0.08 to $0.12 is an issue when that becomes 10-15% of the cost to build a plant is. The failure of them to re-negotiate with their customer base will leave a lot of repeat business with sour taste in their mouths and lost future customers.

 

That is their risk.  They currently are not price competitive outside the U.S..

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17 minutes ago, solarpete said:

The risk is the same that it has been three quarters in a row now--that somehow, someway, all the pie-in-the-sky prognostications notwithstanding, come time to report earnings, they su… er, are less than expected.

If investing was as simple as believing every company management's expectations, we'd all be stock market millionaires.

The obsession people have with analysts and their quarterly predictions is really weird. First Solar has been extremely consistent in its guidance for the year. A year ago it predicted sales of $3.25B - $3.45B, EPS of $2.25 - $2.75, shipments of 5.4-5.6GW, and ending net cash of $1.6B - $1.8B. Current guidance is $3.5B- $3.7B, EPS of $2.25 - $2.75, shipments of 5.4-5.6GW, and ending net cash of $1.7B - $1.9B.

Just because analysts failed to guess when projects would be sold doesn't mean the company is not meeting the guidance it gave. As there is only one quarter left this year that means this is the only time FSLR is giving a quarterly estimate. Doing the math, the company expects to have sales of around $1.75B, EPS of $2.78-$3.28 and cash flow of around $550M - $750M this quarter. Not bad.

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6 minutes ago, Luz del Norte said:

The obsession people have with analysts and their quarterly predictions is really weird. First Solar has been extremely consistent in its guidance for the year. A year ago it predicted sales of $3.25B - $3.45B, EPS of $2.25 - $2.75, shipments of 5.4-5.6GW, and ending net cash of $1.6B - $1.8B. Current guidance is $3.5B- $3.7B, EPS of $2.25 - $2.75, shipments of 5.4-5.6GW, and ending net cash of $1.7B - $1.9B.

Just because analysts failed to guess when projects would be sold doesn't mean the company is not meeting the guidance it gave. As there is only one quarter left this year that means this is the only time FSLR is giving a quarterly estimate. Doing the math, the company expects to have sales of around $1.75B, EPS of $2.78-$3.28 and cash flow of around $550M - $750M this quarter. Not bad.

First Solar has guided gross margins down 10% this year form their original 21.5% GM initially for 2019. Don't say their executions have been flawless.

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13 minutes ago, SCSolar said:

I will use a Klothilde script. Thin film solar panels have an average price of $0.237. How profitable will FSLR be selling 5GW with $0.03 profit? That is $150M a year. Where do they get the rest to cover their $440M in Opex and Interest?

When you say the company has Opex and Interest of $440M it is clear you are not arguing in good faith. First Solar expects to have Opex of $320-$370M this year which includes $40-$50 in startup expenses and EPC overhead. As for interest, the only debt the company has is for foreign projects and that is more than offset by the income of the cash position. If the company has debt then it also has systems revenue you are intentionally ignoring.

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8 minutes ago, SCSolar said:

First Solar has guided gross margins down 10% this year form their original 21.5% GM initially for 2019. Don't say their executions have been flawless.

Once again, you are arguing in bad faith. First Solar predicted gross margins of 20-21% on its guidance call last year. This included $20-30M in ramp costs. Last quarter the company predicted the annual margin to be 19-20% with $70-$80M to be from ramp costs. Take the ramp costs out and margin guidance has gone up.

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