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Guest Klothilde

First Solar (FSLR)

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59 minutes ago, SCSolar said:

Just my word of caution for a 12-18 month outlay. I will be interested in seeing margins of Q4 and fiscal year 2020 guidance and trends.

I appreciate the word of caution, but you are neglecting some mitigating factors.  They are expanding their efforts to penetrate the European residential market.  For example, just this morning they announced they just signed a new cooperation deal with a roof manufacturer in Germany to provide in-roof PV components.  So they know they don't want to stay US-centric.  Also, the US residential market will continue to grow, as other states pass mandates similar to the California one requiring PV installations on new residential housing.  And not all inverters are created the same.  Yes, the Chinese can come in with cheaper units.  But will they have the same connectivity as the Enphase ones (where the ASICs are heavily patented)?  That would require patent infringement or other intellectual property theft--certainly something China is known for, but nevertheless something they'd have to retro-engineer first, and that takes time.  Finally, a currently completely overlooked market is their completely off-the-grid solution for rural areas in undeveloped countries (Africa, India outside the cities).  That, too, is coming, and is completely separate from their offerings for the developed rooftop market.

So the question becomes, how much farther do they have to run?  And here the honest answer is, of course, no one knows.  But currently, their prospects are good.  They've proven their technology, and they have a head start on the competition.  I can easily see the stock eventually heading to $100+, based on their expanding into the European and off-grid markets.  If they pull that off (and that's their plan), they'll have the profits to justify that share price.  If they don't, they won't, and I will be monitoring the news for any indications those markets are not growing as expected.  And of course, there will undoubtedly be pullbacks along the way.

So I am not a blind cheerleader for the stock.  Indeed, I have just today taken profits in it again, and currently own only one small trading position (in case they continue to go higher before pulling back).  (My trading approach actually has me holding only small amounts of a stock at its all-time high, as that's the time it's most vulnerable to quick reversals.)  But I am certainly ready to pounce and aggressively buy any pullbacks, even small ones.  As you say, Q4 results and FY20 guidance will be key.  And I anticipate both will be excellent.  For the next 12 months, at least, I think this stock will continue to be a trader's dream, with frequent fluctuations around a steadily increasing stock price due to increasing profits from expanding markets.

After that, who knows?  Perhaps the trend will continue.  Perhaps not, and it will be time to look for another trading stock.  But for now, the sun is out, and it's time to make hay!

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First Solar EPS misses by $1.43, misses on revenue

😮  Trading is halted... Catastrophic!!!

First Solar (NASDAQ:FSLR Q4 Non-GAAP EPS of $1.48 misses by $1.43; GAAP EPS of -$0.56 misses by $0.87.

Revenue of $1.4B (+102.5% Y/Y) misses by $460M

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3 hours ago, MVA said:

First Solar EPS misses by $1.43, misses on revenue

😮  Trading is halted... Catastrophic!!!

First Solar (NASDAQ:FSLR Q4 Non-GAAP EPS of $1.48 misses by $1.43; GAAP EPS of -$0.56 misses by $0.87.

Revenue of $1.4B (+102.5% Y/Y) misses by $460M

SO what you guys think? after hours 15% drop, will it open 20% down or flat?

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2 hours ago, dydo said:

SO what you guys think? after hours 15% drop, will it open 20% down or flat?

Whatever happens in the morning - FSLR is untouchable for me. Although SPWR bounced back quite nicely, after collapsing to 8.16... Only two companies, in solar sector, I will consider this year - CSIQ & JKS, but only after they correct back to 18-20 level, probably in March. I think, some time during the year, they will touch $40 again. But real play of the year will be Starlink IPO.... 

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12 minutes ago, Klothilde said:

Well they fuc*ed up project execution even though they progressed nicely on S6 metrics.  Thus we're going to the cleaners today probably.

I do not understand, they reported a loss on the quarter, when they were expecting a profit. I do not understand their line in their guidance anymore. They suggested they were having earnings of  $2.50 mid range. Now their GAAP earnings is a loss of over $1. That to me is a miss of $3.50. Clearly their earnings they are presenting in their estimates are not GAAP earnings. That should be a red flag in general.

 

As for guidance, they missed revenues by $400M on mid range,  your would  think the $400M would roll into 2020 and be additive, yet guidance for next year is only $2.8B mid range  or  $300M less than 2019 revenue guidance. This would suggest that without the rollover that guidance for 2020 would have been in the $2.4B range.

 

The last company that I saw screw up their fiscal year with  massive revenues miss and guided down for the next year was Yingli.

 

On the good side, yes the 2020 ASP based on guidance falls in around $.34 +/-

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Kloth

 

From the con call they seem to indicate they had a $13M  or something like that impact on earnings from an Opt out. What is that and what does that pertain to? Is that a customer that decided to terminate the contract and First Solar had to pay back the deposits?

 

I also have a question on their ASP pricing and why they do not give. The company seemed to imply they are selling value. I interpret that as they are selling based on a power output generation as their modules generate 7% or so more power than others on a per watt rating.  Thus they get a premium ASP based on outputs of systems. At another point in the con call that suggested legal expenses for an under performing output.  It sounded to me like they are being sued regarding under performing outputs based on contracts and had legal expenses.  Am I hearing this tight? Does this leave them open for more exposure?

 

As far as guidance goes for 2020, backing out $0.50 in EPS  or more due to project carry over that fell out, it would seem they are making around $0.04-$0.05 Net income per watt shipped.  Or do you see it lower along the lines of $0.03?

 

This does not suggest robust earnings when the tariffs get removed in the next few years.

 

 

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What's not to understand? Throw in the litigation loss, the jap project revenue shift and the other project fuc*ups and you get what you get.  All those items were not included in their guidance of Oct.

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2 hours ago, Klothilde said:

What's not to understand? Throw in the litigation loss, the jap project revenue shift and the other project fuc*ups and you get what you get.  All those items were not included in their guidance of Oct.

Klothilde,

I am truly sorry for your loss here.  On this board, we're all here to exchange information to help each other make money, and while you and I certainly don't share the same views on the prospects of various companies, no one here wants to see someone else lose money.

Given that ultimate focus on making money, ask yourself this:  is your optimism in FSLR really founded in the type of numerical analysis you enjoy doing?  Are your assumptions for that analysis realistic?  Is your faith in FSLR management justified?  Or do you just not want to admit you made a mistake putting so much reliance on them?  Believe me, I can understand the latter.  I rode LDK all the way to bankruptcy because I just couldn't get myself to admit that a former industry leader could mismanage their business so badly.

Practically every other solar except FSLR is enjoying some kind of improvement in their business and their accompanying stock price.  Use that keen mind of yours to take another look at some of them, and re-think that 100% dependence on a company that is disappointing you quarter after quarter, at a time when you should be enjoying significant, if not life-changing gains.

Here's hoping your fortunes turn around soon!

Solarpete

 

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25 minutes ago, solarpete said:

Practically every other solar except FSLR is enjoying some kind of improvement in their business.

 

If you don't see improvement in First Solar's business I don't know what to tell you. The company has been undergoing two major transitions and remained profitable except for the settlement of an 8 year old litigation matter.

While the change from the small S4 to the S6 was much discussed, the shift away from systems business has largely gone under the radar. Going from a 70/30 systems/modules business to 30/70 (and what looks like 0/100 in the future) does things to revenue.

The biggest news in the earnings, though, seems to be that the company is still getting more than 30 cents/W in 2022, the year after the Trump tariffs expire. For 2021 the company will sell 8GW of modules for around 14 cents/W in profit.

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50 minutes ago, Luz del Norte said:

If you don't see improvement in First Solar's business I don't know what to tell you.

I think the results just released are telling you something--but you don't seem to be listening.

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9 minutes ago, solarpete said:

I think the results just released are telling you something--but you don't seem to be listening.

What exactly was so bad about those earnings? If you look at only the S6 you will see that is has similar margins to Enphase with more than double the revenue. Yet Enphase now has a larger market cap.

When FSLR gets out of the systems development business its earnings will stop being so erratic and start to be kind of boring.

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1 hour ago, Luz del Norte said:

If you don't see improvement in First Solar's business I don't know what to tell you. The company has been undergoing two major transitions and remained profitable except for the settlement of an 8 year old litigation matter.

While the change from the small S4 to the S6 was much discussed, the shift away from systems business has largely gone under the radar. Going from a 70/30 systems/modules business to 30/70 (and what looks like 0/100 in the future) does things to revenue.

The biggest news in the earnings, though, seems to be that the company is still getting more than 30 cents/W in 2022, the year after the Trump tariffs expire. For 2021 the company will sell 8GW of modules for around 14 cents/W in profit.

I do not think you can project the ASP in 2022 for FSLR regardless what they are suggesting.  

 

 

 

 

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5 hours ago, SCSolar said:

Kloth

From the con call they seem to indicate they had a $13M  or something like that impact on earnings from an Opt out. What is that and what does that pertain to? Is that a customer that decided to terminate the contract and First Solar had to pay back the deposits?

I read that as a separate impact related to the investors who opted out of the class-action lawsuit

5 hours ago, SCSolar said:

I also have a question on their ASP pricing and why they do not give. The company seemed to imply they are selling value. I interpret that as they are selling based on a power output generation as their modules generate 7% or so more power than others on a per watt rating.  Thus they get a premium ASP based on outputs of systems. At another point in the con call that suggested legal expenses for an under performing output.  It sounded to me like they are being sued regarding under performing outputs based on contracts and had legal expenses.  Am I hearing this tight? Does this leave them open for more exposure?

Didn't read that in-depth but I think that relates to a project where the customer is blocking the payment of the retainer because of some alleged performance issue.

The module performance guarantees of FSLR are industry standard and included in the data sheets.  They allow for a certain degradation of the STC flashed power rating of the module over the years.  No linkage to performance in the field.  So no, no more exposure.

5 hours ago, SCSolar said:

As far as guidance goes for 2020, backing out $0.50 in EPS  or more due to project carry over that fell out, it would seem they are making around $0.04-$0.05 Net income per watt shipped.  Or do you see it lower along the lines of $0.03?

Why should I see it lower?  If I do the math it comes up to roughly $0.05 per watt.

However I think given their Q4 fuc*up they are being extremely conservative with their 2020 guidance, they should reap a bit more than that.  If I do the math S6 came in above 30%GM in Q4, and that will only increase in 2020 as cost goes down.

 

 

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5 hours ago, SCSolar said:

This does not suggest robust earnings when the tariffs get removed in the next few years.

They have S6 at 21-22 cts (including shipping and warranty) and just laid out a path for 50% cost reduction until 2022.

In the words of Greta:  How dare you.

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2 hours ago, Luz del Norte said:

What exactly was so bad about those earnings?

How about the fact that THERE WEREN'T ANY??

OK, the loss is apparently due to a legal issue.  But even without it, they reported a yearly EPS of $1.48.  That's a far cry from the 4-5-6 or so I seem to remember from previous prognostications for FSLR from certain posters.

And that huge legal cost should be a GIANT red flag to any investor.  It's a sign the company is doing something SERIOUSLY wrong.  What EXACTLY is this liability?  How long will it continue?  How many more quarters will show losses?  Why didn't management see this coming?

All I'm saying is that right now, there is a LOT of money to be made in the solar sector.  I'm making some of it.  So are other posters here.  If you're not (and if you're a simple buy-and-hold investor in FSLR, unfortunately, you're not), you might want to investigate why.  If FSLR's operational results are so great, why are the earnings so small?  If it's because management can't get out of its own way, why do you think that will change in the future?

Given the overall surge in the entire solar sector, the bottom-line question each and every solar investor should be asking themselves is this:  If you can't make money in this market, when do you think you will?

All the best to you,

Solarpete

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5 hours ago, Klothilde said:

They have S6 at 21-22 cts (including shipping and warranty) and just laid out a path for 50% cost reduction until 2022.

In the words of Greta:  How dare you.

I do not see S6 at $0.21-$0.22 as of right now, I see it more at $0.24 with the S4 at $0.27

As far as the cost reductions go, that slide on Cost reductions is for their high production oversees manufacturing and  is willfully highly misleading from a graphical perspective. You can not  trust the block size ratios they are not proportionate for cost savings.

If you read the slide that has zero numbers associated and compare the proportion of savings to known costs,  the blocks are not representative of proportionate costs savings per step,.  Thus the appearance of 50% more in cost savings looking at the block at the start and at the end are not accurate for ratios.  It is a clear  willful misrepresentation.

You can validate this by looking at numbers. For example  the block for savings on shipping which will save 15% is the same as the glass material that will save 25%.  The glass and metals are far more expensive than the $0.025 shipping and warranty costs and therefore the block size can not be the same.  That to me indicates the blue line is a  target proportionate to the target costs of the initial 40% does not have an additional 50% cost reductions(aka 20% further for an aggregte 60% reduction.

 

The first green block for example is for efficiency increase. That suggests an increase in efficiency gain of 13.6%. That block however drives much of the gains in the future blocks and is not additive in cost reductions but is included in where they suggests costs are reduced.  So the $0.03 cost savings that that efficiency gains might be suggesting is actually included as how they are reducing other costs. 

The 30-35% better throughput just reduced depreciation and some plant overhead. Labor is still going to be similar. Nearly half that efficiency throughput is from gains of Wattage from the new sputtering processes. So you are looking at a penny to a penny and a half in savings from the throughput.

 

The 3% yield increase, is basically $0.00075 of a cost savings. That is not even 1/10th of a cent.

The 25% glass and metals savings is basically around $0.015-$0.02 guesstimate.

The 15% shipping, well that is mostly due to more efficient modules. That on a generous 3 cent shipping and insurance is 1/2 a cent.

 

Totals therefore 1.5+0.1+1.5+0.5=$0.036 in added savings by my estimates.

 

That is not a 50% more decrease off of the already suggested 13-14 cents.

That is more like a 25% decrease of the $0.13-$0.14 current decrease..

 

That places their target costs around $0.18 come 2021 for only the overseas production.

The high cost US capacity adds appx $0.01 to that cost. Thus the target cost for 2021 s more likely $0.19 or $0.02 below the target $0.21 costs of their high capacity overseas. That would be their suggested blended costs for 2022.

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5 hours ago, SCSolar said:

I do not see S6 at $0.21-$0.22 as of right now, I see it more at $0.24 with the S4 at $0.27

Well we know when it comes to First we tend to see things slightly different.

(From Q4 ER)
Module Rev = $661.4M
Module adj. GP ex ramp & shutdown cost = $174.8M
Module adj. GM = 26.4%
Module Vol. sold based on ASP of $0.34 = 1945MW
S4/S6 split = 500MW S4, 1445MW S6
CPW S4 = $0.30/W (based on 17%GM and $0.36/W backlog ASP @ dec 2018) see below*

CPW S6 resulting from the above = $0.233/W

Based on their indication of a 5% cost step down from Q3 to Q4 (Q4 2018 presentation) and given that Q4 S6 sales volume contains 800MW of modules produced in Q3 (Q3 con call) I assume a further 1.5 pennies cost reduction for a year end production cost exit rate of 21-22 cents.

Now regarding the cost reduction potential slide it goes without saying this is rough and not to scale, which they made explicit in writing and saying (see footnote on that slide).  Also my indication of 50% is meant rough.  The point is that FSLR is headed for a significant cost reduction over the next years.  This is in stark contrast to your repeating doomsday scenarios that imply steep cost reductions for the CNs and mostly flat costs for FSLR over the coming years.

I think you your calcs don't capture the compounding nature of the cost levers.  If efficiency gains save 14%, BOM reduction 30%, and yield increase 3%, then the compound effect is 0.86*0.7*0.97=0.58 or 42% cost savings.  Again, this is rough so no point in dissecting to the third decimal.

Based on a  21.5 cents S6 2019 exit  rate the above would bring them down to 12.5 cents exiting 2022.  Combining that with a 12GW backlog at an ASP of 34 cents I see very good prospects for the company going forward both in terms of competitiveness and profitability.  Who cares if they hit 14 cents and not 12.5, that doesn't change the picture.

 

*Mark Widmar, 2019 guidance call, Dec. 11 2018:
"...The other thing that we said is that we’re still selling through Series 4 and we are happy with the margin realization on Series 4. But again, we pointed to that to be in kind of the mid-teen – mid-to-upper teen, so that’s going to also say that, that number is below the 20% and that’s 2 gigawatts of our volume..."

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On 2/22/2020 at 1:43 AM, Klothilde said:

 

I think you your calcs don't capture the compounding nature of the cost levers.  If efficiency gains save 14%, BOM reduction 30%, and yield increase 3%, then the compound effect is 0.86*0.7*0.97=0.58 or 42% cost savings.  Again, this is rough so no point in dissecting to the third decimal.

 

To quote a line from  my favorite movie Joe Dirt, "Your got it all wrong".

 

I believe you are making  the classic mistake by suggesting that the cost savings from efficiency gains is additional to  the overall cost savings. The fact is the cost savings is inclusive of the gains being suggested. So lets look at  what each part of those gains are individually.

 

Yield increase - 

3% yield increase in 0.03*.24 = $0.007 cost savings.

if you have 95 modules built out of 100 with 5 scrapped and your average cost is $0.24, then you production cost to build 100 modules is 95*.24=$22.80.

Your yield improves to 98, so your cost is now $22.80/98 = $0.23265.

$0.24-$0.23265 = $0.006735 = $0.007.

 

BOM:(balance of materials)

The cost savings of BOM depends on what you suggest the BOM . They said it was predominately glass and metals. Thus it is suggestive of the what would be the equivalent of the module processing costs of cSi.  The module costs in most SI is sitting $0.08 these days or less. That includes labor and other costs. You are looking more like $0.06 for the glass and metals.

0.3 *$0.06 < $0.02. At best you looking at $0.024. if you use 8 cent BOM in the module process.

 

Shipping:

0.15*.02 = $0.0033

 

So you are looking at 

$0.007+$0.02+$0.0033= $0.02103

 

Remember  a  14% efficiency in inclusive in their numbers not additive.

It has no impact on Yield number

it is  almost half the cost savings embedded in the 30% BOM cost reductions

It is virtually all the savings in shipping costs(as expected)

 

 

 

 

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