First Solar (NASDAQ:FSLR) will release its Q1 earnings this quarter, which will be closely watched in light of the major subsidy cuts in European markets. While the company is expected to book big losses because of the closure of its manufacturing facility in Germany, we are looking at the impact of the changing industry conditions on the sale of First Solar’s thin film panels. The competition from Chinese manufacturers like Trina Solar (NYSE:TSL) has resulted in falling panel prices, impacting First Solar’s core panel manufacturing business. Revenues from the systems installations division should show robust growth in the last quarter.
First Solar has announced that it would reduce around 30% of its global workforce and close down its manufacturing facility in Germany. (See: Gloomy Outlook for Solar Panel Sales as Germany Cuts Support) The German government’s decision to reduce subsidies to the solar industry has had major repercussions on the industry as a whole.
Global panel demand is set to see an annual decline of 10% to fall to 24.8 Gigawatts (GW) in 2012 as major European markets cut back on support. Polysilicon based PV manufacturers have cut back on prices, hurting the cost advantage that thin panel manufacturers like First Solar enjoyed. (See: First Solar’s Downsizing Highlights Industry Challenges) In addition to lower support, the German government has also come out with new regulations on the use of arable for large scale solar installations, which could hurt First Solar’s systems installations business in the country.
With falling demand for panels, First Solar has reduced capacity by closing down its higher cost German facility. Panel manufacturing will now be confined to its plants in Malaysia and some of the production will come from its Arizona facility.
The company is focusing on its large scale systems installations business in the U.S. where it is currently involved with projects such as the Topaz project (550 MW) and the AV Solar Ranch One (230 MW). The company’s strategic shift to the installations business highlights the better margins in the business. Installations business is set to grow in the U.S. as major utilities companies take steps to invest in solar farms to take advantage of falling costs and to meet regulatory requirements promoting clean energy.
We will be revising our estimates for First Solar following the results. Our present estimate is at a significant premium to its current market price.