First Solar Suffers A Setback On Panel Reliability Issues

-11.18%
Downside
182
Market
162
Trefis
FSLR: First Solar logo
FSLR
First Solar

First Solar (NASDAQ:FSLR) stock took a beating in last Friday’s trading, losing 11% of its value after an analyst from Avian Securities cut its rating on the stock, citing reliability issues concerning the company’s solar panels. The problem was said to be related to the junction box of some of the panels which could potentially cause fire or electric shocks. [1] First Solar shortly confirmed the issue, stating the defect affected about 232,000 panels manufactured between October 2008 and June 2009. The company said that it was working with its customers to repair or replace the faulty panels.

Implications for First Solar

The defect is believed to be more of a concern for rooftop panels rather than utility-scale solar fields. Replacement of roof mounted panels may prove to be more expensive for First Solar since it intends to bear the costs of removal and re-installation, in addition to the replacement costs. [2] It was not immediately clear as to what proportion of the defective panels were roof-mounted.

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For its part, First Solar has stated that repair or replacement of the defective panels will not have a significant impact on its annual earnings, and it added that the impact was considered in its earnings guidance released in August.

Even if the financial implications of the recall do not turn out to be significant, the incident can dent First Solar’s brand image mainly because it involves safety issues. As the world’s largest manufacturer of thin-film solar panels, First Solar has built a strong brand recognition with system integrators, utilities and project developers. The company is recognized as the cost leader in the solar industry with module manufacturing costs reported as low as 0.75/watt.

First Solar has experienced mechanical issues related to its panels even in the past, which raises questions about its manufacturing process. For the fourth quarter, the company reported a $164 million charge related to warranty payments for replacing equipment that caused power losses in certain panels. [1]

We have a price estimate of $22.13 for First Solar, which is about 10% ahead of its current market price.

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Notes:
  1. First Solar Slides On Concerns Of Product Reliability, Reuters [] []
  2. FSLR Off 10%: Avian Goes Negative, Co. Downplays Module Issue, Barrons []