First Solar Q3 Preview: Order Book, GE Partnership And Chinese Projects In Focus

First Solar (NASDAQ:FSLR), one of the world’s largest solar companies, is scheduled to report its Q3 2013 earnings on October 31. The company’s results have been somewhat mixed over the last few quarters, given the uneven revenue recognition from the systems business and fluctuating third party module sales. During the second quarter, revenues were down 32% sequentially to around $520 million, while net income dropped to around $33.6 million from about $59 million. ^[1] For this quarter, we expect revenues and earnings to improve on a sequential basis owing to the possibility of better revenue recognition from the projects business. Financial results aside, there are three key factors that we will be watching when the firm releases its earnings for the quarter.

Trefis has a $43 price estimate for First Solar which is roughly 17% below the current market price.

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1) Expanding The Project Order Book: First Solar’s systems business has been the driving force behind its performance over the last several quarters. While the company has been steadily building its portfolio of projects under development through a series of acquisitions from independent project developers, it has not seen a similar trend in terms of bookings. Although the company’s outlook for the systems business is positive, expecting it to drive total revenues to as high as $4.8 billion by 2015, most of this guidance comes from uncommitted projects. First Solar has also been executing its systems contracts at a faster pace than it has been adding new bookings. As of August 2013, the total backlog of bookings fell to 2.2 gigawatts (GW)  from around 2.6 GW in the beginning of the year. While this is somewhat concerning, the firm says that it is has been pursuing several new booking opportunities that amount to around 8 GW. The progress in translating these opportunities into new orders will be a critical factor to watch.

2) Progress On The GE Partnership: During the second quarter, the company announced a technology and commercial partnership with GE (NYSE:GE), under which First Solar will acquire GE’s cadmium telluride (Cd-Te) solar intellectual property and will also begin supplying solar panels to GE for its global deployments. We believe this deal could significantly expand First Solar’s panel shipments, since GE is the world’s largest supplier of power equipment and has relationships with major power plant developers and electric utilities across the world. We will be keen to hear the company’s progress in this collaboration during the conference call.

3) Status Of Chinese Projects: China is expected to become the world’s largest solar market in terms of volumes this year, but First Solar’s presence in this market remains rather limited. Although the company signed a memorandum of understanding with the Chinese government in 2009 to build a 2 GW solar plant in the Inner Mongolia region, the construction activity  never really took off. However, during the Q1 2013 conference call, management indicated that the first phase of this project, with a capacity of around 30 megawatts, was finally slated to begin construction during the third quarter of this year, subject to regulatory approvals. We believe that if these projects materialize as planned, they could give the company a much-needed boost in the Chinese market.

Trefis will be updating its model and price estimate for First Solar following the earnings release.

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1. First Solar Press Release [↩]