Key Trends To Watch As First Solar Publishes Q3 Earnings

First Solar (NASDAQ:FSLR), the largest U.S. solar manufacturer, will publish its Q3 2016 earnings on November 2, reporting on a difficult quarter that is likely to have seen panel price declines and weak utility-scale contracting activity. Below we outline some of the key factors to watch when First Solar publishes earnings.

Trefis has a $50 price estimate for First Solar, which is about 20% ahead of the current market price.

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Systems Business

First Solar had about 1 GW of systems projects on which it was recognizing revenues as of June 30, 2016. We expect the earnings for the quarter to be driven primarily by revenue recognition on the 119 MW East Pecos solar project, the 175 MW Astoria Project and the 147 MW Taylor project. As of Q2 2016, the firm also had about 1.28 GW of utility-scale projects that were not yet sold or contracted, but it is unlikely that they will contribute to revenue for the quarter. There is a possibility that margins could also face some pressure during Q3, as the firm’s current projects have lower margins compared to legacy projects. Moreover, First Solar has also been increasing exposure to module-only sales (17% of total sales in Q2 2016, up from just about 2% in 2015) and this could also impact margins.

Contracting Activity 

Contracting activity for utility solar projects has been relatively weak amid a reduced urgency to sign new contracts post the extension of the investment tax credit in the United States and also due to increased competition in international markets. First Solar’s revenue backlog declined from $6.9 billion at the end of 2015 to about $6 billion as of August 3, 2016. First Solar’s project visibility for 2017 remains low, with the company looking to complete just about 1 GW worth of projects in 2017 compared to roughly 2.3 GW for 2016. We will be closely watching the firm’s progress in bolstering its pipeline during Q3. ^[1]

Technology Improvements 

First Solar has been investing in its Cd-Te panel technology, delivering significant improvements in terms of conversion efficiencies and manufacturing cost reductions. These improvements are becoming more important to First Solar, as it has abandoned its bet on silicon-based panels, instead choosing to focus on Cd-Te technology. Moreover, higher efficiencies will make the firm more competitive in an oversupplied market, where pricing has been trending lower. During Q2, average efficiencies rose by 80 bps year-over-year to 16.2%, while average best line efficiencies improved by 20 bps year-over-year to 16.4%. However, both metrics remained flat on a sequential basis. We will be watching for improvements on a sequential basis this quarter.

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1. First Solar Q2 Earnings Presentation [↩]