What To Expect From First Solar In 2017?

by Trefis Team
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The year 2017 is likely to be a relatively challenging one for the global solar markets, amid further declines in panel pricing, weaker panel demand and project activity as well as regulatory uncertainties under the new U.S. Presidential Administration (related: What To Expect From The Solar Industry In 2017). First Solar (NASDAQ:FSLR), the largest U.S. solar equipment manufacturer, has been taking multiple steps to tackle the downturn, with plans to downsize its manufacturing operations and cut costs, while rethinking its product development pipeline. Below we provide a brief overview of what to expect from First Solar in 2017.

We have a $40 price estimate for First Solar, which represents a 20% premium over the current market price.

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Lower Manufacturing And Development Activity 

The price of solar panels declined by roughly 30% in the international markets through 2016, and First Solar expects ASPs to fall by another 9% this year. Panel demand is also expected to fall to about 69 GW in 2017 from about 74 GW in 2016, per GTM Research, driven partly by weaker installation targets in China. As a result of the declining market conditions, First Solar will scale down module production for 2017 to roughly 2.2 GW, compared to 3 GW in 2016, as it looks to take higher-cost production offline and make its components more cost competitive. The market for utility-scale solar is also expected to remain weak, amid competition from third-party developers and the possibility of multiple interest rate hikes by the Federal Reserve, which could drive up required rates of returns on projects and hurt pricing. First Solar just has four utility-scale projects due for substantial completion over 2017.

A Transitional Year On The Tech Front

While First Solar has made progress in improving its panel technology and efficiencies in recent years, we believe that 2017 could be a transitional year on the technology front. While the firm was initially slated to launch its Series 5 modules this year, addressing its long-standing peak power handicap, it decided to cancel the product and instead accelerate development of its next generation Series 6 module, which it now expects to be available by 2018. (related:Why First Solar Accelerated Series 6 Deployment) This could translate into a relatively slow year in terms of new product introductions and panel efficiency growth for First Solar’s current modules (Series 4), as it focuses on upgrading its manufacturing facilities for Series 6. The move to cancel the Series 5 will also mean that First Solar will have to compete without a high-capacity panel offering for another year.

Guidance For 2017

First Solar is projecting revenues of between $2.5 billion and $2.6 billion for 2017, marking a decline of about 10% at the mid-point versus its 2016 guidance. Gross margins are expected to drop to between 12.5% and 14.5%, amid panel pricing declines and potentially lower project sales. However, the firm is taking steps to stay in the black, laying off roughly 25% of its workforce, while reducing its operating expenditures by over 20% compared to 2016, to a mid-point of $290 million.

FSLR_2017_Guidance_1

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