Should Investors Be Concerned About First Solar’s New Bookings Decline?

by Trefis Team
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First Solar (NASDAQ:FSLR) recently posted a relatively tough set of Q2 2018 results, missing expectations on earnings and revenues, on account of costs associated with the ramp of its new generation modules and the postponement of some module and systems sales to the second half of this year. While these were somewhat transitory factors, the overall demand environment also appears to be weakening, with the company’s new bookings performance declining significantly compared to the last quarter.

We have created an interactive dashboard analysis on what to expect from First Solar for 2018. You can modify the key drivers to arrive at your own forecasts and valuation for the company.

Why Is The Solar Market Facing Headwinds? 

While First Solar booked a total of 3.3 GW of capacity from the beginning of the year through April 26, 2018, over the next three months, bookings declined significantly to just about 900 MW of capacity. The decline in demand was largely due to policy decisions in China, where the government indicated that it would be cutting its incentives for solar projects this year, in a move that will slash the country’s forecast capacity by 40%, to 28.8 GW from 48 GW this year. This could have significant repercussions for the global solar market, as China accounted for about 54% of global installations in 2017. The demand forecast cuts have caused manufacturers to reduce pricing for their products, dragging down ASPs both in China and some international markets.

First Solar Has Some Advantages In An Uncertain Market

While First Solar’s bookings have declined, the company’s backlog is large enough to ensure significant revenue stability and utilization rates in the medium term. As of July 26, the company’s future expected shipments stood at 10.9 GW, implying that close to 80% of its available manufacturing capacity was booked through 2020. First Solar should also be better poised to cope in a decreasing panel pricing environment. Although the company’s gross margins temporarily compressed due to start-up costs associated with its Series 6 ramp-up, margins should pick up over the long run, as the cost of production of Series 6 modules is as much as 40% below the company’s Series 4 modules. Capital expenditures relating to Series 6 module assembly are also well below the company’s legacy modules.

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