Understanding First Solar’s Business Model And Performance Across Key Segments

by Trefis Team
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First Solar (NASDAQ: FSLR) derives its revenue from two divisions (1) Photovoltaic Systems, and (2) Photovoltaic Modules, which are expected to contribute roughly $2.4 billion (73%) and $0.9 billion (27%), respectively, to its Total Revenue estimate of $3.3 billion for full-year 2019.

A] First Solar’s Business Model

  1. What Need Does It Serve?
    • Providing a cleaner, cheaper source of energy: First Solar manufactures and sells solar modules and photovoltaic (PV) solar systems. The need to shift toward cleaner, renewable sources of energy has never been more urgent, and First Solar provides a vast array of solar power solutions for commercial and residential purposes.
    • … while maintaining high conversion efficiency: First Solar’s Cadmium-telluride (Cd-Te) thin-film semiconductor technology has been outpacing the solar industry when it comes to panel efficiency gains. The Cd-Te technology has a higher theoretical upper limit for efficiency compared to silicon-based panels, and also helps cut manufacturing costs.
  2. Has Two Operating Segments-
    • Photovoltaic Solar systems: The systems business is responsible for providing complete PV solar power systems which includes project development, EPC (Engineering, Procurement and Construction) services, O&M (Operation and Maintenance) services, and project finance. These are sold directly to investor owned utilities, independent power developers and producers, industrial companies, and other system owners.
    • Photovoltaic Solar Modules: The components segment involves the design, manufacture, and sale of solar modules which convert sunlight into electricity. Customers include project developers, system integrators, and operators of renewable energy projects.
  3. What are the alternatives?
    • Photovoltaics and Solar Industry: The company faces intense competition from the likes of SunPower, Canadian Solar, Trina Solar, and Suntech Power in the solar energy segment.
  4. What is the basis of competition?
    • Competition is based on Price per Watt of the installed systems, the conversion efficiency, reliability, production capacity, and the Average Sales Price of the modules.

You can view the Trefis interactive dashboard – First Solar Revenue: How does First Solar make money? – You can modify our key drivers to arrive at your own estimates for the company’s revenue.

First Solar’s Total Revenue dropped 22.7% from $2.9 billion in 2016 to around $2.2 billion in 2018, but we expect it to grow to almost $3.7 billion by 2020, on the back of significantly stronger shipment numbers

Revenue growth of around $1.45 billion over two years to be driven by an $850 million growth for the systems division and around $600 million from modules sales

  1. The fall in revenue from 2016 to 2018 has been due to an overall fall in demand, which has now picked up since around Q4 ’18.
  2. Revenue dropped almost 23% over this period, as First Solar also scaled back on its solar shipments, which dropped from 3.1 GW in 2016 to about 2.7 GW in 2018.
  3. However, the company expects shipments for 2020 to be in the range of 5-5.5 GW, owing to strong demand for the new series 6 modules, which are cheaper and have a higher conversion efficiency than the previous series 4.
  4. This could drive up revenue to about $3.7 billion for FY ’20, which would be an almost 65% jump from 2018 numbers.

(A) Revenue from Photovoltaic Systems to increase almost 1.5x (by about $850 million) in the next two years, with its share of Total Revenue expected to be about 70% by 2020

  1. Tougher pricing conditions and a lower number of projects led to a decline in revenue from 2016 to 2018.
  2. We expect systems revenue to grow to almost $2.6 billion till 2020, and make up about 70% of the company’s revenue.
  3. This is due to a rapid increase in demand since Q4 ’18, and an increased efficiency in First Solar’s products.

(B) Revenue from Photovoltaic Modules to increase 2.2x (adding about $600 million) in the next two years, with its share of Total Revenue expected to be about 30% by 2020

  1. Revenue from this segment declined from about $680 million in 2016 to $500 million in 2018, but we expect it to grow to around $1.1 billion by 2020.
  2. This drop in revenue was due to the company scaling-down on its Series 4 module production, while ramping up Series 6 production capacity.
  3. Now that Series 6 modules are rolling out, we expect this segment to witness steady growth over the next few years.

According to First Solar Valuation by Trefis, we have a price estimate of $59 per share for FSLR’s stock.

 

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