What Are The Factors Behind First Solar Finally Turning An Operating Profit?

by Trefis Team
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First Solar’s (NASDAQ: FSLR) operating expenses have dropped significantly, from $3.47 billion in 2016 to $2.2 billion in 2018, primarily due to internal restructuring and a drop in cost of goods sold, due to a drop in revenue. First Solar’s revenue dropped from $2.9 billion in 2016 to $2.24 billion in 2018, as the company scaled back on its Series 4 modules, in order to ramp up production of Series 6 panels, which were launched earlier this year. Due to this switch, there was a high one-time restructuring cost (of around $800 million) at the end of FY ’16, and also a gradual increase in production start-up costs since 2016.

You can view the Trefis interactive dashboard – First Solar: Breakdown Of Operating Expenses – to better understand how the company’s operating expenses have moved over the years and what is causing this change.

Following is how each expense head has moved over the years. For more details of each expense please visit our interactive Dashboard on First Solar’s Operating Expenses:

  • Cost of goods sold, which comes to about 82.5% of total revenue, makes up the manufacturing costs of solar panels and modules. COGS as a percentage of revenue has risen from 78% in 2016 to 82.5% in 2018, but we expect this to drop to around 71.5% by 2020, as the new series 6 modules are more cost-efficient to manufacture.
  • Selling, general and administrative costs, which stand at around 7.9% of total revenue, include any marketing and selling expenses, advertising costs and the cost of distributing the products. We expect this metric to rise in absolute terms, to about $221.4 million by 2020, but make up just 6.1% of total revenue, due to the expected rise in Series 6 sales.
  • Research and development expenses make up almost 4% of total revenue, and have dropped from $124.8 million in 2016 to $84.5 million in 2018. Since the Series 6 modules have only been recently launched, we expect this metric to make up just 2.2% of total revenue going into 2020.
  • Production Start-up expenses, which make up around 4% of total revenue in 2018, include any costs involved in the production of new technology. This metric rose from $1 million in 2016 to $90.7 million in 2019, as First Solar ramped up its Series 6 module production. After rising a little in 2019, we expect this metric to drop to around $75 million by 2020.
  • Restructuring and asset impairment expenses were a major part of operating expenses in 2016, standing at about $818.8 million. This included restructuring and asset impairment costs for the company, that came in the form of making the shift from Series 4 production to production of the new, more efficient Series 6 panels.

 

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