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Why First Solar might be loser in the long term

2 Comment

First Solar beat the estimates and the gudiance soundly as it prone to do leading to a major stock rally . The stock went up due to the bearish sentiment plus the large short interest on the stock.However there might be some reasons that the stock might be a relative loser  in the long term

1) Its inability to add capacity quickly – While c-Si companies can add capacity in as short a time as one quarter, it takes at least 1 year for First Solar to add its thin film lines.In the volatile sector this is a crucial part of

2) Slowing down in efficiency improvements – First Solar has cost cutting over the last year has been very slow compared to Chinese competitors like Trina Solar

3) High Operating Expenses and Stock compensation РChinese companies have very low operating expenses in the range of 10% while First Solar with its US management employees has typically  in the range of 20%. In the cut throat business , you have to cut that cost to remain competitive.Also paying $90-100 mm a year in stock compensation is a privilege for companies like Apple and Google in quasi monopolistic markets.

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

2 Responses so far | Have Your Say!

  1. outsider

    In the long term, all companies are doomed to maturity and flat rates of growth. and hence worth shorting. so one needs to be cautious about defining ‘long term’.

    Key here is FLSR has SG&A of 10% which is the norm with any growth industry. With their Gross Profit Margins at 50% I think they are highly efficient. I dont think any of the chinese competitors can compete with these numbers and hence their high valuation.

    it takes approx the same amount of time for C-si and FLSR to add capacity. The difference is because of turnkey operations, several C-Si companies can add capacity in parallel, while FLSR being a captive technology has to add factories sequentially.
    So their rate of growth is probably limited to $2-3B additional revenue per year

  2. Abhishek

    Good point , what I meant was a relative loser ,not a short ( have corrected it)

    Other points I disagree
    1) If you have a SG&A of 10% and lets say your competition does SG&A of 5% and cuts the prices you are at a disadvantage , look at Sunpower
    2) GM profile of FSLR has changed permanently . With increasing percentage of 5% GM Systems Business their GM are destined to go down much more
    3) Time taken by FSLR and c-Si companies is not the same.FSLR generally takes 9 months to set up capacity.For c-Si companies it can be as short as 1-2 months.