Summary:

Hunting for new markets has become a bigger priority for First Solar, whose executives sounded a cautious note about the market outlook on Thursday and reported declining sales and net income for the fourth quarter.

First Solar Beats on Revenue, Profit But Margins Slump

Hunting for new markets has become a priority for First Solar, company executives noted in its earnings report on Thursday. They also sounded a cautious note about outlook for 2011, and reported declining sales and net income for the fourth quarter.

The Tempe, Ariz. company generated $609.8 million in fourth-quarter sales, a 24-percent drop from the previous quarter and a 5-percent drop from the same quarter a year ago. Net income reached $155.9 million, a 12-percent decline from the previous quarter and a 10-percent rise from a year ago. Falling prices for its solar panels and revenues from its power plant development business contributed to the lower sales, the company said.

The company brought in $2.56 billion in sales for 2010, up 24 percent from 2009. Net income was $664.2 million for 2010, up 3.8 percent from 2009.

For 2011, the company expects to generate $3.7-$3.8 billion in sales and earnings of $9.25-$9.75 per share. The company is building new factories in the U.S. and Asia, so it expects to spend $60-$70 million for production startup costs and another $15-$20 million for bringing new factories into the full-production runs.

First Solar executives blended optimism with a note of caution for the 2011 market, which they believe will see a big growth in the first half and a less certain one in the second half. The boom will primarily be driven by deadlines for when several key European countries will lower their feed-in tariffs. Feed-in tariffs are government-set, above-market prices that utilities must pay

“We expect solid growth in the European markets for the first half of 2011 and tightened economics in the second half,” said CEO Robert Gillette during a call with analysts. “We are diversifying geographically and by segments.”

“Diversify” was a word repeated several times by Gillette and other executives on the call, and it underscored First Solar’s eagerness to establish itself in emerging markets before growth slows in Europe. India, China, Australia and the Middle East are the company’s targets. The company has trumpeted this strategy more loudly over the past year, and it isn’t alone in looking beyond Europe.

Germany has been First Solar’s biggest territory, but it will likely make up 30-35 percent of the company’s business, in terms of megawatts, in 2011 vs nearly 50 percent in 2010. Germany has long been the world’s largest market thanks to its feed-in tariff policy. Feed-in tariffs are designed to fall as the solar market grows and the costs of equipment and project development decline.

India, interestingly, has begun to present opportunities for First Solar. The country represented 1 percent of the company’s business in 2010, and that will likely climb to 8 percent in 2011, Gillette said. First Solar announced two solar panel supply agreements with Indian companies in recent months: 15MW to ACME Tele Power and 25MW to Moser Baer Clean Energy. The Indian government last year launched the National Solar Mission that aims to install 20GW by 2022. Several states within the country, such as Gujarat, also have their own incentive programs.

China once appeared to be opening up its market, but it hasn’t grown as fast as some companies and analysts have hoped. The Chinese government announced big plans to launch incentive plans in 2009, when the market looked like it was in the dump and many Chinese solar cell and panel makers were suffering. First Solar and the Chinese government in 2009 announced a plan to install 2GW of solar power in Inner Mongolia. The project has been delayed because of the time it’s taking to get government permits, and the company reported progress with building the first 30MW of that proposal last month.

In China, only state-owned companies can apply for and secure permits to build power plants, so First Solar has teamed up with China Guangdong Nuclear Solar Energy Development Co. for the Inner Mongolia project. “We are significantly increasing our market development to solve unique challenges for new markets,” Gillette said.

First Solar has been a long-time solar panel maker, but it entered the project development business in recent years and has built up an impressive 2.4 GW of project pipeline in North America. Those projects have contracts to sell electricity to utilities. The company is using these projects to boost sales of its solar panels and to hedge against fluctuating demand in Europe where, in addition to Germany, countries such as Italy and France also are considering cuts to their feed-in tariffs.

The company has bought project pipelines from several developers over the past two and a half years. It recently bought RayTracker, which designs mounting hardware to support and rotate the solar panels to follow the sun’s movement. Last month, the U.S. Department of Energy announced a loan guarantee of $967 million to help complete a 290MW project in Arizona. First Solar expects to finalize the loan guarantee as well as the sale of the project to NRG Energy by the end of the second quarter this year, Gillette said.

First Solar is looking for project development opportunities in Europe as well, said Jens Meyerhoff, who was the company’s chief financial officer and became the president of the project development group last year.

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