Summary:

The solar market outlook for2012 is rather gray to First Solar, which on Tuesday announced net losses, plans to idle production lines and a cut to its 2012 sales forecast.

First Solar cell record

The solar market outlook for 2012 seems rather gray for First Solar, which on Tuesday announced net losses, and plans to idle production lines and a cut to its 2012 sales forecast.

The company, which generated profits for the first three quarters of 2011, posted $413.1 million in net losses, or $4.78 per share, for the fourth quarter. The losses included a $393 million good-will impairment charge and $164 million for warranty claims (this was a result of poor-performing panels made during June 2008 and June 2009). Its earnings also took a hit because of the costs for restructuring its business in the past few months: it got rid of an R&D program for developing CIGS thin films and shrank production of its cadmium-telluride solar panels.

First Solar, which also develops solar power plants, generated $660 million in sales for the fourth quarter, up 8 percent from $610 million in the year-ago period. For the entire 2011, the company posted $2.8 billion in sales, up 8 percent from $2.6 billion 2010. It had expected a net income for 2011 when it issued a forecast last December, but is now recording $39.5 million in net losses for the year, compared with $664.2 million in net income for 2010.

Creating a master plan

The earnings reflected a poor end to a year when the company switched to survival mode as it dealt with a global solar market that saw a glut of solar panels and a collapse of their prices. Changes in government subsidies in key European markets such as Germany and Italy lowered demand during part of 2011, and the weak financial market and mounting government debt in Europe also depressed sales. Those factors have affected just about every solar manufacturer worldwide and led to shuttered factories, big layoffs and bankruptcies. Many of First Solar’s biggest rivals, such as Trina Solar and SunPower, have been losing money.

The public saw a rather abrupt departure of First Solar’s CEO Robert Gillette last October and the return of Mike Ahearn to be the interim chief executive. Ahearn helmed the company before Gillette’s arrival in 2009 and spent nearly 10 years building up First Solar to be an industry giant. Since Ahearn’s return, the company has announced a series of measures to cut costs: it decided to suspend an effort to bring online its new factory in Vietnam and, starting in March, it will idle half of its 500 MW German factory and put the 1,200 workers there on a part-time schedule for up to six months. It also opted to delay the commercial production at a planned, 250 MW factory in Mesa, Ariz. The company initially planned to start rolling out panels from the Mesa factory this year, but that plan is on hold until market demand returns.

During a conference call with analysts last December, Ahearn said he and his staff were working on a 3-year plan to move First Solar away from markets that depend heavily on government subsidies for installing solar energy equipment. Those subsidies, while lucrative at the start, also tend to fall quickly and sometimes expectedly because of economic downturns and changing political views.

The company was planning to discuss this 3-year plan on Tuesday but is now waiting  until May when it releases the next quarterly earnings. For 2012, the company now expects to generated $3.5 billion to $3.8 billion in sales, down from the previous forecast of $3.7 billion to $4 billion.

Looking for new frontiers

Perhaps the delay in revealing its long-term plan is triggered by uncertainties surrounding certain policy and market developments that could require it to modify its strategies yet again. Ahearn mentioned the German government announcement last week of a proposal to significantly shrink its program to subsidize solar equipment installation and to do so earlier than expected. For years Germany has been the largest market for solar manufacturers such as First Solar. The country produces more solar electricity than any other, and its subsidy program has spawned similar policies in other countries.

The proposal still requires the parliament’s approval, but Ahearn said even if the finalized plan is “less draconian,” the German market will unlikely grow as quickly as it has been in the past few years.

“The key to First Solar’s success is to develop new markets that do not depend on subsidies, and we believe we can do this by focusing on regions of the world where there are blessed with lot of sun and need for peak electricity,” Ahearn said. He and other First Solar executives have talked in earnest about exploring new markets in Asia, such as China and India, as well as the Middle East and “parts of Latin America” for the past year and a half (the company announced a big, potential project in China back in the fall of 2009).

Photos courtesy of First Solar

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