FIRST SOLAR, INC. (NASDAQ:FSLR) filed Quarterly Report for the period ended 2009-07-31.



FIRST SOLAR INC. manufactures solar modules with an advanced thin film semiconductor process that significantly lowers solar electricity costs. By enabling clean renewable electricity at affordable prices First Solar provides an economic alternative to peak conventional electricity and the related fossil fuel dependence greenhouse gas emissions and peak time grid constraints. FIRST SOLAR, INC. has a market cap of $13.04 billion; its shares were traded at around $154.39 with a P/E ratio of 22.34 and P/S ratio of 10.46.

Highlight of Business Operations:

We face intense competition from manufacturers of crystalline silicon solar modules as well as other types of solar modules and photovoltaic systems. Solar module manufacturers compete with one another in several product performance attributes, including module cost-per-watt and levelized cost of electricity, meaning the net present value of total life cycle costs of the solar power project divided by the quantity of energy produced over the system life. We are one of the lowest cost module manufacturers in the solar industry, as evidenced by the further reduction in our average manufacturing cost per watt from $0.98 in the three months ended December 27, 2008 to $0.93 and $0.87 in the three months ended March 28, 2009 and June 27, 2009, respectively. This cost advantage is reflected in the price at which we sell our modules or fully integrated systems and enables our systems to compete favorably on the levelized cost of electricity generated by our systems. Our cost competitiveness is based on our proprietary technology, which provides lower cost from a continuous highly automated industrial manufacturing process, our scale and our operational excellence. In addition, our modules use approximately 1% of the amount of semiconductor material that is used to manufacture traditional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules. The current spot market price of polysilicon of approximately between $55 and $65 per kilogram (Kg) is at a level that enables us to remain one of the lowest cost module manufacturers in the solar industry. However, the timing and rate of decrease in the cost of silicon feedstock could lead to pricing pressure for solar modules. Although we are not a crystalline silicon module manufacturer, we estimate based on industry research and public disclosures of our competitors, that a $10 per Kg increase or decrease in the price of polysilicon could increase or decrease, respectively, our competitors manufacturing cost per watt by approximately $0.07 to $0.08. Given the lower conversion efficiency of our modules compared to crystalline silicon modules, there are higher balance-of-system costs associated with systems using our modules. Thus, to compete effectively on the basis of levelized cost of electricity our modules need to maintain a certain cost advantage per watt compared to crystalline silicon based modules. Our cost reduction roadmap anticipates manufacturing cost per watt reductions for our product of 10% per year. During the twelve months ended December 27, 2008 we reduced our manufacturing cost per watt by 12% from our cost per watt in the fourth quarter of fiscal 2007. In the first six months of 2009, we further reduced our manufacturing cost per watt by 11% from our cost per watt in the fourth quarter of fiscal 2008.Subsequent to June 27, 2009, in light of current market conditions, we began to develop plans for a new rebate program intended to address price constraints for customers installing modules in Germany. As part of this program, we intend to adjust our pricing policies as necessary to drive increased installations by our customers in our core (free field and commercial rooftop) markets in Germany. In structuring the rebate program, we expect to apply a discount to a best in class crystalline module benchmark price calculated by us. We expect to review the rebate periodically and adjust it upward or downward as appropriate. The rebate program will specify certain actions required to be taken by customers in order to utilize the rebates. Given that current market conditions could be temporary, we have limited the scope and duration of the rebate program and could relax or eliminate it if market conditions abate. Our Long Term Supply Contracts remain in effect and are not otherwise affected. As a result of this rebate program, we anticipate an impact on net sales for the remainder of fiscal 2009 in the range of approximately $40 million to $60 million (€30 million to €45 million at an assumed exchange rate of $1.26/€1.0). Such amount may vary depending on the extent to which these rebates are utilized by our customers, the benchmark levels, the exact duration of the program, foreign currency fluctuations and other factors. If competitive pressures, module oversupply or other market conditions continue, we may elect to enhance or broaden the rebate program further or take other actions that reduce module prices further. Any such price reductions will be limited to the levels and time periods necessary to achieve our installation objectives.With our acquisition of Turner Renewable Energy, LLC on November 30, 2007, we began accounting for a portion of our revenues using the percentage-of-completion method of accounting. Net sales for our solar power systems and project development business for the three and six months ended June 27, 2009 and June 28, 2008 were $5.4 million and $10.6 million, and $1.9 million and $5.0 million, respectively, and were not material to our consolidated results of operations.Deferred project costs represent uninstalled materials that we have procured for customer projects. We recognize these costs as deferred assets until we install the materials. Deferred project costs at June 27, 2009 and December 27, 2008 were $1.4 million and $0.7 million, respectively.Production start-up expense consists primarily of salaries and personnel-related costs and the cost of operating a production line before it has been qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase. It also includes all expenses related to the selection of a new site and the related legal and regulatory costs and the costs to maintain our plant replication program, to the extent we cannot capitalize these expenditures. We incurred production start-up expense of $32.5 million during the year ended December 27, 2008 in connection with the planning and preparation of our plants at the Malaysian manufacturing center. Production start-up expense for the six months ended June 27, 2009 was $8.7 million and related to plant four of our Malaysian manufacturing center and our Ohio plant expansion. In general, we expect production start-up expense per production line to be higher when we build an entirely new manufacturing facility compared with the addition of new production lines at an existing manufacturing facility, primarily due to the additional infrastructure investment required when building an entirely new facility. Over time, we expect production start-up expense to decline as a percentage of net sales and on a cost per watt basis as a result of economies of scale.The increase in our cost of sales was due to higher production and sales volumes, which resulted from the commencement of production at all of our four plants at our Malaysian manufacturing center. This increase in production and sales volume had the following effects: $65.0 million increase in direct material expense, $8.7 million increase in warranty expense and accruals for the costs of the end of life collection and recycling of our solar modules, $4.6 million increase in sales freight and other costs, and $27.1 million increase in manufacturing overhead costs. The increase in manufacturing overhead costs was due to a $7.3 million increase in salaries and personnel related expenses, including a $1.4 million increase in share-based compensation expense, due to increased headcount and additional share-based compensation awards, an $8.7 million increase in facility and related expenses and an $11.1 million increase in depreciation expense; in each case, primarily resulting from increased infrastructure associated with the build out of our Malaysian manufacturing center. Our average manufacturing cost per watt declined by $0.31 per watt, or 26%, from $1.18 in the three months ended June 28, 2008 to $0.87 in the three months ended June 27, 2009 and included $0.01 of non-cash stock based compensation.FSLR is in the portfolios of Lee Ainslie of Maverick Capital, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.