10-KPeriod: FY2012

FIRST SOLAR, INC. Annual Report, Year Ended Dec 31, 2012

Filed February 27, 2013For Securities:FSLR

Summary

First Solar, Inc.'s (FSLR) 2012 10-K filing reveals a significant strategic shift towards a 'systems' business model, aiming for greater profitability and reduced reliance on fluctuating module prices. While net sales increased by 22% year-over-year to $3.37 billion, driven by a substantial 165% surge in the systems segment, the components segment saw a concerning 39% decline in sales. This shift comes as the company faces intense competition and pricing pressure in the global solar module market, leading to a significant restructuring effort, including facility closures, and a substantial $469 million restructuring charge in 2012. The company's core strategy, the Long Term Strategic Plan (LTSP), focuses on expanding into 'sustainable markets' with less reliance on government support programs, targeting regions in the Americas, Asia, the Middle East, and Africa. Despite the overall net loss of $96.3 million in 2012, down from a loss of $39.5 million in 2011, the company highlights progress in its large-scale project pipeline and a continued focus on cost reduction in module manufacturing, achieving $0.73 per watt in 2012. Investors should closely monitor the execution of the LTSP and the company's ability to navigate the competitive landscape and pricing pressures in the solar industry.

Financial Highlights

58 data points
Beta

Revenue

$3.37B

25.3% Gross Margin

Net Income

-$96.34M

-2.9% Net Margin

EPS (Diluted)

$-1.11

Total Assets

$6.35B

Cash & Equivalents

$901.29M

Free Cash Flow

$382.98M

Financial Statements
Beta
Revenue$3.37B
Cost of Revenue$2.52B
Gross Profit$852.75M
R&D Expenses$132.46M
SG&A Expenses$280.93M
Operating Expenses$890.31M
Operating Income-$37.56M
Interest Expense$13.89M
Net Income-$96.34M
EPS (Basic)$-1.11
EPS (Diluted)$-1.11
Shares Outstanding (Basic)86.86M
Shares Outstanding (Diluted)86.86M

Key Highlights

  • 1First Solar reported a 22% increase in total net sales to $3.37 billion in 2012, primarily driven by a 165% surge in its Systems segment.
  • 2The Components segment experienced a significant 39% decrease in net sales, reflecting challenging market conditions and intense competition in the solar module market.
  • 3The company incurred a substantial $469.1 million in restructuring charges in 2012, linked to aligning operations with its Long Term Strategic Plan (LTSP) and closing manufacturing facilities.
  • 4First Solar's average manufacturing cost per watt improved to $0.73 in 2012, down from $0.75 in 2011, indicating progress in cost reduction efforts.
  • 5The company is executing a Long Term Strategic Plan (LTSP) to transition towards primarily 'sustainable markets' by 2016, focusing on regions with high solar resources and demand, and less reliance on government support.
  • 6Despite increased revenue, First Solar reported a net loss of $96.3 million in 2012, an increase from the $39.5 million net loss in 2011.
  • 7Key customers in both the components and systems segments included NRG Energy, Inc., Exelon Corporation, and MidAmerican Renewables, LLC, each accounting for over 10% of consolidated net sales.

Frequently Asked Questions

First Solar's primary strategic focus is outlined in its Long Term Strategic Plan (LTSP), which aims to transition the company towards operating in primarily 'sustainable opportunities' by the end of 2016. This involves focusing on geographic markets with a compelling need for mass-scale PV electricity and where solar solutions can compete directly with fossil fuels on a levelized cost of energy basis. The company is reallocating resources to regions like Latin America, Asia, the Middle East, and Africa.

In 2012, First Solar's Systems segment showed robust growth, with net sales increasing by 165%. This strong performance was offset by a significant 39% decline in net sales from the Components segment. This shift reflects a strategic move away from pure module manufacturing towards a more integrated systems approach to mitigate market volatility and pricing pressures.

The report highlights intense competition and pricing pressure in the solar module market, leading to a structural imbalance between supply and demand. This has resulted in declining average selling prices (ASPs) for modules. The company also incurred significant restructuring charges ($469.1 million in 2012) related to realigning its operations and closing facilities. Additionally, the reliance on government subsidies and economic incentives in various markets presents a risk, as changes or expirations of these programs could negatively impact demand and pricing.

First Solar has several large-scale projects under construction that are expected to contribute substantially to net sales, operating income, and cash flows through 2014. These include the Topaz Solar Farm (550 MW AC), Desert Sunlight Solar Farm (550 MW AC), Agua Caliente project (290 MW AC), and Antelope Valley Solar Ranch One (230 MW AC). The company notes that revenue recognition for these projects is not linear, and comparisons of period-over-period results may not be directly meaningful due to the timing of project completion and revenue recognition criteria.