10-QPeriod: Q2 FY2011

FIRST SOLAR, INC. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:FSLR

Summary

First Solar, Inc. (FSLR) reported a decrease in net sales and net income for the second quarter and first six months of 2011 compared to the same periods in 2010. Net sales declined primarily due to a significant drop in module average selling prices, influenced by competitive pressures and a customer rebate program, partially offset by an increase in module volume sold. The company experienced a substantial increase in operating expenses, particularly in research and development and production start-up costs related to capacity expansions. Despite the revenue and profitability decline, First Solar continues to invest heavily in manufacturing capacity and technological advancement, evidenced by increased R&D spending and a rise in production start-up expenses for new facilities. The company's balance sheet shows a notable decrease in cash and cash equivalents, largely due to debt repayments and increased working capital needs, though liquidity is expected to be sufficient for the next 12 months. Investors should monitor the impact of declining average selling prices, increasing operating expenses, and the competitive landscape on future profitability.

Financial Highlights

56 data points
Beta

Revenue

$532.77M

36.6% Gross Margin

Net Income

$61.14M

11.5% Net Margin

EPS (Diluted)

$0.70

Total Assets

$4.94B

Cash & Equivalents

$357.48M

Free Cash Flow

-$424.00M

Financial Statements
Beta
Revenue$532.77M
Cost of Revenue$337.98M
Gross Profit$194.80M
R&D Expenses$33.10M
SG&A Expenses$86.87M
Operating Expenses$130.27M
Operating Income$64.53M
Interest Expense$0
Net Income$61.14M
EPS (Basic)$0.71
EPS (Diluted)$0.70
Shares Outstanding (Basic)86.16M
Shares Outstanding (Diluted)87.13M

Key Highlights

  • 1Net sales decreased by 9% year-over-year for the three months ended June 30, 2011, and by 5% for the six months ended June 30, 2011.
  • 2Gross profit margin declined significantly, from 48.3% in Q2 2010 to 36.6% in Q2 2011, driven by lower module average selling prices and increased costs.
  • 3Operating income saw a sharp decrease, falling 60% for the quarter and 45% for the first six months, largely due to lower gross profit and increased operating expenses.
  • 4Research and development expenses increased by 45% for the quarter and 41% for the six months, reflecting continued investment in product improvement.
  • 5Production start-up expenses surged by 350% for the quarter and 548% for the six months, indicating significant investment in new manufacturing capacity expansions.
  • 6Cash and cash equivalents decreased substantially from $765.7 million at year-end 2010 to $357.5 million at the end of Q2 2011, primarily due to debt repayments and increased working capital.
  • 7The company repurchased $114.3 million of long-term debt during the first six months of 2011.

Frequently Asked Questions

The primary reasons for the decline in First Solar's revenue and profitability are a significant decrease in module average selling prices, driven by competitive pressures and a customer rebate program, coupled with an increase in operating expenses, particularly in research and development and production start-up costs associated with manufacturing capacity expansions.

First Solar is addressing increased operating expenses and declining margins through several strategies. They are continuing to invest in research and development to improve module efficiency and reduce manufacturing costs per watt. The company is also focusing on expanding its manufacturing capacity, which it believes will lead to economies of scale and further cost reductions over time. Additionally, First Solar is developing its systems business to drive module throughput and diversify its revenue streams.

First Solar's cash and cash equivalents decreased significantly during the period, primarily due to debt repayments and increased working capital needs. However, the company believes its current cash reserves, cash flow from operations, credit facilities, and access to capital markets will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months. They also note that their expanding systems business may require increasing liquidity in the future.

First Solar operates in two segments: Components (solar modules) and Systems (complete solar power systems). The company views the Components segment as the core driver of profitability and cash flow, while the Systems segment is seen as an enabler to drive module throughput. The Systems segment is managed with the objective of achieving break-even results before income taxes. This segment reporting structure means that revenue and cost of sales for modules used within the Systems segment are recognized in the Components segment, impacting the reported segment results.