First Solar, the vertically integrated solar power plant and module manufacturer, just announced deep layoffs, a disappointing 2017 guidance and an acceleration of its transition to the new Series 6 module. In a difficult business cycle for solar, one of the more conservative and effective PV manufacturing leaders is preparing for a rough spell in 2017 and 2018, despite raising its 2016 EPS guidance.

News of First Solar's restructuring sent its stock tumbling and required a halt in trading late yesterday. The stock price is currently down more than 4 percent today and down about 30 percent from its November 2 closing price.

The restructuring will eliminate approximately 1,600 jobs, more than 25 percent of First Solar's global headcount.

Accelerating rollout of the new PV module

First Solar is focusing on the accelerated transition to its new, larger solar module to reduce production costs, balance-of-system costs and soft costs.

According to CEO Mark Widmar, the transition to the new technology will "use existing manufacturing infrastructure." The current series 4 production will begin to be phased out later this year, but "will continue across our manufacturing lines over the course of 2017 and 2018."

The company said, "At launch, we expect the Series 6 module to have an efficiency of greater than 18 percent and exceed 420 watts per panel. When both the energy yield and efficiency advantages are taken together, we believe this will entitle Series 6 to a price benefit relative to market pricing of crystalline silicon whether multi or mono-PERC technologies," with a "manufacturing cost of approximately 40 percent lower than Series 4."

Module conversion efficiency on First Solar's best line averaged 16.6 percent this quarter, and the lead line exited the quarter at 16.9 percent. For historical context, in 2011 the company was at 11.6 percent efficiency and a cost per watt of $0.75.

First Solar will deploy new module production in its "existing Ohio and Malaysia factories" and is "considering using [its] factory in Vietnam that was constructed but never utilized." Full Series 6 production will start in 2018, with approximately 3 gigawatts of production expected in 2019.

Oppenheimer Equity believes that First Solar "is pursuing its best option by ramping Series 6," but notes that "significant uncertainty remains, particularly related to pricing." The equity analyst foresees module costs approaching $0.20 per watt in 2019. Baird views the acceleration of the Series 6 as positive and said First Solar’s balance sheet "continues to be best in industry."

A transition year 2017 guidance

The thin-film solar leader aims for 2017 GAAP results to range from a loss of $0.10 per share to earnings of $0.45 per share, and its adjusted 2017 EPS from breakeven to earnings of $0.50 per share. The 2017 profit guidance was well below consensus, as was the shipment outlook of 2.4 gigawatts to 2.6 gigawatts compared to analyst expectations of something closer to 3 gigawatts.

The firm guided 2017 net sales to be between $2.5 billion and $2.6 billion, with a gross margin percentage between 12.5 percent and 14.5 percent, both metrics below analyst consensus.

First Solar is trimming its 2020 sales goal for China, and notes that "lower demand in China in the second half of 2016 has been one of the key catalysts of the recent module pricing decline." The CEO noted that "pricing pressure has not only been on modules. We continue to see PPA pricing reach new lows, particularly in the international markets based on bids by developers that may prove to be uneconomical."

Management characterized 2017 as "a transition year for First Solar."

This isn't the first time First Solar has restructured (and rebounded) in recent memory. In 2012, First Solar closed its Frankfurt manufacturing facility and idled four production lines in Malaysia. The company slashed headcount by 2,000 positions -- about 30 percent of its workforce -- during that painful reset.

First Solar contended, "Beyond 2017, we are encouraged that we already have PPAs in place for projects totaling approximately 1.3 gigawatts (DC). In addition to this contracted pipeline, we have a late-stage pipeline in Japan of up to 200 megawatts."

The company reminded the analysts, "If you look at our track record of meeting efficiency targets and module cost work targets across 2013, ‘14 and ‘15, we have consistently met those goals. There is a very deep understanding of what it takes to transition...[and] improve these technologies, and we have shown a track record of being able to hit those targets. We are confident of being able to do that again in our transition to Series 6."


Thanks to SA for the call transcript.