A hefty legal settlement and delays on multiple projects weighed down Q4 earnings for First Solar, the largest solar module manufacturer in the Western Hemisphere.
The 20-year-old company continued to expand production capacity for its Series 6 thin-film solar panels and has almost finished converting its remaining Series 4 factory lines. But after last year's choice to shed its engineering, procurement and construction (EPC) practice, First Solar is exploring a possible sale of its U.S. development business to streamline operations around the core expertise of technology and manufacturing.
CEO Mark Widmar said in an investor call Thursday that he was “disappointed” with the 2019 loss per share of $1.09 on a GAAP basis, with a $0.56 GAAP loss per share for Q4. That marked a change in fortune from a profitable third quarter, when First Solar posted net income of $30.6 million and GAAP earnings per share of $0.29.
Several forces pushed down the company’s earnings, the most dramatic being January’s announcement of a $350 million settlement with shareholders over a class-action suit filed in 2012. First Solar did not admit wrongdoing or liability in its handling of a product defect more than a decade ago. But, Widmar said, it was “prudent” to end the legal dispute and “focus on driving the business forward.”
Those litigation losses, however, registered as operating expenses for Q4 2019. Project sales in India and Japan also ran into delays, lowering revenue compared to guidance.
On the brighter side, Series 6 nameplate capacity bumped up to 5.5 gigawatts from 5.4 gigawatts in October. Daily megawatts produced increased 152 percent from December 2018 to December 2019, Widmar said. That metric is up 25 percent from October to February as well.
And, though the company buys some raw materials from China, it has not suffered any material impacts to its supply chain from the coronavirus-related COVID-19 outbreak there.
First Solar made 3.7 gigawatts of Series 6 panels for the year and shipped 5.4 gigawatts overall. Net bookings for the year totaled 6.1 gigawatts.
The company shut down a Series 4 factory in Malaysia to switch to Series 6 production, leaving just one Series 4 fab. That one is expected to end production of the older model in Q2.
In 2020, the company plans to produce 5.7 gigawatts of Series 6 modules; those products are effectively sold out through the year. Production will grow to 7.3 gigawatts or more in 2021 as the second Malaysia facility comes online.
Widmar teased a next-generation product, noting that he has “re-energized” First Solar’s advanced research team.
“While there is still tremendous headroom in our Series 6 platform, we continue to challenge ourselves on commercializing the next generation disruptive thin-film technology,” he said.
The writing's on the wall for development business
First Solar’s U.S. development business may not be part of the company much longer.
The company has been evaluating the long-term competitiveness of each of its core business units: modules, development and operations and maintenance.
“At our core, we are a technology and manufacturing company,” Widmar said. “Over time, we have added to this core competency in order to address unmet needs within the market, optimizing around and enabling delivery of our products and capturing an incremental profit pool.”
That’s why the module maker got involved in EPC work: In the early days of the market, it was a cost-effective way to get its core product into the field. Since then the EPC market has grown and become increasingly competitive, so First Solar decided last year to exit its in-house EPC business.
The development landscape has undergone a similar evolution. In the early days, developing in-house gave First Solar an early-mover advantage; it closed several hundred-megawatt deals, creating strong pull for its manufacturing efforts. These days, Widmar said, developers compete for smaller projects with tighter margins, and risk-adjusted returns have fallen.
To remain competitive, developers need to beef up skills in energy storage, power trading, complex offtake arrangements and asset ownership.
“For us to remain competitive in the long term, we would need to invest in enhancing our capabilities and offerings to the market to reflect this new development paradigm while maintaining a competitive cost structure,” Widmar said.
That puts the company in the position of funding module research and development and manufacturing upgrades or bolstering in-house development capabilities that replicate what other companies are already doing.
The path forward could be partnering with an entity that can invest more capital in the U.S. development business, or it could be selling it entirely, Widmar said.