Both PV manufacturing and project development are complicated businesses, and the reporting of revenue looks different for each on a quarterly basis.
While manufacturers tend to have steadier revenues linked to price trends, project development can be more profitable but such companies report very uneven results from quarter to quarter based on timing of project completion.
As a company whose business model is a mix of the two, First Solar’s Q2 results reflected the disadvantages of both. The company’s income was up only 4% year-over-year at $934 million, and more significantly it reported an operating margin of just under 1%, and a net income of only $13.4 million.
While for some solar companies remaining in the black in a difficult quarter would be an achievement, for First Solar this was the worst quarter in at least a year in terms of profitability.
These disappointing financials come despite a 39% year-over-year increase in production on a per-watt basis to 785 MW. This is due to a 100% capacity utilization, coupled with impressive efficiency increases. While there was no change from Q1, First Solar has brought up its fleet average conversion efficiency from 15.4% a year ago to 16.2% during Q2.
A few of the reasons for the drop in profitability are the company moving to a larger portion of less profitable module-only sales, although its systems business still represented 80% of revenues. Another factor is the uneven nature of recognizing revenue from project sales.
Additionally First Solar recognized $86 million in restructuring charges during the quarter, largely due to its decision to drop its TetraSun crystalline silicon venture, coupled with restructuring of its EPC division and its Skytron business. Together First Solar expects these actions to save it $60-80 million annually, but at a total cost of $105-120 million.
A bigger change at the company is the pending move to its Series 5 product, which involves stringing three of its Series 4 modules on twin steel rails, with a single electrical connection.
First Solar notes that this will increase the inherent efficiency of its product, estimating that the cost savings are the equivalent of 100 basis points. First Solar expects to convert its entire capacity over to Series 5 by the end of 2017, but only produce 1 GW of Series 5 that year.
First Solar CEO Mark Widmar notes that Series 5 is “relatively capex light”, as the Series 5 infrastructure augments but does not replace its existing lines. Eventually First Solar is planning to add new lines to produce its larger format Series 6, but the timing of that is uncertain
“We will continue to evaluate the business case around Series 6,” notes Widmar. “That will determine the timing of when we add capacity.”
Like the entire PV industry, First Solar is in a race to lower costs, as lower priced power purchase agreements are eating into the profitability of both modules and projects globally. The company says that in markets such as India it is being choosy about which projects to take on, due to “very aggressive pricing”.
However, Widmar also expressed confidence in meeting this challenge. While the company no longer releases cost-per-watt figures, it estimates that it has been bringing down costs by “mid-to-high teen” percentages on an annual basis.
An estimated 40% of First Solar’s potential bookings remain in the United States. Here it is emphasizing the growing community solar market, which the company estimates is seven times as large as the rooftop PV market.
In keeping with its practice of issuing press releases with positive news on the same day as less-than-ideal quarterly results, First Solar today announced that it had booked 121 MW-DC of community solar projects in the United States. Several of these projects totaling 41 MW-DC are currently under construction in partnership with M+W Energy, and others are expected to begin construction by the end of 2016.
And despite the slim profitability in Q2, First Solar predicts that the rest of the year will look better. The company has maintained its forecast of $3.8-4.0 billion in 2016 revenue, at a 5-7% operating margin.