First Solar Company’s Management Report

Introduction

First Solar is an American energy solution company, which specializes in manufacturing and distributing grid-connected photovoltaic power plants, solar panels, and rigid modules constructed by thin-film technology. In 1990, Harold McMaster, who was actively working on experiments with solar energy, founded a company called Solar Cells. Because of the difficult financial situations throughout the years, it was later bought by True North Partners in 1999 and transformed into the leading provider of photovoltaic energy solutions known today as First Solar. The current CEO of the company is James Hughes, who assumed office on May 3, 2012. Recently, the company showed tremendous success in the solar industry, being ranked as number one of the top 500 solar contractors at the Solar Power World 2015 (“Awards and Recognition” par.2).

Economic sector

The company is known as one of the biggest contributors to the renewable energy division of the primary economic sector in the US. The majority of First Solar’s customer base is located in the North America, with investment-grade companies like Southern Company and NextEra Energy being the key customers.

Therefore, it comes as no surprise that the majority of First Solar’s projects is centered in the US. Desert Sunlight and Topaz are the two projects developed by First Solar that are able to produce the energy needed to power over 320000 houses in California. A large amount of the world’s photovoltaic power plants was manufactured and provided by First Solar. There are also numerous solar projects developed and installed by the company in North America, Europe, Middle East, North African, Asia, and Australia. The expending global reach of First Solar cannot be denied even by its competitors; as of now, 10 gigawatts of the company’s modules have been planted all over the globe.

Competitors

The renewable energy market is highly competitive in nature. Every company is trying to differentiate itself from another in order to compete with the electric power industry. The key to the worldwide success of First Solar was the cost-efficiency of its products. Also, the company has developed their own manufacturing technology that was different from others and, therefore, was kept in secret. However, despite being a recognizable brand among solar manufacturers, the efficiency of its products pales in comparison with that of First Solar’s main competitor, Sun Power (“First Solar: Proving Its Critics Wrong” par.5).

While First Solar’s costs were indeed considered as the lowest in the industry, the company still encountered competition from other solar companies, which set even lower costs for their products. Another reason why First Solar has so many competitors is the usage of cadmium-telluride used in their solar panels. These panels proved to be less efficient than the panels of Chinese solar companies (Bullis par.6).

When First Solar decided to extend their market to Japan in 2013, it was met with competition from Sun Power, which was actively selling its panels and making deals with Japanese investors. Sun Power panels were more efficient at converting sunlight as they were made from silicon. Besides, the competition from local manufacturers of solar panels like Toshiba, Panasonic, and Sharp could also be seen as an obstacle for First Solar. Current situation of First Solar is not nearly as bad as it was in 2012, but it still has to compete with Chinese manufacturers and companies who use crystalline silicon in their modules (Sun Power, JA Solar, Trina Solar, and Yingli Green Energy). First Solar also acknowledges competition from other thin-film module manufacturers.

Financials

According to the First Solar’s annual report for 2014, the company’s operating cash flows was 681 million dollars, with an ending cash balance of 2 billion dollars and net cash positing being 1.8 billion dollars. The total revenue at the end of 2014 comprised 3.39 billion dollars, with the total income before interest expenses being 429 million dollars. In the recent preliminary results of third quarter of 2015, First Solar’s net sales were 1.3 billion dollars, which is bigger than sales from the second quarter by 375 million dollars (“First Solar, Inc. Announces Preliminary Third Quarter 2015 Financial Results” par.3). Such results are explained by larger sales of third party modules, optimization of systems project costs, and an increase in systems revenue. Cash and marketable securities also increased by 34 million dollars, compared to the previous quarter, with the majority sales of the Desert Stateline project being responsible for it.

Mission statement

The mission statement of First Solar is “to create enduring value by enabling a world powered by clean, affordable solar energy” (First Solar, Inc. 5). While it does certainly sound in a crusade-like manner, nonetheless, the company does everything possible in order to match the reality with that statement. First Solar’s goal is to provide the world with the safe cost-efficient energy that will serve as a substitute for fossils and other means of conventional energy.

The company also dedicates a lot of attention to the safety of the environment. In order to reduce the dangerous emissions and the amount of waste, First Solar implemented a renewable cycle of all their products. Today, First Solar is considered as a global leader in the solar energy industry, with an impressive amount of awards for their projects, innovation, and project developing.

Strategy/Recent business decisions and directions

First Solar’s strategic objectives are defined by the following: reduction of solar energy costs to permissive levels, expansion of existing markets, moving away to non-subsidized markets, maintaining the position of the low-cost provider of solar energy, assuring the highest returns on invested capital, and improving the environment. The latter plays a large role in strategic decisions of the company.

First Solar has introduced a special collection and recycling program for their modules, which allows anyone who bought their products to return it at any given time. The company right now is the leader in PV power planting, showing great financial success and constantly innovating. It is also one of the few companies that has officially stated it is going to change according to the market conditions, which is rather surprising, considering First Solar’s position as a leader in the solar industry. The current success of the company can be explained by moving away from the strategy that First Solar and its competitors were exploiting for five years – building more factories.

After receiving subsequent loses in 2011 and 2012, First Solar decided to concentrate more on research, the purpose of which was to increase the efficiency of panels’ conversion of solar energy into electricity. Such intention was the step in the right direction, as previously First Solar’s panels were inferior to panels of its competitors in the efficiency department, mainly because of the material used in their products called cadmium telluride. The company still values costs as the decisive factor in their strategy.

The CEO of First Solar James Hughes said the following at the recent Edison Electric Institute meeting: “We recently did a strategic review of our business and asked, ‘What does it take to trigger demand? How do we gain competitive advantage over our competitors?’ The answer is cost” (Wesoff par.2). First Solar also seems to be willing to expand its array of products, as displayed by the company’s start of crystalline manufacturing in late 2014.

Recommendations

As of now, the company is doing great at maintaining its position as one of the biggest provider of PV power plants and the leader in thin-film technology. Despite having huge competition on the market, current results have shown that First Solar is more than capable enough of standing ground. By the end of second quarter of 2015, the total revenue of First Solar increased by 64.64%, while the competitors’ revenue decreased by 7.95%.

First Solar’s intent to focus more on utility-scale projects will be justified by reduction of the manufacturing costs. So far, financial results indicate that sales from projects are directly responsible for the current increase in First Solar’s net income, cash and marketable securities, which means it was a step in the right direction. However, in order to compete with other companies in the solar industry, First Solar needs to work on the efficiency of its products. Also, there are still markets like Latin America, Australia, and India, that are pretty undiscovered. The company will benefit greatly from expanding in those markets if there will be enough demand for solar energy solutions.

Works Cited

Awards and Recognition. n.d. Web.

Bullis, Kevin. What Happened to First Solar? 2012. Web.

First Solar, Inc. Announces Preliminary Third Quarter 2015 Financial Results. 2015. Web.

First Solar, Inc. First Solar Corporate Overview. 2015. Web.

First Solar: Proving Its Critics Wrong 2015. Web.

Wesoff, Eric. First Solar CEO: ‘By 2017, We’ll Be Under $1.00 per Watt Fully Installed’. 2015. Web.