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First Solar, Inc. Strategic Analysis Report

By, Lauren Zahringer

Submitted to: Professor R. Garrett Bus. 403, Strategic Management Marymount Manhattan College

Zahringer, 2011 FSLR

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TABLE OF CONTENTS

Section I: Background Pg. 2 1.0 Company Bio... Pg. 2 1.1 Revenue & Operations. Pg. 2 -3 1.2 Systems & Components... Pg. 3 Section II: Strategic Goals. Pg. 3 2.0: Current Strategy. Pg. 3 2.1 Market Diversification Pg. 3-4 2.1.1 India.. Pg. 4 2.1.2 China. Pg. 4-5 2.2 Operations Expansion. Pg. 6 2.2.1 Mergers & Acquisitions Pg. 6-7 Section III: Current Assets. Pg. 7 3.0 Strategic Assets.. Pg. 7 3.1 Resources... Pg. 7 3.1.1 Tangible Resources.. Pg. 8-9 3.1.2 Intangible Resources Pg. 9 3.2 Capabilities. Pg. 10 3.3 Core Competencies Pg. 10-11 3.4 Section III conclusion Pg. 12 Section IV: Industry Environment Pg. 12 4.0 Five Forces Analysis Pg. 12 4.1 Nature of Competition Pg. 13 4.2 Supplier Power Pg. 14 4.3 Buyer Power Pg. 15 4.4 Barriers to Entry. Pg. 15 4.5 Threat of Substitution.. Pg. 15-16 Section V: External Environment Pg. 16 5.0 P.E.S.T. Analysis. Pg. 16-17 5.1 Political Factors Pg. 17 5.2 Economic Factors Pg. 17-18 5.3 Social Factors... Pg. 18-19 5.4 Technological Factors.. Pg. 19 Section VI: Current Position.. Pg. 20 6.0 Threats & Opportunities.. Pg. 20 6.1 Threats. Pg. 20-22 6.2 Opportunities... Pg. 22-23 Section VII: Strategic Recommendations. Pg. 23-26 Section VIII: Appendix.. Pg. 27-30 Section IX: Works Cited Pg. 30-31


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SECTION I

1.0 Company Bio

First Solar, Inc. (First Solar) manufactures and sells solar modules with an advanced thin film

semiconductor technology, and designs, constructs and sells photovoltaic (PV) solar power

systems. First Solars business operates in two segments: components segment and systems

segment. Components segment designs, manufactures and sells solar modules to solar project

developers and system integrators. The systems segment provides PV solar power systems for

commercial systems, which includes project development, engineering, procurement and

construction (EPC), operating and maintenance (O&M) services and, when required, project

finance.

The company was formed in 1999, and launched production of its first commercial

products in 2002. First Solar is the low-cost leader in the Photovoltaic Industry, and achieved the

lowest manufacturing cost per watt, breaking $1 per watt, in 2008. The company developed the

first comprehensive, prefunded module collection and recycling program in the PV industry, and

attained the smallest carbon footprint and fastest energy payback time of any PV technology on

the market, when measured on a life cycle basis. First Solar launched its IPO on November 17,

2006.

1.1 Foreign & Domestic Revenue and Operations

First solar has foreign and domestic operations. A majority of the companys revenue comes

from foreign operations, in particular Germany.


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1.2 Systems and Component Revenue

First Solars revenue is consistently increasing, as shown in the table below. The company has

grown is systems business significantly over the past few years, much of which can be attributed

to successful mergers and acquisitions. Nevertheless, the companys main business is its solar

modules, and this is the source of the great majority of First Solars revenue.

**All information accessed from FSLR annual report, 2010, pg.132

SECTION II

2.0 Strategic Goals

First Solar Inc. has a generic cost leadership and product differentiation strategy in the

semiconductor solar energy industry. The current strategic goals of First Solar are market

diversification and operations expansion.

2.1 Market Diversification

European markets for renewable energy products and services are expected to slowdown in

growth and tighten in spending in the second half of 2011, when European nations begin to cut

government backed incentive programs and feed-in tariffs. Outside of the United States, First

Solar currently has strong business in Germany and France. In order for First Solar to continue to

grow its foreign business and avoid the troubles of expanding operations and growing sales in

Europe, in the face of the expected decline in European markets, First Solar is geographically

diversifying overseas. Hunting for new markets is a priority. First Solar is eager to establish itself

in India, and China before growth slows in Europe (Reuters, 2010). The following discussion of


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First Solars market diversification focuses on the companys progress and future goals in India

and China.

2.1.1 India

State programs are gaining momentum in India. In 2010 the Indian government launched the

National Solar Mission that aims to install 20GW by 2022. First Solar has seized this opportunity

to develop its presence in India, and has skillfully established relationships with Indian

companies through contractual supply agreements. India represented 1 percent of First Solars

business in 2010 and is expected to grow to 8 percent in 2011 (Burkitt, 2011). First Solar has two

supply agreements with Indian companies: ACME Tele Power LTD and Moser Baer Clean

Energy Ltd (MBCEL).

ACME Tele Power LTD is an Indian technology company known for its heavy focus on

R&D, energy conservation, and renewable energy (First Solar, 2010). In December of 2010 First

Solar announced the signing of its agreement with ACME Tele Power Ltd. The agreement is for

First Solar to supply ACME with its advanced thin film modules for a 15MC solar power plant

in the state of Gujarat (Martin, 2010).

MBCEL is the solar subsidiary of Moser Baer Projects Private Limited and is engaged in

the development of power assets using conventional and non-conventional sources of energy

(First Solar, 2011). MBCEL has agreed to use 25MWp of First Solar modules in its solar power

generation projects, which include over 300 MWp of solar projects in Germany, Italy, the US,

Australia and India. First Solar announced the deal in a press release on February 14, 2011, and

stated that delivery of its solar panels is expected to take place by June 30, 2011.

2.1.2 China

In China First Solar has taken the same approach as it has in India, established key strategic

relationships for the long term. The difference is that in China only state-owned companies can


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apply for and secure permits to build power plants. Therefore these strategic partnerships and

agreements represent First Solars ability to overcome those barriers and enter the Chinese

market. Over the past year First Solar has solidified two advantageous partnerships in China, one

with Guangdong Nuclear and the second with China Power International New Energy.

In 2009 First Solar announced it is partnering with the Chinese government in a plan to

install 2 GW of solar power in Inner Mongolia. The project had been delayed because of the time

it was taking to get government permits. However, in a press release on January 5, 2011 First

Solar and Guangdong Nuclear announced the signing of a memorandum of understanding to

collaborate on the development of Phase 1 of the Inner Mongolia project. Under the terms of the

agreement the two companies will work together to execute the 30 MW AC first-phase

demonstration project. CGN SEDC will be the majority project owner and operator, meaning the

company will perform all engineering, procurement and construction for the project. First Solar

will supply advanced thin-film solar PV modules for the project and will also provide operations

and management advisory services. (First Solar, 2011; Burkitt, 2011)

As of May 2011, First Solar and China Power International New Energy (CPINE) signed

an international cooperation framework agreement. Under the terms of the agreement the two

companies will collaborate on solar photovoltaic (PV) projects in China, the United States and

other international markets (First Solar, 2011). The agreement benefits both that First Solar and

CPINE. Under the terms of the agreement, First Solar and CPINE will initially explore

collaboration on solar PV projects in China and identify project investment opportunities for

CPINE in the U.S. and other global solar markets. The agreement opens up many opportunities

for First Solar to establish its presence in China and leverage CPINEs role as a leading

renewable energy developer in China, including CPINEs planned 2 GW of solar in China by

2020 (First Solar, 2011).


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2.2 Operations Expansion

In addition to focusing on market diversification Fist Solar is also focused on increasing

production and expanding capacity which will both drive the firms growth and reduce costs.

(Burkitt, 2010) First Solar is focused on expanding operations beyond the production of solar

panels into the design, construction and operation of solar installations and is achieving its goal

to expand into power-plant development via expansion of existing plants, development of new

manufacturing plants, and acquisitions.

First Solars recent capacity additions in 2010 included eight lines at its Kulim, Malaysia

facility, four lines in Frankfurt an der Oder, Germany, two lines in Blanquefort, France and an

expansion of its Perrysburg, Ohio, manufacturing plant. In addition to these recent expansions,

First Solar is currently building two new four-line manufacturing plants in the United States and

Vietnam to be completed in 2012. (First Solar, 2010) These two new manufacturing plants will

boost the company's annual manufacturing capacity by nearly 500 MW. In sum these two new

plants along with the other recent expansions will nearly double production capacity from 1.4

GW in 2010 to more than 2.7 GW in 2012 (Kho, 2010). In the 4th Quarter earnings call Rob

Gilette, First Solar CEO shared with analysts that "These expansions provide proximity to

growing demand while supporting our roadmap to drive down the cost of clean, sustainable solar

electricity."

2.2.1 Mergers & Acquisitions

First Solars recent acquisitions include RayTracker Inc., OptiSolar Inc., and NextLight

Renewable Power. (Reuters, 2010) On January 7, 2011 First Solar acquired RayTracker, Inc., a

tracking technology and photovoltaic (PV) balance-of-systems firm, which brings expertise in

solar technology innovation, reliability engineering, advanced PV system modeling, software

engineering, product development and high-volume manufacturing to First Solar. (First Solar,

2010)


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First Solar has made many acquisitions to increase its presence in the U.S. market. In July

of 2010 First Solar acquired NextLight Renewable Power, LLC, a solar development firm

formed by the inaugural fund of Energy Capital Partners, a private equity firm focused on

investing in North America's energy infrastructure. With the NextLight acquisition, First Solar

now has power purchase agreements for 2.2 gigawatts of utility-scale solar projects in North

America. (First Solar, 2010) The acquisition of NextLight was another strategic step in First

Solar's expansion in the U.S. utility-scale power market, which began in 2007 with the

acquisition of Turner Renewable Energy and continued with the acquisitions of solar project

pipelines from OptiSolar in 2009 and Edison Mission Group in 2010.

SECTION III

3.0 Strategic Assets

This section examines First Solars competitive advantage as strategic assets through the

resources-based model of the firm. This inside-out approach defines the organization as made of

resources and capabilities, which can be configured to provide it with competitive advantage.

This section will analyze First Solars strategy through the resources based model of analyses in

the following order: Resources, tangible and intangible, Distinctive Capabilities and Core

Competencies.

3.1 Resources

Resources in and of themselves confer no value. It is only when resources are put to some

productive use that value follows. This analysis defines resources by two categories: tangible and

intangible. First Solars tangible resources include financial, physical, organizational and human

resources. Intangible resources include intellectual and technological resources.


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3.1.1 Tangible Resources

Financial Resources

A companys financial resources concern its ability to finance its chosen strategy and operations.

Three types of financial resources to be considered are First Solars financial strength,

profitability and cash balance. Financial strength looks at business risk. From a financial

standpoint the stronger a company is the less risky it is. The current ratio, which compares total

current assets to total current liabilities, is a measurement of a companys overall risk and

therefore, its financial strength. First Solars most recent quarter, 4th Quarter 2010, Current Ratio

was 3.53 with an average over three years of 3.53 (Reuters, 2010). The current ratio must be

greater than or equal to 2, which means that the company holds current assets equal to twice the

amount of current liabilities. First Solar meets this criterion. Companies that meet this criterion

are typically financially secure and defensive. The Gross Margin ratio is a measure a companys

overall profitability. The Gross Margin value measures the percent of revenue left after paying

all direct production expenses. First Solars trailing twelve month Gross Margin is 44.16%, with

an average over three years of 49.42% (Reuters, 2010). The companys total cash assets as of 4th

Quarter 2010 were $933.58 million (Reuters, 2010).

Physical Resources

Physical resources include manufacturing plants, and solar panel products. The company

currently has four state-of-the-art manufacturing plants: one in Ohio, United States; one in

Frankfurt, Germany; and two in Kulim, Malaysia (Nelson, 2011). First Solar has two

photovoltaic modules, FS Series 2 PV Module, and FS Series 3 PV Modules (First Solar 10-k,

2010).


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Human Resources

First Solars human resources include its executive management, board of directors and

employees. Executive management includes Rob Gillette, Chief Executive Officer, TK

Kallenbach, President of Components Business Group, Mark Widmar, Chief Financial Officer,

Bruce Sohn, President of Sales and Marketing, and David Eaglesham, Chief Technology Officer.

First Solar is dependent upon the services of these individuals and others who are part of the

senior management. First Solar is 6,100 employees (first solar, 2010). Plant managers, such as

Todd Spangler, Toledo plant manager, are an integral part of First Solars daily operations

structure (Murphy, 2010).

3.1.2 Intangible Resources

Technological/Intellectual Resources

First Solars intellectual property resources are those aspects of their technology, designs and

methodologies, and processes that provide significant advantages of differentiation from

competitors. Technological resources include the companys advanced thin film semiconductor

technology (hoovers, 2010). First Solar relies on a combination of patents, trademarks and trade

secrets, as well as employee and third party confidentiality agreements to safeguard their

intellectual property. Within the United States the company currently holds 33 patents, with

expirations between 2011 and 2023, and has 19 patent applications pending. In foreign

jurisdictions, First Solar holds 17 patents and has over 30 patent applications pending. As of June

30, 2007 First Solar held two trademarks, First Solar and First Solar and Design in the U.S.

and has registered First Solar and Design mark in China, Japan, India, and the European Union

(Murphy, 2010).


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3.2 Capabilities

Financial

First Solar has three distinct financial and management capabilities. First the firms good cash

balance is indicative of its capability to develop new technologies and weather any

supply/demand fluctuations better than competitors. Second, the firms financial strength, low

risk, makes its capable of attracting capital investment. Third, First Solars good R.O.A. shows

the capability of the firms human resources to effectively manage the company.

Operations and Manufacturing

First Solar has manufacturing and operational capabilities of project development; engineering,

procurement and construction services; operating and maintenance services; and project finance

(Murphy, 2010). The business operates in two segments: components segment and systems

segment, each of which has distinct capabilities. Within the Components Segment of operations

the business is capable of designing, manufacturing and selling solar modules to solar project

developers and system integrators. The systems segment of operations is provides PV solar

power system for commercial systems, and includes project development, engineering,

procurement and construction, operating and maintenance services, and when required is also

capable of project finance. First Solar currently has a 2000 Mega Watts manufacturing capacity

(Murphy, 2010).

3.3 Core Competencies

First Solars current strategic goals are to enter markets rapidly, further reduce manufacturing

cost, and increase sellable watts per module. The following core competencies, along with the

aforementioned resources and capabilities, align the company towards its goals. Distinctive core

competencies are a cluster of attributes possessed by an organization. The collection of these

strategic capabilities provides the platform for competitive advantage. The core competencies


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that enable First Solar to realize a sustainable competitive advantage include: low-cost

production, continuous and scalable production, replicable production, and long term supply

contracts.

Low-Cost Production

First Solar is able to produce its solar modules at the lowest-cost per watt. This gives is a

significant competitive advantage since the firm competes in a commodities market driven solely

by price. Relatively low barriers to entry in the manufacture of silicon modules have created

overcapacity and, in turn, oversupply, enabling the company to further leverage this downward

pressure for its low cost production (First Solar I.P.O., 2007).

Production

With continuous and scalable production, First Solar is capable of manufacturing its solar models

on high-throughput production lines that complete all manufacturing steps, from semiconductor

deposition to final assembly and testing, in an automated, proprietary, continuous process (First

Solar I.P.O., 2007). First Solar has replicable production facilities (First Solar I.P.O., 2007),

meaning that the streamlined production process is easy to replicate, allowing First Solar to

efficiently respond to increase in demand.

Long-Term Supply Contracts

Pre-sold capacity through Long Term Supply Contracts provides First Solar with predictable net

sales and enables the company to realize economies of scale from capacity expansions quickly.

By pre-selling the solar modules to be produced on future production lines, First Solar minimizes

the customer demand risk of its rapid expansion plans (First Solar I.P.O., 2007).


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3.4 Conclusion

The resource-based theory of the firm audits a companys competitive advantage its ability to

achieve a sustainable strategic advantage based on its internal resources, capabilities, and

differentiating core competencies. In the case of First Solar, Inc. its most salient resources

include financial strength, management effectiveness, and physical manufacturing plants, and

products. These resources are leveraged by the companys capabilities, and in turn enable First

Solar to create profit. However, much of First Solars growth has been dependent upon

international government subsidies, which, in addition to its lowest cost-per-watt production,

have further enabled First Solar to enter markets at substantially lower costs to customers. The

companys investments in research and development have contributed to the success of its third-

generation solar cell. Nevertheless, to ensure continued growth in sales, it is recommended that

First Solar utilize its human resources for aggressive lobbying so that the company can ensure

that its products receive the most subsidies, especially in countries of current business, such as

Germany and the United States.

SECTION IV

4.0 Industry: Five Forces Analysis

Porter's five-forces model considers five competitive forces that in sum gauge the profitability

and competition of a business within its industry. In order to evaluate the overall balance of

power in First Solars business position and understand the competitive intensity of the

Photovoltaic (PV) thin film industry, this section uses Porters model to identify and assess the

dynamic elements at play within each force. The table above is a breakdown of the importance of

each force in determining First Solars long-term profitability. It is critical that First Solar has the

ability to successfully compete against and manage those forces with high strategic significance,

as they are the most threatening to the success of the business.


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4.1 Competition

First Solar, Inc. operates in the semiconductor- specialized industry, and competes with a number

of firms in the solar PV market, and solar energy market. The solar PV market is competitive and

rapidly evolving. The worldwide market for solar energy is growing at an annual growth rate

exceeding 30% (EuPD Research, 2008).

Attracted by various subsidies being provided by governments to promote renewable

energy, many new firms are entering this industry and established big industry players in the

traditional energy business are diversifying into renewable energy. First Solar faces direct

competition from various domestic and international firms. The most direct competitor is

Suntech (yahoo, finance). These competitors have access to greater financial, technical, human,

marketing, purchasing or other resources, which enable them react more quickly to new or

emerging technologies or changes in customer requirements. First Solars failure to sustain

competition could result in price reductions, reduced margins, or loss of market share.

Another factor contributing to the intense industry rivalry in the lack of product

differentiation (EuPD Research, 2008). Solar energy products have different cost structures and

efficiency ratings, but it is easy to calculate the amount of energy per dollar made in an

investment. As a commodities market determined by price, the industry is driven to providing

low-cost, high output solar products, rather than on cultural or superficial aspects of the product.

As the market matures, other factors such as product lifecycle and performance may become

more significant as more products have been tested in the market place. Additional competition

arises from companies that currently offer or are developing other renewable technologies, such

as wind, or geothermal, and other power generation sources that burn conventional fossil fuels.

This threat will be discussed further under the threat of substitute products.


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4.2 Supplier Power

Supplier power is determined by how easy it is for suppliers to drive up prices and is driven by

factors such as the number of suppliers of each key input, the uniqueness of their product or

service, and the cost of switching from one to another. Overall the fewer the supplier choices a

business has, and the greater the business need for suppliers' help, the more power suppliers

could have over price and in any contractual agreements.

First Solar uses approximately 30 types of raw materials and components to construct a

complete solar module. One critical raw material critical for production is cadmium telluride. Of

the other raw materials and components used for production the following eight are also critical:

front glass coated with thermal conductive oxide, cadmium sulphide, photo resist laminate,

tempered black glass, cord plate/cord plate cap, lead wire and solar connectors. First Solar

purchases raw materials from a small number of suppliers, and most of the companys critical

materials or components are either single sourced or supplied by a limited number of suppliers.

The limited number of suppliers and critical importance of the materials supplied by them poses

the threat of power where suppliers could increase prices. (First Solar 10-K, 2010)

Most First Solars suppliers are small companies and the company gets supply of these

raw materials from numerous suppliers on purchase order basis and does not enter into any long-

term contracts (First Solar 10-K, 2010). First Solar has maintained good relationships with its

suppliers but with demand rising and supply declining the company may face shortage for raw

materials. Since the companys supplies are on purchase order basis and it does not enter into

any long-term contracts. In addition to raw materials and components for production, much of

First Solars manufacturing equipment is customized and sole sourced (First Solar 10-K, 2010).

If manufacturing equipment fails, or if equipment suppliers fail to perform under their contracts,

First Solar could face production disruptions and be unable to satisfy their contractual

agreements.


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4.3 Buyer Power

Buyer power in the industry for solar energy is relatively strong. In the solar sector the products

are primarily differentiated on the basis of its cost/watt efficiency, which enables buyers to be

very discriminant (Balayan et Al., 2009). First Solar has significant marketing, distribution and

manufacturing operations both within and outside the United States. First Solars substantial

international customer base subjects the company to a number of risks including unfavorable

political, regulatory, and tax conditions in the foreign countries of their customer base. A major

risk the firm faces is that it currently depends on a limited number of customers, with three

customers accounting for the majority of the module net sales. Even though First Solars long

term supply contracts maintain power on the side of the company rather than for buyers, once

current contracts run out, buyer power will most likely be significantly higher, as the renewable

energy market will have further developed, and this could adversely impact profit and sales for

the business when renewing or establishing new customer contracts.

4.4 Barriers to New Entry

There are several barriers to entry in the solar power industry. One of the main barriers to entry

is the vast amount of research and development required to be able to manufacture a competitive

technology at a competitive price (Balayan et Al., 2009). Government and cultural interest in

green technology and renewable energy make the solar sector attractive to new firms; however as

many governments, such as Germany and France, begin cutting back attractive subsidies and

incentives, the cost to enter the industry will rise, and may become a less attractive venture for

new companies (Harlin, 2011).

4.5 Threat of Substitution

First Solar faces intense competition from manufacturers of crystalline silicon solar modules,

thin-film solar modules, and solar thermal and concentrated PV systems. The thin-film solar


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panel industry has several substitutes including silicone based photovoltaic cells and other types

of photovoltaic cells, and other types of renewable energy (First Solar, 10-k). The company

could be affected by the increasing popularity of other renewable generation technologies.

The market for fuel cells is rapidly evolving and new technologies are being developed

using fuel cells to produce lower carbon emissions and generate high levels of electricity

(Anderson et al). The hydrogen fuel cell based on natural gas is becoming economically

attractive in small-scale power generation applications and transportation sectors (Anderson et

al). It is projected that the market for these fuel cells would emerge as a new source of

distributed power after 2020 (Anderson et al). This kind of technology, which typically has a

lower upfront cost, is currently gaining preference, may lower the demand for the company's

products and services. Besides, continuous research and development in these technologies could

result in novel and efficient technologies that could adversely affect the First Solars business.

SECTION V

5.0 External Environment

This section applies the P.E.S.T. analysis framework in order to understand the macro

environment and considers the renewable energy industry as a whole within the current political,

economic, social and technological landscape.

5.1 Political Factors

The future will be shaped not only by competitive economic growth but also by potentially

disruptive scarcities and the consequences of human induced climate change. Political responses

to this reality have included new policies, legislature, and tax incentives promoting the growth of

and investment in renewable energy in order to reduce green house gas emissions. Tax credits

and incentives strengthen the ability of renewable energy companies to be successful by cutting

the costs of operations.


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Recent political developments and legislature in the United States include the Solar

America Initiative (SAI), the Energy Improvement Extension Act and Emergency Economic

Stabilization Act of 2008, and the American Recovery and Reinvestment Tax Act of 2009. (IEA,

2010) In early 2006 President Bush launched the SAI with the goal of making solar electricity

cost-competitive with conventional forms of electricity by 2015 (IEA, 2010). The Energy

Improvement extension Act and the Emergency Economic Stabilization Act of 2008 extended

existing tax credits for renewable energy initiatives (IEA, 2010). The American Recovery and

Reinvestment Tax Act of 2009 stated that onsite renewables are eligible for a tax incentive equal

to 30% of the initial cost. (IEA, 2010)

Overall aforementioned federal initiatives have been put in place to help foster the

growth and development of the Solar Energy industry, and positively impact First Solar, Inc. In

addition to government incentives, regulations for mitigating climate change and reducing green

house gas emissions, are defining features in the political landscape. Under the Clean Air Act the

U.S. government defined clean air standards specified the percentage of energy use that must

come from renewable sources (IEA, 2010) which has bolstered the demand for renewable energy

technology and changing societal practices. Nevertheless, the invisible hand feeding the success

of political action is economic stability, and strength, without which good intentioned policies

and legislature fall to the wayside.

5.2 Economic Factors

Macro economic factors that impact the renewable energy industry are the overall state of

the economy, economic growth, and stability. The economic recession of 2008 was detrimental

to the growth of the renewable energies industry. Indicators of the overall macroeconomic

condition and economic functioning include GDP, unemployment rates, and price indices.

According to the United States Bureau of Economic Analysis Real GDP increased 2.9 percent in

2010 in contrast to the decrease of 2.6 percent in 2009. (B.E.A., 2011) According to the United


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States Bureau of labor statistics the unemployment rate is slowly falling, and as of March 2011

the national unemployment rate is 8.8 percent, down from 9.6 percent in 2010 (B.L.S., 2011),

and a recent economic news release stated that the consumer price index increased 0.5 percent in

March, 2011, and that over the last 12 months, the all items index increased 2.7 percent. (B.L.S.,

2011) In addition, the release summarized that Gasoline and food prices continued to rise and

together accounted for almost three quarters of the all items increase in March. Economic facts,

such as the gasoline indexs ninth consecutive increase totally a 14.4 percent increase over the

past three months (B.L.S., 2011), bolster support for renewable energies.

5.3 Social Factors

Social factors of the external environment include cultural aspects such as growing

environmental awareness, population growth, and the benefits of renewable energy. There are

two overall forces in the social environment that are influencing the growth of the renewable

energy industry: increasing environmental concerns and increasing energy demand. Growing

environmental awareness which is defined as the increasing knowledge and understanding of the

finite nature of many of the worlds resources, the negative impact and contribution to climate

change from burning fossil fuels and deforestation, and the impact of global warming on bio

diversity, and the stability of delicate ecosystems, have lead to increasing environmental

concerns.

In the U.S. trends and changes such as going green, sustainable development concerned

with renewable energy, and an increase in climate change relevant documentaries and television

programming, in sum conclude that environmental awareness is growing and therefore

consumers, whether individuals or corporations, are becoming more educated and aware of how

human and economic activity affect the environment which bolsters societal interest in

renewable energy. Many of the consumer residential trends in solar panel installation have been

supported by government-backed rebates.


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The world population is increasing, while simultaneously many less developed countries

are begging to develop at a rapid rate. As the world population grows, the number of energy

consumers grows. Fossil fuels are finite, and therefore, as demand increases whilst supply

continues to decrease, the price of gasoline continues the rise, sending a shock wave through

society. This is exacerbated by the additional demand from the developing countries, which in

sum, have contributed to the continuing rise of fossil fuel cost, and consequently encourage even

further interest in finding alternative solutions for the energy needs to support daily life, lessen

the negative impact of human activity, improve environmental conditions (such as Global

Warming and pollution), and create energy security.

5.4 The technological factors

Technological factors in the external environment include the application of inventions and

ideas, research and development activity, and the rate of technological change. According to the

Solar Energy Industries Association solar energy technology is rapidly developing (Solar Energy

Industries Association, 2011). Emerging technology in the industry includes applying different

materials for thin-film PV applications, solar cooling systems, incorporating PV into building

materials for roofing, windows and even painted surfaces (Solar Energy Industries Association,

2011). In addition to emerging technology, future technology being aggressively pursued by

research and development include thermal and electrical storage systems, solar hybrid lighting,

improved manufacturing techniques, nanotechnology, and improving concentrating solar power

systems (Solar Energy Industries Association, 2011). Technological developments and

investments catalyze the advancement of technology, strengthen the ability of energy consumers

to harness solar energy, and improve manufacturing equipment and techniques that enable low

cost production.


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SECTION VI

6.0 Threats & Opportunities

The following section will identify the most prevalent threats First Solar faces and the most

realistic opportunities available for the company to pursue and the table below summarizes the

threats and opportunities discussed in this section.

Threats Opportunities

(1) High Competition (1) Future Openings in Foreign Markets

(2) High Risk Raw Material (2) Political Power to Influence Policy

(3) Geographic Concentration of Sales (3) Cash Available for R&D

(4) Low Intellectual Property (4) Cash Available for M&A

6.1.1 Threat: High Competition

According to the lead analyst of North American Solar, Nathaniel Bullard, the solar industry has

had a 40% compound annual growth rate of new build since the 1970s, and saw 140% growth in

2010 (Bloomberg, 2011). This is a threat because as the Solar Industry develops further,

competition will grow and develop too. It will no longer be a viable strategy for First Solar to

compete by price; rather competition will evolve around superior technology and performance.

First Solars main strategic advantage is having the lowest-cost per watt production and

manufacturing, while selling its products for more than its competitors. Therefore First Solar will

need to innovate, and remain changeable, as opposed to static, so it can rise to the challenges of

the next wave of competition.

6.1.2 Threat: High Risk Tellurium (Te)

Tellurium (Te) is risky for two reasons. The first is that first, cadmium Te is toxic and that

second is that it is one of the nine most rare minerals found on earth. Each of these risks makes

First Solars dependence on Te a threat.


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Regarding the first reason, as a result of Tes toxicity, First Solar has invested in and runs

an extensive product-recycling program. This program is very costly. In addition, the European

Union has banned Te because of its toxicity (Wissenbach, 2011). Nevertheless, as a result of

First Solars political efforts, the EU lawmakers in 2010 voted to exempt solar panels from

the prohibition of Te, (Wissenbach, 2011). So even though only a very small amount of Te is

used in First Solars modules, and the company was successful in finding a loophole in Europe,

there is no saying what will develop in future policy and regulation. First Solars efforts to avoid

any negative consequences via its recycling program may be worth it in the sense of the

opportunity costs that using Te gives the company one of its only product differentiations, but

the dependence on this raw material is a risk.

Regarding the second reason Te dependence is a risk that threatens First Solars business

because this integral raw material is one the worlds most rare elements. About 160 to 215 metric

tons of tellurium are mined annually, and according the U.S. Geological Survey Mineral

Yearbook from 2009, the supply of Te is directly affected by the production of copper, and the

global production of copper is expected to remain relatively unchanged, which means the supply

of tellurium is not expected to increase (U.S. Geological Survey, 2009). Since about 160-215

metric tons of Te are mined annually, and First Solar uses about 110-130 metric tons of tellurium

for one gigawatts worth of solar panels (First Solar, 10-K), this calculates out to mean that First

Solar must be able to guarantee 50-80% of the worlds tellurium supply. Therefore, a

dependence on Te makes First Solar very vulnerable to sudden changes in Te demand, and also

potentially unable to fulfill any unprecedented high demand for its products if demand increased

so much that the limited supply of Te put a threshold on First Solars output abilities. Although

the threat is mostly speculative, the risk is real.


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6.1.3 Threat: Concentrated Customer Sales

First Solar has made recent foreign expansions over the past year into India and China,

establishing strategic partnerships for long-term business relations. Nevertheless, as evidenced in

the 2010 Annual report, and shown in section 1, the company has a high geographic

concentration of revenue in overseas operations, substantially concentrated in Germany. As the

German government begins to aggressively cut back on its generous subsidies, revenue from

Germany is most likely to fall accordingly. In addition as a U.S. company, First Solar

concentration of overall revenue from foreign markets poses a threat as it risks the company to

many different possibilities of market volatility, which could negatively impact the business.

6.1.4 Threat: Lack of Intellectual Property

First Solar has an endless of patent applications that are still unprocessed, as discussed in

the earlier section of intangible assets. This is a threat since although the company relies

heavily for its success on trademarks and trade secrets, a leakage on trade secrets that are

not patented are considered intellectual property could seriously disrupt the businesses

ability to perform.

6.2 Opportunities

6.2.1 Opportunity: Future Openings in Foreign Markets

Western countries such as the U.S., Germany and France are beginning to cut back on

government incentives to invest in solar energy, although the incentives are still there,

there are becoming less generous. Nevertheless, as the western world retracts, there will

most likely be possibilities that open in the Middle East and in China, and this represents

opportunities for First Solar to expand its overseas operations and diversify its revenues

sources from foreign operations.


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6.2.2 Opportunity: Political Power to Influence Policy

First Solar is the worlds largest manufacturer and supplier of solar modules, and therefore most

certainly has the political power to lobby for legislature, and influence political decisions

regarding markets that are directly related to solar energy, such as market support incentives for

renewable energy. Success in lobbying for legislature of market support mechanisms creates the

opportunity to reignite, or better yet, redirect U.S. consumer solar energy investment interests.

6.2.3 Opportunity: Cash Available: R&D and M&A

To date first solar has over $300 million in cash and cash equivalents, as stated on its

balance sheet from Forbes online. This presents on opportunity for First Solar to pursue

further R&D and M&A. First Solars business is highly profitable, therefore, the

company is in a position where is does not have to choose between buy versus build, but

rather can pursue both.

SECTION VII

7.0 Strategic Recommendations

It is recommended that First Solar do three things overall: continue to expand over seas, grow

and develop domestically, and innovate and further develop technologies. In this section each of

these generic suggestion will be specified and explained. The table on the top of the next page

summarizes the strategic recommendations proposed.


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Strategic Recommendations

(1) Continue foreign expansions: Saudi Arabia

(2) Develop domestic market: Lobby for Renewable Energy Credits

(3) Innovate: R&D to address solar module intermittency

(4) Innovate: R&D raw material alternative

(5) M&A: Further capabilities, and Intellectual Property Rights

7.1 Near future expansion: Saudi Arabia

As a result of political pressures the Saudi Arabian monarchy is expected to enact a renewable

energy incentive program by 2013 (Pentland, 2011; Bloomberg, 2011; Reuters, 2011). The

incentive program will undoubtedly be well received, igniting a wave of solar energy

development projects, considering that Saudi Arabia is an ideal target for solar energy given its

sun drenched dessert climate. It is recommended that First Solar utilize the same strategies and

tactics to establish itself in Saudi Arabia as it did in China and India. This would further increase

the revenue spread of First Solars sales from overseas operations, making the company less

vulnerable to the threats associated from anyone particular foreign currency and market risk.

7.2 Lobby for RECs legislature

One of the most frequently sited issues from solar companies regarding government incentive

programs is that the policies have been instable (First Solar, 2010 Q3 conference call).

Furthermore, it is logical to assume that such government funded policies and generosity in the

form of tax incentives and rebates are temporary. Therefore, RECs have the power to ignite a

more lively market for solar energy in the U.S., and it is recommended that First Solar lobby for

state legislatures to mandate Renewable Energy Portfolios, so that as the U.S. demand for PV


25

grows, which is expected to and has been increasing annually, the market support systems to

incite individuals and organizations to invest in solar energy are already there.

7.3 Innovate: R&D

It is recommended that First Solar invest in R&D for two reasons: to find potential raw materials

to replace Cadmium Telluride, and to address solar power technologies biggest weakness,

intermittency. Regarding the first reason, Te, as explained in the previous section, the motivation

for locking in a viable alternative to Te is obvious, and with a substantial amount of cash

available as evidenced on the companys balance sheet, it is highly recommended that research

into raw materials be pursued.

So far First Solar has mostly focused its R&D investments into lower production cost per

watt. It is the industry leader in gross margin, and thin film leader in market share. Paying the

lowest per watt manufacturing costs and charging competitive per watt prices has enabled First

Solar to achieve the two aforementioned competitive advantages. However, as more companies

advance in manufacturing technologies, enabling competitors to achieve lower costs as well,

competing solely on price will not be good enough to achieve a competitive sustainable

advantage.

In order to ensure that First Solar avoids falling victim to price-based rivalry the company

needs to be armed with a strategic advantage in its technology. Even though First Solars third

generation advanced thin film PV module is the most efficient thin film PV to date, innovation in

the industry is rapid, and its only a matter of time before one of the many competitors in solar

energy has an R&D breakthrough. The most salient downfall of solar energy is its intermittency,

and the first company that finds a solution or at least mitigates intermittency will undoubtedly

achieve a huge competitive advantage. Therefore it is suggested that First Solar remain nimble

and active in R&D, specifically focusing on advances of PV module performance, lessening


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intermittency, and considering additionally viable options to offsetting the intermittency

weakness of its solar energy product.

7.4 M&A: Buy to further develop

In addition to investing in R&D, it is recommended that First Solar seek M&A

opportunities to do two things. The first is to leverage its intellectual property rights, and

the second is to leverage is capabilities. An ideal company for achieving the latter is one

focused in solar storage technology, such as solar thermal. Acquiring companies with

technological abilities to store solar energy would enable First Solar to leverage R&D

efforts in mitigating intermittency.


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SECTION VIII 8.0 APPENDIX ***Unless otherwise noted, all data presented in figures is directly from First Solars publicly available financial statements. 1.) First Solar Annual Sales, Net Income and EPS

year SALES NET INCOME EPS 2006 $134,974,000 $3,974,000 $0.07 2007 $503,976,000 $158,354,000 $2.12 2008 $1,246,301,000 $348,330,000 $4.34 2009 $2,066,200,000 $640,138,000 $7.67 2010 $2,563,515,000 $664,201,000 $7.82

2.) R&D expenses as percentage of total revenue

3) First Solar Revenue by Business Segment and by country

0.00%

2.00%

4.00%

2010 2009 2008

R&D Comparisons:

First Solar

Suntech


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4) First Solars Solar Power MW capacity. Graph accessed directly from First Solar Online.

5) Graph of First Solars business operations. Accessed Directly from First Solar Online.


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6) The Face of Competition (Chart Data from Gale, 2011)

7) The face of demand. Chart accessed directly from First Solar online.


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SOURCES

(2010, October 14). First Solar to build 2nd plant in United States. Blade, The (OH). Anderson, Gary; Ceasar, Gerald; Hansen, Christopher; Nail, John. Innovation in Fuel Cell and Photovoltaic Industry. Organization for Economic Co-Operation and Development. Accessed from http://www. oecd.org/home/0,3675,en_2649_201185_1_1_1_1_1,00.html Anscombe, N. (2010). A Flexible Future. Engineering & Technology (17509637), 5(1), 42-46. doi:10.1049/ et.2010.0120. Balayan, Levon; Lacy, Meredyth; Menenberg, Alexander. Strategic Report for First Solar, Inc. Oasis Consulting. April 13, 2009 Bureau of Economic Analysis, United States Department of Commerce, 2011. Accessed from www.bea.gov. Bureau of Labor Statistics, United States Department of Labor, 2011. Accessed from www.bls.gov. Burkitt, L. (2011). First Solar plans Inner Mongolia project. The Wall Street Journal Eastern Edition, Jan 7, 2011 pB2 Burkitt, L. (2011, January 6). First Solar Revives China Deal. Wall Street Journal - Eastern Edition. p. B2. Canada, N. (2011, February 3). 5N Plus Inc. Signs New Long-Term Agreements with First Solar, Inc. and Announces Plans for New Recycling Facility in Malaysia. Canada Newswire. Drope, Martin. EuPD Research, Energy & Utilities: Photovoltaic Thin Film Industry Analysis, Hoehner Research & Consulting Group, 2008. Accessed from www.eupd-research.com. First Solar, Inc. 2011 Guidance Conference Call - Final. (n.d). Fair Disclosure Wire (Quarterly Earnings Reports) Harlin, Kevin. An Austere End to Solar Subsidies. Investors Business Daily. Regional Business News, 3/7/2011. Higgins, J. M. (2009). Your Solar Power Future. Futurist, 43(3), 25-29. Retrieved from EBSCOhost. Hoover's Company Records. First Solar, Inc. In-depth Records, Accessed from Major Companies Group File, Major World Publications, 2011. International Energy Agency. Survey of Trends in Photovoltaic Applications. Report IEA- PVPS T1-19: 2010. Printed in Switzerland. Accessed from www.iea-pvps.org. Kaz, J. (2010). First Solar Puts Heat on Competitors. Industry Week/IW, 259(9), 45. Kho, J. (2010). The Unraveling of a Solar Star. Fast Company, (151), 48-51. Leaner and cheaper. (2009). Economist, 392(8654), 76. Marino, J. (2010). First Solar buys NextLight. Mergers & Acquisitions Report, 23(18), 8. Martin, C. (2010) First Solar Wins Contract for 15 Megawatts in India. Bloomberg Online, December 8, 2010. Mirel, D. (2010). Capturing the Sun: Solar Power Investments Can Offer Long Term Savings in Energy Costs. Journal of Property Management, 75(1), 32-37. Retrieved from EBSCOhost. Murphy, Fortune Magazine, Rising Starts, Vol. 162, Issue 4, September 9, 2010. Nelsons Public Company Profiles: First Solar, 2010. Accessed from LexisNexis. Price, Selya, and Robert Margolis. 2008. 2008 Solar Technologies Market Report.www1. eere.energy.gov/solar/pdfs/46025. Reuters Fundamentals, Company Profile: First Solar Inc., Accessed from www.reuters.com Schoder, C. E. (2011). A Convenient Truth About Clean Energy. Futurist, 45(1), 25-29. Retrieved from EBSCOhost. SEC report from the Business and Company Resource Center: First Solar Inc., Form 10-K for the fiscal year ended 2010. Solar Energy Industries Association. (n.d.). Emerging Technology. Retrieved April 17,


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