17 November 2016

First Solar accelerates Series 6 solar module production to 2018, after converting from Series 4 to Series 6 over 2017-2018 and cancelling Series 5

First Solar Inc of Tempe, AZ, USA – which makes thin-film photovoltaic modules based on cadmium telluride (CdTe) as well as providing engineering, procurement & construction (EPC) services – has announced an acceleration of its roadmap for Series 6 production into 2018, with about 3GW of production expected in 2019. Over the course of 2017 and 2018, the existing production facilities will be converted to Series 6 production and the current Series 4 product will be phased out. As a result of the change in roadmap, the firm will cancel its Series 5 product.

"Following the completion of an internal review process to evaluate the best competitive response to address the current challenging market conditions, we have developed plans that will enable us to more quickly begin production of our Series 6 module," says CEO Mark Widmar. "Although the decision to accelerate our Series 6 roadmap requires a restructuring of our current operations, we expect the transition to Series 6 will enable us to maximize the intrinsic cost advantage of CdTe thin-film technology versus crystalline silicon," he adds. "Recent steep module pricing declines require us to evaluate all components of our cost structure and streamline our business model to best position the company for long-term success."

As a result of the transition from Series 4 to Series 6 production, First Solar will reduce its workforce at its manufacturing facilities both domestically and internationally. Additional reductions in administrative and other staff are also planned.

Resulting from the transition to Series 6 from Series 4 and other competitive factors, the firm expects to incur restructuring and asset impairment charges of $500-700m (including a cash impact of $70-100m), primarily in 2016, comprising the following:

• $475-585m, including asset impairments related to Series 4, Series 5 and stored manufacturing equipment, and charges for cancellation of open purchase orders (the cash impact is expected to be $50-70m);
• up to $80m for a non-cash impairment of goodwill;
• $10-15m in cash severance charges (primarily in 2016); and
• $15-20m of other charges (primarily in 2017).

These pre-tax restructuring and asset impairment charges are expected to have an offsetting tax benefit of $50-100m.

In addition, the firm expects to incur $220-250m of tax expense in 2016 associated with the distribution of $700-750m of cash to the USA from a foreign subsidiary. This distribution will provide liquidity for the restructuring of US operations and Series 6 investment. The cash tax impact related to this transfer is expected to be $8-10m.

As a result of the restructuring and other related charges, the firm has updated its full-year 2016 GAAP guidance. Guidance is unchanged for net sales of $2.8-2.9bn and gross margin of 25.5-26% (although previously, in early November, net sales guidance was slashed from $3.8-4.0bn and gross margin guidance was raised from 18.5-19.0%). However, now, guidance for operating expenses has been raised from $480-500m to $965-1160m. Also, rather than operating income of $235-255m, First Solar now expects an operating loss of $210-445m. Likewise, rather than earnings per share of $3.75-3.90, it now expects a loss of $2.00-4.00. Guidance is unchanged for module shipments of 2.8-2.9GW (although this was previously reduced in early November from 2.9-3.0GW), operating cash flow of between -$100m and zero (previously reduced from $500-650m), capital expenditure of $225-275m (previously cut from $275-325m), and net cash balance of $1.4-1.5bn (previously reduced from $1.9-2.2bn).

In addition, 2016 non-GAAP guidance (excluding the impact of the current or previously announced restructuring actions) has been updated to reflect the sale of the entire remaining interest in the Stateline project: non-GAAP earnings per share guidance has now been raised from $4.30-4.50 to $4.60-4.80 (after already been increased in early November from $4.20-4.50).

Also, First Solar has now provided guidance for full-year 2017, including: net sales of just $2.5-2.6bn (70-75% solar power systems and 25-30% third-party module sales from module shipments of just 2.4-2.6GW), gross margin of 12.5-14.5%, operating expenses of $290-305m GAAP ($280-300m non-GAAP), operating income of $30-75m GAAP ($40-80m non-GAAP), earnings per share of between -$0.10 and $0.45 GAAP (breakeven to $0.50 non-GAAP), operating cash flow of $550-650m, capital expenditure of $525-625m (higher than 2016 expected levels due to the investment in Series 6 production equipment), and an ending net cash balance of $1.4-1.6bn.

See related items:

First Solar's sales fall 26% in Q3, to $688m

Tags: First Solar Thin-film photovoltaic CdTe

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