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First Solar Inc., Strategic Analysis Report

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Report includes, but not limited to: Pest, swot, and 5 Forces analysis, as well as summary of business operations, assets (tangible and intangible) and suggestions & recommendations for the company …

Report includes, but not limited to: Pest, swot, and 5 Forces analysis, as well as summary of business operations, assets (tangible and intangible) and suggestions & recommendations for the company based on opportunities for future growth and development of the business.

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  • 1. First Solar, Inc.Strategic Analysis Report By, Lauren Zahringer Submitted to: Professor R. Garrett Bus. 403, Strategic Management Marymount Manhattan College
  • 2. Zahringer,  2011                                                                                                      FSLR   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   1  
  • 3. Zahringer,  2011                                                                                                      FSLR  SECTION I1.0 Company BioFirst Solar, Inc. (First Solar) manufactures and sells solar modules with an advanced thin filmsemiconductor technology, and designs, constructs and sells photovoltaic (PV) solar powersystems. First Solar’s business operates in two segments: components segment and systemssegment. Components segment designs, manufactures and sells solar modules to solar projectdevelopers and system integrators. The systems segment provides PV solar power systems forcommercial systems, which includes project development, engineering, procurement andconstruction (EPC), operating and maintenance (O&M) services and, when required, projectfinance. The company was formed in 1999, and launched production of its first commercialproducts in 2002. First Solar is the low-cost leader in the Photovoltaic Industry, and achieved thelowest manufacturing cost per watt, breaking $1 per watt, in 2008. The company developed thefirst comprehensive, prefunded module collection and recycling program in the PV industry, andattained the smallest carbon footprint and fastest energy payback time of any PV technology onthe market, when measured on a life cycle basis. First Solar launched its IPO on November 17,2006.1.1 Foreign & Domestic Revenue and OperationsFirst solar has foreign and domestic operations. A majority of the company’s revenue comesfrom foreign operations, in particular Germany.   2  
  • 4. Zahringer,  2011                                                                                                      FSLR  1.2 Systems and Component RevenueFirst Solar’s revenue is consistently increasing, as shown in the table below. The company hasgrown is systems business significantly over the past few years, much of which can be attributedto successful mergers and acquisitions. Nevertheless, the company’s main business is its solarmodules, and this is the source of the great majority of First Solar’s revenue. **All information accessed from FSLR annual report, 2010, pg.132SECTION II2.0 Strategic GoalsFirst Solar Inc. has a generic cost leadership and product differentiation strategy in thesemiconductor solar energy industry. The current strategic goals of First Solar are marketdiversification and operations expansion.2.1 Market DiversificationEuropean markets for renewable energy products and services are expected to slowdown ingrowth and tighten in spending in the second half of 2011, when European nations begin to cutgovernment backed incentive programs and feed-in tariffs. Outside of the United States, FirstSolar currently has strong business in Germany and France. In order for First Solar to continue togrow its foreign business and avoid the troubles of expanding operations and growing sales inEurope, in the face of the expected decline in European markets, First Solar is geographicallydiversifying overseas. Hunting for new markets is a priority. First Solar is eager to establish itselfin India, and China before growth slows in Europe (Reuters, 2010). The following discussion of   3  
  • 5. Zahringer,  2011                                                                                                      FSLR  First Solar’s market diversification focuses on the company’s progress and future goals in Indiaand China.2.1.1 IndiaState programs are gaining momentum in India. In 2010 the Indian government launched theNational Solar Mission that aims to install 20GW by 2022. First Solar has seized this opportunityto develop its presence in India, and has skillfully established relationships with Indiancompanies through contractual supply agreements. India represented 1 percent of First Solar’sbusiness in 2010 and is expected to grow to 8 percent in 2011 (Burkitt, 2011). First Solar has twosupply agreements with Indian companies: ACME Tele Power LTD and Moser Baer CleanEnergy Ltd (MBCEL). ACME Tele Power LTD is an Indian technology company known for its heavy focus onR&D, energy conservation, and renewable energy (First Solar, 2010). In December of 2010 FirstSolar announced the signing of its agreement with ACME Tele Power Ltd. The agreement is forFirst Solar to supply ACME with its advanced thin film modules for a 15MC solar power plantin the state of Gujarat (Martin, 2010). MBCEL is the solar subsidiary of Moser Baer Projects Private Limited and is engaged inthe 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 powergeneration 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, andstated that delivery of its solar panels is expected to take place by June 30, 2011.2.1.2 ChinaIn China First Solar has taken the same approach as it has in India, established key strategicrelationships for the long term. The difference is that in China only state-owned companies can   4  
  • 6. Zahringer,  2011                                                                                                      FSLR  apply for and secure permits to build power plants. Therefore these strategic partnerships andagreements represent First Solar’s ability to overcome those barriers and enter the Chinesemarket. Over the past year First Solar has solidified two advantageous partnerships in China, onewith 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 toinstall 2 GW of solar power in Inner Mongolia. The project had been delayed because of the timeit was taking to get government permits. However, in a press release on January 5, 2011 FirstSolar and Guangdong Nuclear announced the signing of a memorandum of understanding tocollaborate on the development of Phase 1 of the Inner Mongolia project. Under the terms of theagreement the two companies will work together to execute the 30 MW AC first-phasedemonstration project. CGN SEDC will be the majority project owner and operator, meaning thecompany will perform all engineering, procurement and construction for the project. First Solarwill supply advanced thin-film solar PV modules for the project and will also provide operationsand management advisory services. (First Solar, 2011; Burkitt, 2011) As of May 2011, First Solar and China Power International New Energy (CPINE) signedan international cooperation framework agreement. Under the terms of the agreement the twocompanies will collaborate on solar photovoltaic (PV) projects in China, the United States andother international markets (First Solar, 2011). The agreement benefits both that First Solar andCPINE. Under the terms of the agreement, First Solar and CPINE will initially explorecollaboration on solar PV projects in China and identify project investment opportunities forCPINE in the U.S. and other global solar markets. The agreement opens up many opportunitiesfor First Solar to establish its presence in China and leverage CPINE’s role as a leadingrenewable energy developer in China, including CPINE’s planned 2 GW of solar in China by2020 (First Solar, 2011).   5  
  • 7. Zahringer,  2011                                                                                                      FSLR  2.2 Operations ExpansionIn addition to focusing on market diversification Fist Solar is also focused on increasingproduction and expanding capacity which will both drive the firm’s growth and reduce costs.(Burkitt, 2010) First Solar is focused on expanding operations beyond the production of solarpanels into the design, construction and operation of solar installations and is achieving its goalto expand into power-plant development via expansion of existing plants, development of newmanufacturing plants, and acquisitions. First Solar’s recent capacity additions in 2010 included eight lines at its Kulim, Malaysiafacility, four lines in Frankfurt an der Oder, Germany, two lines in Blanquefort, France and anexpansion 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 andVietnam to be completed in 2012. (First Solar, 2010) These two new manufacturing plants willboost the companys annual manufacturing capacity by nearly 500 MW. In sum these two newplants along with the other recent expansions will nearly double production capacity from 1.4GW in 2010 to more than 2.7 GW in 2012 (Kho, 2010). In the 4th Quarter earnings call RobGilette, First Solar CEO shared with analysts that "These expansions provide proximity togrowing demand while supporting our roadmap to drive down the cost of clean, sustainable solarelectricity."2.2.1 Mergers & Acquisitions First Solar’s recent acquisitions include RayTracker Inc., OptiSolar Inc., and NextLightRenewable Power. (Reuters, 2010) On January 7, 2011 First Solar acquired RayTracker, Inc., atracking technology and photovoltaic (PV) balance-of-systems firm, which brings expertise insolar technology innovation, reliability engineering, advanced PV system modeling, softwareengineering, product development and high-volume manufacturing to First Solar. (First Solar,2010)   6  
  • 8. Zahringer,  2011                                                                                                      FSLR   First Solar has made many acquisitions to increase its presence in the U.S. market. In Julyof 2010 First Solar acquired NextLight Renewable Power, LLC, a solar development firmformed by the inaugural fund of Energy Capital Partners, a private equity firm focused oninvesting in North Americas energy infrastructure. With the NextLight acquisition, First Solarnow has power purchase agreements for 2.2 gigawatts of utility-scale solar projects in NorthAmerica. (First Solar, 2010) The acquisition of NextLight was another strategic step in FirstSolars expansion in the U.S. utility-scale power market, which began in 2007 with theacquisition of Turner Renewable Energy and continued with the acquisitions of solar projectpipelines from OptiSolar in 2009 and Edison Mission Group in 2010.SECTION III3.0 Strategic AssetsThis section examines First Solar’s competitive advantage as strategic assets through theresources-based model of the firm. This inside-out approach defines the organization as made ofresources and capabilities, which can be configured to provide it with competitive advantage.This section will analyze First Solar’s strategy through the resources based model of analyses inthe following order: Resources, tangible and intangible, Distinctive Capabilities and CoreCompetencies.3.1 ResourcesResources in and of themselves confer no value. It is only when resources are put to someproductive use that value follows. This analysis defines resources by two categories: tangible andintangible. First Solar’s tangible resources include financial, physical, organizational and humanresources. Intangible resources include intellectual and technological resources.   7  
  • 9. Zahringer,  2011                                                                                                      FSLR  3.1.1 Tangible ResourcesFinancial ResourcesA company’s financial resources concern its ability to finance its chosen strategy and operations.Three types of financial resources to be considered are First Solar’s financial strength,profitability and cash balance. Financial strength looks at business risk. From a financialstandpoint the stronger a company is the less risky it is. The current ratio, which compares totalcurrent assets to total current liabilities, is a measurement of a company’s overall risk andtherefore, its financial strength. First Solar’s most recent quarter, 4th Quarter 2010, Current Ratiowas 3.53 with an average over three years of 3.53 (Reuters, 2010). The current ratio must begreater than or equal to 2, which means that the company holds current assets equal to twice theamount of current liabilities. First Solar meets this criterion. Companies that meet this criterionare typically financially secure and defensive. The Gross Margin ratio is a measure a company’soverall profitability. The Gross Margin value measures the percent of revenue left after payingall direct production expenses. First Solar’s trailing twelve month Gross Margin is 44.16%, withan average over three years of 49.42% (Reuters, 2010). The company’s total cash assets as of 4thQuarter 2010 were $933.58 million (Reuters, 2010).Physical ResourcesPhysical resources include manufacturing plants, and solar panel products. The companycurrently has four state-of-the-art manufacturing plants: one in Ohio, United States; one inFrankfurt, Germany; and two in Kulim, Malaysia (Nelson, 2011). First Solar has twophotovoltaic modules, FS Series 2 PV Module, and FS Series 3 PV Modules (First Solar 10-k,2010).   8  
  • 10. Zahringer,  2011                                                                                                      FSLR  Human ResourcesFirst Solar’s human resources include its executive management, board of directors andemployees. Executive management includes Rob Gillette, Chief Executive Officer, TKKallenbach, 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 thesenior management. First Solar is 6,100 employees (first solar, 2010). Plant managers, such asTodd Spangler, Toledo plant manager, are an integral part of First Solar’s daily operationsstructure (Murphy, 2010).3.1.2 Intangible ResourcesTechnological/Intellectual ResourcesFirst Solar’s intellectual property resources are those aspects of their technology, designs andmethodologies, and processes that provide significant advantages of differentiation fromcompetitors. Technological resources include the company’s advanced thin film semiconductortechnology (hoovers, 2010). First Solar relies on a combination of patents, trademarks and tradesecrets, as well as employee and third party confidentiality agreements to safeguard theirintellectual property. Within the United States the company currently holds 33 patents, withexpirations between 2011 and 2023, and has 19 patent applications pending. In foreignjurisdictions, First Solar holds 17 patents and has over 30 patent applications pending. As of June30, 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).   9  
  • 11. Zahringer,  2011                                                                                                      FSLR  3.2 CapabilitiesFinancialFirst Solar has three distinct financial and management capabilities. First the firm’s good cashbalance is indicative of its capability to develop new technologies and weather anysupply/demand fluctuations better than competitors. Second, the firm’s financial strength, lowrisk, makes its capable of attracting capital investment. Third, First Solar’s good R.O.A. showsthe capability of the firm’s human resources to effectively manage the company.Operations and ManufacturingFirst 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 systemssegment, each of which has distinct capabilities. Within the Components Segment of operationsthe business is capable of designing, manufacturing and selling solar modules to solar projectdevelopers and system integrators. The systems segment of operations is provides PV solarpower system for commercial systems, and includes project development, engineering,procurement and construction, operating and maintenance services, and when required is alsocapable of project finance. First Solar currently has a 2000 Mega Watts manufacturing capacity(Murphy, 2010).3.3 Core CompetenciesFirst Solar’s current strategic goals are to enter markets rapidly, further reduce manufacturingcost, and increase sellable watts per module. The following core competencies, along with theaforementioned resources and capabilities, align the company towards its goals. Distinctive corecompetencies are a cluster of attributes possessed by an organization. The collection of thesestrategic capabilities provides the platform for competitive advantage. The core competencies   10  
  • 12. Zahringer,  2011                                                                                                      FSLR  that enable First Solar to realize a sustainable competitive advantage include: low-costproduction, continuous and scalable production, replicable production, and long term supplycontracts.Low-Cost ProductionFirst Solar is able to produce its solar modules at the lowest-cost per watt. This gives is asignificant competitive advantage since the firm competes in a commodities market driven solelyby price. Relatively low barriers to entry in the manufacture of silicon modules have createdovercapacity and, in turn, oversupply, enabling the company to further leverage this downwardpressure for its low cost production (First Solar I.P.O., 2007).ProductionWith continuous and scalable production, First Solar is capable of manufacturing its solar modelson high-throughput production lines that complete all manufacturing steps, from semiconductordeposition to final assembly and testing, in an automated, proprietary, continuous process (FirstSolar 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 toefficiently respond to increase in demand.Long-Term Supply ContractsPre-sold capacity through Long Term Supply Contracts provides First Solar with predictable netsales 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 minimizesthe customer demand risk of its rapid expansion plans (First Solar I.P.O., 2007).   11  
  • 13. Zahringer,  2011                                                                                                      FSLR  3.4 ConclusionThe resource-based theory of the firm audits a company’s competitive advantage its ability toachieve a sustainable strategic advantage based on its internal resources, capabilities, anddifferentiating core competencies. In the case of First Solar, Inc. its most salient resourcesinclude financial strength, management effectiveness, and physical manufacturing plants, andproducts. These resources are leveraged by the company’s capabilities, and in turn enable FirstSolar to create profit. However, much of First Solar’s growth has been dependent uponinternational 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. Thecompany’s 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 thatFirst Solar utilize its human resources for aggressive lobbying so that the company can ensurethat its products receive the most subsidies, especially in countries of current business, such asGermany and the United States.SECTION IV4.0 Industry: Five Forces AnalysisPorters five-forces model considers five competitive forces that in sum gauge the profitabilityand competition of a business within its industry. In order to evaluate the overall balance ofpower in First Solar’s business position and understand the competitive intensity of thePhotovoltaic (PV) thin film industry, this section uses Porter’s model to identify and assess thedynamic elements at play within each force. The table above is a breakdown of the importance ofeach force in determining First Solar’s long-term profitability. It is critical that First Solar has theability to successfully compete against and manage those forces with high strategic significance,as they are the most threatening to the success of the business.   12  
  • 14. Zahringer,  2011                                                                                                      FSLR  4.1 CompetitionFirst Solar, Inc. operates in the semiconductor- specialized industry, and competes with a numberof firms in the solar PV market, and solar energy market. The solar PV market is competitive andrapidly evolving. The worldwide market for solar energy is growing at an annual growth rateexceeding 30% (EuPD Research, 2008). Attracted by various subsidies being provided by governments to promote renewableenergy, many new firms are entering this industry and established big industry players in thetraditional energy business are diversifying into renewable energy. First Solar faces directcompetition from various domestic and international firms. The most direct competitor isSuntech (yahoo, finance). These competitors have access to greater financial, technical, human,marketing, purchasing or other resources, which enable them react more quickly to new oremerging technologies or changes in customer requirements. First Solar’s failure to sustaincompetition could result in price reductions, reduced margins, or loss of market share. Another factor contributing to the intense industry rivalry in the lack of productdifferentiation (EuPD Research, 2008). Solar energy products have different cost structures andefficiency ratings, but it is easy to calculate the amount of energy per dollar made in aninvestment. As a commodities market determined by price, the industry is driven to providinglow-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 becomemore significant as more products have been tested in the market place. Additional competitionarises from companies that currently offer or are developing other renewable technologies, suchas 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.   13  
  • 15. Zahringer,  2011                                                                                                      FSLR  4.2 Supplier PowerSupplier power is determined by how easy it is for suppliers to drive up prices and is driven byfactors such as the number of suppliers of each key input, the uniqueness of their product orservice, and the cost of switching from one to another. Overall the fewer the supplier choices abusiness has, and the greater the business’ need for suppliers help, the more power supplierscould have over price and in any contractual agreements. First Solar uses approximately 30 types of raw materials and components to construct acomplete solar module. One critical raw material critical for production is cadmium telluride. Ofthe 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 Solarpurchases raw materials from a small number of suppliers, and most of the company’s criticalmaterials 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 posesthe threat of power where suppliers could increase prices. (First Solar 10-K, 2010) Most First Solar’s suppliers are small companies and the company gets supply of theseraw 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 itssuppliers but with demand rising and supply declining the company may face shortage for rawmaterials. Since the company’s supplies are on purchase order basis and it does not enter intoany long-term contracts. In addition to raw materials and components for production, much ofFirst Solar’s 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 contractualagreements.   14  
  • 16. Zahringer,  2011                                                                                                      FSLR  4.3 Buyer PowerBuyer power in the industry for solar energy is relatively strong. In the solar sector the productsare primarily differentiated on the basis of its cost/watt efficiency, which enables buyers to bevery discriminant (Balayan et Al., 2009). First Solar has significant marketing, distribution andmanufacturing operations both within and outside the United States. First Solar’s substantialinternational customer base subjects the company to a number of risks including unfavorablepolitical, regulatory, and tax conditions in the foreign countries of their customer base. A majorrisk the firm faces is that it currently depends on a limited number of customers, with threecustomers accounting for the majority of the module net sales. Even though First Solar’s longterm supply contracts maintain power on the side of the company rather than for buyers, oncecurrent contracts run out, buyer power will most likely be significantly higher, as the renewableenergy market will have further developed, and this could adversely impact profit and sales forthe business when renewing or establishing new customer contracts.4.4 Barriers to New EntryThere are several barriers to entry in the solar power industry. One of the main barriers to entryis the vast amount of research and development required to be able to manufacture a competitivetechnology at a competitive price (Balayan et Al., 2009). Government and cultural interest ingreen technology and renewable energy make the solar sector attractive to new firms; however asmany governments, such as Germany and France, begin cutting back attractive subsidies andincentives, the cost to enter the industry will rise, and may become a less attractive venture fornew companies (Harlin, 2011).4.5 Threat of SubstitutionFirst 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   15  
  • 17. Zahringer,  2011                                                                                                      FSLR  panel industry has several substitutes including silicone based photovoltaic cells and other typesof photovoltaic cells, and other types of renewable energy (First Solar, 10-k). The companycould be affected by the increasing popularity of other renewable generation technologies. The market for fuel cells is rapidly evolving and new technologies are being developedusing 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 economicallyattractive in small-scale power generation applications and transportation sectors (Anderson etal). It is projected that the market for these fuel cells would emerge as a new source ofdistributed power after 2020 (Anderson et al). This kind of technology, which typically has alower upfront cost, is currently gaining preference, may lower the demand for the companysproducts and services. Besides, continuous research and development in these technologies couldresult in novel and efficient technologies that could adversely affect the First Solar’s business.SECTION V5.0 External EnvironmentThis section applies the P.E.S.T. analysis framework in order to understand the macroenvironment and considers the renewable energy industry as a whole within the current political,economic, social and technological landscape.5.1 Political FactorsThe future will be shaped not only by competitive economic growth but also by potentiallydisruptive scarcities and the consequences of human induced climate change. Political responsesto this reality have included new policies, legislature, and tax incentives promoting the growth ofand investment in renewable energy in order to reduce green house gas emissions. Tax creditsand incentives strengthen the ability of renewable energy companies to be successful by cuttingthe costs of operations.   16  
  • 18. Zahringer,  2011                                                                                                      FSLR   Recent political developments and legislature in the United States include the SolarAmerica Initiative (SAI), the Energy Improvement Extension Act and Emergency EconomicStabilization 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 electricitycost-competitive with conventional forms of electricity by 2015 (IEA, 2010). The EnergyImprovement extension Act and the Emergency Economic Stabilization Act of 2008 extendedexisting tax credits for renewable energy initiatives (IEA, 2010). The American Recovery andReinvestment Tax Act of 2009 stated that onsite renewables are eligible for a tax incentive equalto 30% of the initial cost. (IEA, 2010) Overall aforementioned federal initiatives have been put in place to help foster thegrowth and development of the Solar Energy industry, and positively impact First Solar, Inc. Inaddition to government incentives, regulations for mitigating climate change and reducing greenhouse gas emissions, are defining features in the political landscape. Under the Clean Air Act theU.S. government defined clean air standards specified the percentage of energy use that mustcome from renewable sources (IEA, 2010) which has bolstered the demand for renewable energytechnology and changing societal practices. Nevertheless, the invisible hand feeding the successof political action is economic stability, and strength, without which good intentioned policiesand legislature fall to the wayside.5.2 Economic Factors Macro economic factors that impact the renewable energy industry are the overall state ofthe economy, economic growth, and stability. The economic recession of 2008 was detrimentalto the growth of the renewable energies industry. Indicators of the overall macroeconomiccondition 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 in2010 in contrast to the decrease of 2.6 percent in 2009. (B.E.A., 2011) According to the United   17  
  • 19. Zahringer,  2011                                                                                                      FSLR  States Bureau of labor statistics the unemployment rate is slowly falling, and as of March 2011the 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 inMarch, 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 andtogether accounted for almost three quarters of the all items increase in March. Economic facts,such as the gasoline index’s ninth consecutive increase totally a 14.4 percent increase over thepast three months (B.L.S., 2011), bolster support for renewable energies.5.3 Social FactorsSocial factors of the external environment include cultural aspects such as growingenvironmental awareness, population growth, and the benefits of renewable energy. There aretwo overall forces in the social environment that are influencing the growth of the renewableenergy industry: increasing environmental concerns and increasing energy demand. Growingenvironmental awareness which is defined as the increasing knowledge and understanding of thefinite nature of many of the world’s resources, the negative impact and contribution to climatechange from burning fossil fuels and deforestation, and the impact of global warming on biodiversity, and the stability of delicate ecosystems, have lead to increasing environmentalconcerns. In the U.S. trends and changes such as going green, sustainable development concernedwith renewable energy, and an increase in climate change relevant documentaries and televisionprogramming, in sum conclude that environmental awareness is growing and thereforeconsumers, whether individuals or corporations, are becoming more educated and aware of howhuman and economic activity affect the environment which bolsters societal interest inrenewable energy. Many of the consumer residential trends in solar panel installation have beensupported by government-backed rebates.   18  
  • 20. Zahringer,  2011                                                                                                      FSLR   The world population is increasing, while simultaneously many less developed countriesare begging to develop at a rapid rate. As the world population grows, the number of energyconsumers grows. Fossil fuels are finite, and therefore, as demand increases whilst supplycontinues to decrease, the price of gasoline continues the rise, sending a shock wave throughsociety. This is exacerbated by the additional demand from the developing countries, which insum, have contributed to the continuing rise of fossil fuel cost, and consequently encourage evenfurther interest in finding alternative solutions for the energy needs to support daily life, lessenthe negative impact of human activity, improve environmental conditions (such as GlobalWarming and pollution), and create energy security.5.4 The technological factorsTechnological factors in the external environment include the application of inventions andideas, research and development activity, and the rate of technological change. According to theSolar Energy Industries Association solar energy technology is rapidly developing (Solar EnergyIndustries Association, 2011). Emerging technology in the industry includes applying differentmaterials for thin-film PV applications, solar cooling systems, incorporating PV into buildingmaterials for roofing, windows and even painted surfaces (Solar Energy Industries Association,2011). In addition to emerging technology, future technology being aggressively pursued byresearch and development include thermal and electrical storage systems, solar hybrid lighting,improved manufacturing techniques, nanotechnology, and improving concentrating solar powersystems (Solar Energy Industries Association, 2011). Technological developments andinvestments catalyze the advancement of technology, strengthen the ability of energy consumersto harness solar energy, and improve manufacturing equipment and techniques that enable lowcost production.   19  
  • 21. Zahringer,  2011                                                                                                      FSLR  SECTION VI6.0 Threats & OpportunitiesThe following section will identify the most prevalent threats First Solar faces and the mostrealistic opportunities available for the company to pursue and the table below summarizes thethreats 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&A6.1.1 Threat: High CompetitionAccording to the lead analyst of North American Solar, Nathaniel Bullard, the solar industry hashad a 40% compound annual growth rate of new build since the 1970s, and saw 140% growth in2010 (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 tocompete by price; rather competition will evolve around superior technology and performance.First Solar’s main strategic advantage is having the lowest-cost per watt production andmanufacturing, while selling its products for more than its competitors. Therefore First Solar willneed to innovate, and remain changeable, as opposed to static, so it can rise to the challenges ofthe 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 thatsecond is that it is one of the nine most rare minerals found on earth. Each of these risks makesFirst Solar’s dependence on Te a threat.   20  
  • 22. Zahringer,  2011                                                                                                      FSLR   Regarding the first reason, as a result of Te’s toxicity, First Solar has invested in and runsan extensive product-recycling program. This program is very costly. In addition, the EuropeanUnion has banned Te because of its toxicity (Wissenbach,  2011).  Nevertheless,  as  a  result  of  First  Solar’s  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 isused in First Solar’s 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 Solar’s efforts to avoidany negative consequences via its recycling program may be worth it in the sense of theopportunity costs that using Te gives the company one of its only product differentiations, butthe dependence on this raw material is a risk.   Regarding the second reason Te dependence is a risk that threatens First Solar’s businessbecause this integral raw material is one the world’s most rare elements. About 160 to 215 metrictons of tellurium are mined annually, and according the U.S. Geological Survey MineralYearbook from 2009, the supply of Te is directly affected by the production of copper, and theglobal production of copper is expected to remain relatively unchanged, which means the supplyof tellurium is not expected to increase (U.S. Geological Survey, 2009). Since about 160-215metric tons of Te are mined annually, and First Solar uses about 110-130 metric tons of telluriumfor one gigawatts worth of solar panels (First Solar, 10-K), this calculates out to mean that FirstSolar must be able to guarantee 50-80% of the world’s tellurium supply. Therefore, adependence on Te makes First Solar very vulnerable to sudden changes in Te demand, and alsopotentially unable to fulfill any unprecedented high demand for its products if demand increasedso much that the limited supply of Te put a threshold on First Solars output abilities. Althoughthe threat is mostly speculative, the risk is real.     21  
  • 23. Zahringer,  2011                                                                                                      FSLR  6.1.3 Threat: Concentrated Customer SalesFirst 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 inthe 2010 Annual report, and shown in section 1, the company has a high geographicconcentration of revenue in overseas operations, substantially concentrated in Germany. As theGerman government begins to aggressively cut back on its generous subsidies, revenue fromGermany is most likely to fall accordingly. In addition as a U.S. company, First Solarconcentration of overall revenue from foreign markets poses a threat as it risks the company tomany different possibilities of market volatility, which could negatively impact the business.6.1.4 Threat: Lack of Intellectual PropertyFirst Solar has an endless of patent applications that are still unprocessed, as discussed inthe earlier section of intangible assets. This is a threat since although the company reliesheavily for its success on trademarks and trade secrets, a leakage on trade secrets that arenot patented are considered intellectual property could seriously disrupt the businessesability to perform.6.2 Opportunities6.2.1 Opportunity: Future Openings in Foreign MarketsWestern countries such as the U.S., Germany and France are beginning to cut back ongovernment incentives to invest in solar energy, although the incentives are still there,there are becoming less generous. Nevertheless, as the western world retracts, there willmost likely be possibilities that open in the Middle East and in China, and this representsopportunities for First Solar to expand its overseas operations and diversify its revenuessources from foreign operations.   22  
  • 24. Zahringer,  2011                                                                                                      FSLR  6.2.2 Opportunity: Political Power to Influence PolicyFirst Solar is the world’s largest manufacturer and supplier of solar modules, and therefore mostcertainly has the political power to lobby for legislature, and influence political decisionsregarding markets that are directly related to solar energy, such as market support incentives forrenewable energy. Success in lobbying for legislature of market support mechanisms creates theopportunity to reignite, or better yet, redirect U.S. consumer solar energy investment interests.6.2.3 Opportunity: Cash Available: R&D and M&ATo date first solar has over $300 million in cash and cash equivalents, as stated on itsbalance sheet from Forbes online. This presents on opportunity for First Solar to pursuefurther R&D and M&A. First Solar’s business is highly profitable, therefore, thecompany is in a position where is does not have to choose between buy versus build, butrather can pursue both.SECTION VII7.0 Strategic RecommendationsIt is recommended that First Solar do three things overall: continue to expand over seas, growand develop domestically, and innovate and further develop technologies. In this section each ofthese generic suggestion will be specified and explained. The table on the top of the next pagesummarizes the strategic recommendations proposed.   23  
  • 25. Zahringer,  2011                                                                                                      FSLR   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 Rights7.1 Near future expansion: Saudi ArabiaAs a result of political pressures the Saudi Arabian monarchy is expected to enact a renewableenergy incentive program by 2013 (Pentland, 2011; Bloomberg, 2011; Reuters, 2011). Theincentive program will undoubtedly be well received, igniting a wave of solar energydevelopment projects, considering that Saudi Arabia is an ideal target for solar energy given itssun drenched dessert climate. It is recommended that First Solar utilize the same strategies andtactics to establish itself in Saudi Arabia as it did in China and India. This would further increasethe revenue spread of First Solar’s sales from overseas operations, making the company lessvulnerable to the threats associated from anyone particular foreign currency and market risk.7.2 Lobby for RECs legislatureOne of the most frequently sited issues from solar companies regarding government incentiveprograms 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 theform of tax incentives and rebates are temporary. Therefore, RECs have the power to ignite amore lively market for solar energy in the U.S., and it is recommended that First Solar lobby forstate legislatures to mandate Renewable Energy Portfolios, so that as the U.S. demand for PV   24  
  • 26. Zahringer,  2011                                                                                                      FSLR  grows, which is expected to and has been increasing annually, the market support systems toincite individuals and organizations to invest in solar energy are already there.7.3 Innovate: R&DIt is recommended that First Solar invest in R&D for two reasons: to find potential raw materialsto replace Cadmium Telluride, and to address solar power technologies biggest weakness,intermittency. Regarding the first reason, Te, as explained in the previous section, the motivationfor locking in a viable alternative to Te is obvious, and with a substantial amount of cashavailable as evidenced on the company’s balance sheet, it is highly recommended that researchinto raw materials be pursued. So far First Solar has mostly focused its R&D investments into lower production cost perwatt. It is the industry leader in gross margin, and thin film leader in market share. Paying thelowest per watt manufacturing costs and charging competitive per watt prices has enabled FirstSolar to achieve the two aforementioned competitive advantages. However, as more companiesadvance in manufacturing technologies, enabling competitors to achieve lower costs as well,competing solely on price will not be good enough to achieve a competitive sustainableadvantage. In order to ensure that First Solar avoids falling victim to price-based rivalry the companyneeds to be armed with a strategic advantage in its technology. Even though First Solar’s thirdgeneration advanced thin film PV module is the most efficient thin film PV to date, innovation inthe industry is rapid, and it’s only a matter of time before one of the many competitors in solarenergy 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 undoubtedlyachieve a huge competitive advantage. Therefore it is suggested that First Solar remain nimbleand active in R&D, specifically focusing on advances of PV module performance, lessening   25  
  • 27. Zahringer,  2011                                                                                                      FSLR  intermittency, and considering additionally viable options to offsetting the intermittencyweakness of its solar energy product.7.4 M&A: Buy to further developIn addition to investing in R&D, it is recommended that First Solar seek M&Aopportunities to do two things. The first is to leverage its intellectual property rights, andthe second is to leverage is capabilities. An ideal company for achieving the latter is onefocused in solar storage technology, such as solar thermal. Acquiring companies withtechnological abilities to store solar energy would enable First Solar to leverage R&Defforts in mitigating intermittency.   26  
  • 28. Zahringer,  2011                                                                                                      FSLR  SECTION VIII8.0 APPENDIX***Unless otherwise noted, all data presented in figures is directly from First Solar’s publicly availablefinancial statements.1.) First Solar Annual Sales, Net Income and EPS year SALES NET INCOME EPS2006 $134,974,000 $3,974,000 $0.072007 $503,976,000 $158,354,000 $2.122008 $1,246,301,000 $348,330,000 $4.342009 $2,066,200,000 $640,138,000 $7.672010 $2,563,515,000 $664,201,000 $7.822.) R&D expenses as percentage of total revenue R&D  Comparisons:   4.00%   2.00%   First  Solar   Suntech   0.00%   2010   2009   2008  3) First Solar Revenue by Business Segment and by country   27  
  • 29. Zahringer,  2011                                                                                                      FSLR  4) First Solar’s Solar Power MW capacity. Graph accessed directly from First Solar Online.5) Graph of First Solar’s business operations. Accessed Directly from First Solar Online.   28  
  • 30. Zahringer,  2011                                                                                                      FSLR  6) The Face of Competition (Chart Data from Gale, 2011)7) The face of demand. Chart accessed directly from First Solar online.   29  
  • 31. Zahringer,  2011                                                                                                      FSLR  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. Hoovers 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. Nelson’s 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,   30  
  • 32. Zahringer,  2011                                                                                                      FSLR     31  

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