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.

1. First Solar, Inc.
Strategic Analysis Report
By, Lauren Zahringer
Submitted to: Professor R. Garrett
Bus. 403, Strategic Management
Marymount Manhattan College

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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 Solar’s 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 company’s revenue comes
from foreign operations, in particular Germany.
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1.2 Systems and Component Revenue
First Solar’s 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 company’s main business is its solar
modules, and this is the source of the great majority of First Solar’s 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 Solar’s market diversification focuses on the company’s 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 Solar’s
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 Solar’s 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 CPINE’s role as a leading
renewable energy developer in China, including CPINE’s 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 firm’s 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 Solar’s 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 Solar’s 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 Solar’s 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 Solar’s 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 Solar’s 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 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 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 company’s overall risk and
therefore, its financial strength. First Solar’s 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 company’s
overall profitability. The Gross Margin value measures the percent of revenue left after paying
all direct production expenses. First Solar’s trailing twelve month Gross Margin is 44.16%, with
an average over three years of 49.42% (Reuters, 2010). The company’s 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 Solar’s 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 Solar’s daily operations
structure (Murphy, 2010).
3.1.2 Intangible Resources
Technological/Intellectual Resources
First Solar’s 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 company’s 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 firm’s good cash
balance is indicative of its capability to develop new technologies and weather any
supply/demand fluctuations better than competitors. Second, the firm’s financial strength, low
risk, makes its capable of attracting capital investment. Third, First Solar’s good R.O.A. shows
the capability of the firm’s 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 Solar’s 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 company’s 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 company’s capabilities, and in turn enable First
Solar to create profit. However, much of First Solar’s 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
company’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 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 Solar’s business position and understand the competitive intensity of the
Photovoltaic (PV) thin film industry, this section uses Porter’s 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 Solar’s 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 Solar’s 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 company’s 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 Solar’s 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 company’s 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 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 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 Solar’s 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 Solar’s 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 Solar’s 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 index’s 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 world’s 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 Solar’s 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 Solar’s dependence on Te a threat.
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Regarding the first reason, as a result of Te’s 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
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 is
used 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 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 Solar’s business
because this integral raw material is one the world’s 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 world’s 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 world’s 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 Solar’s 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 Solar’s 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
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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 company’s 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 Solar’s third
generation advanced thin film PV module is the most efficient thin film PV to date, innovation in
the industry is rapid, and it’s 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 Solar’s 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
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
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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.
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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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