Wednesday, July 30, 2008

A couple points on FSLR.

I have to say, I'm not a fan of FSLR's particular technology, CdTe, because of the whole Tellurium Scarcity problem, as well as the Cadmium toxicity.

As evidence of this, I'll point out a line on their Q2 report.

Under "Liabilities," "Accrued collection and recycling liabilities" are shown as $23.5 Million for the Quarter. This compared to $69.7 Million in Net Income. One of the goals mentioned in the CC, was that they had produced their 500th Megawatt in Q2.

Essentially, the two big problems of CdTe lead to a company that MUST recycle the vast majority of their product for its lifetime. They MUST have that source of Tellurium, and in order to do business in places like Germany they've got to deal with their toxins at the end of a product's life. That could potentially lead to an increasingly expensive infrastructure required to support an increasing number of installations, which will be distributed widely around the planet.

I guess my hope would be that a big chunk of this expenditure is for the set-up of a recycling facility, and is a one time cost. What happens years down the road when FSLR has many GigaWatts of installed capacity?

On a totally unrelated note, it seems that they state in the CC that Conversion efficiency has increased by 10 "basis points," or .1%. I'm sorry, but that's peanuts. When asked about whether their newer facilities were producing more efficient modules, they replied that the 10.7% figure that they had been using was just an average, and that the actual efficiency varied, and they confirmed that 10.7% was the average at all of the facilities.

Based on this, I'd be very curious what kind of mid-term increases they are expecting in Conversion Efficiency, because otherwise it looks to me like they're close to "stalled."

As I've said before, just because I have a hard time believing in the fundamentals of this company, I wouldn't be shorting it unless I was willing to lose alot of money, at least in the short to mid term.

Disclosure, I have no position on First Solar.

Note: For more background on FSLR, See this.

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Anonymous said...

One other interesting aspect for me.

This is the press release of First Solar, clearly indicating that net income included a one-time income tax benefit of $39.2 million. Net income Q2-2007 was 44,4 Mio, net income Q1-2008 was 46,62 Mio. If I reduce 39,2 Mio from the reported net income of 69,67 Q2-2008 net income was actually 30,47 Mio or 38c vs 55c in Q2-2007 and 57c in Q1-2008.

Nevertheless no analyst on the CC nor anyone in the media questioned or even worse mentioned it in the media coverage.


Anonymous said...


I must apologize for misreading the one-time income tax benefit of $39,20 million. The tax benefit was recorded in Q2-2007 and not in Q2-2008.

Even I ENTIRELY misinterpreted the net income of Q2-2008 it does not change my opinion that FSLR is highly overvalued. Mean reversion will happen sooner than later.

Still, the fact that I posted a misleading information makes me even more conscious about the saying check, recheck, double check before posting something.