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First Solar’s strong Systems segment offsets a fall in Components

Mayur Sontakke, FRM

First Solar shines, trading at a discount to solar power peers (Part 10 of 18)

(Continued from Part 9)

Revenue streams

In this part of our series, we’ll move our focus to First Solar’s (FSLR) operating and financial performance. First Solar (FSLR) has multiple revenue streams:

  1. turn-key projects

  2. operation and maintenance of operational projects

  3. outright sale of own projects

  4. sale of PV (photovoltaic) modules to third parties

  5. electricity sales from own projects (through power purchase agreements)

As we discussed earlier, these activities are divided into two segments: Components and Systems. The Components segment looks after the design, manufacture, and sale of PV modules. The systems segment looks after all other activities. Most of the PV module requirements of the Systems segment are met internally from the Components segment.

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First Solar is part of the Guggenheim Solar ETF (TAN) with an 8.27% weight.

Components segment

The Components segment revenue includes module sales to the systems segment as well as to third parties. This is the most competitive segment with current overcapacity. However, First Solar (FSLR) differentiates itself from other module producers—such as Trina Solar (TSL), Yingli Green Energy (YGE), and JA Solar (JASO), due to its leadership position in thin-film technology.

The Components segment reported revenue of $1.10 billion in fiscal 2014 compared to $1.17 billion in fiscal 2013. The drop in revenue was primarily on account of a drop in third-party module volumes as well as selling price across the segment. Third party-module revenue dropped to $228.3 million in fiscal 2014 compared to $380.9 million in fiscal 2013. However, overall volumes—including internal usage—increased in fiscal 2014.

Systems segment

A fall in Components segment revenue was offset by increased Systems segment revenue. The company reported $2.29 billion in Systems segment revenues in fiscal 2014, up from $2.14 billion in fiscal 2013, due to the sale of two projects, the partial sale of one project, and revenue recognition from the start of new projects in California. Including the modules used in-house, Systems revenue came in at $3.16 billion in fiscal 2014 compared to $2.93 billion in fiscal 2013.

Continue to Part 11

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