First Solar Powered Case: An Analysis

Topics: Energy development, Alternative energy, Nuclear power Pages: 6 (1729 words) Published: January 26, 2015
First Solar Case Analysis
Due to consideration of rising energy demand, global warming and nature of solar power, the solar industry has experienced a rapid development these years. First Solar, as one of the dominant companies in the industry, is suspected and scrutinized by CFRA for aggressive accounting practices. CFRA’s investigation aims at identifying potential risks in several areas, including revenue quality and recognition, inventory levels, customer and geographic diversification, warranty policies, production capacity growth, and supply chain. This case focuses on whether CFRA should flag First Solar and add it to the “biggest concern” list. The stock of First Solar has always been popular among investors considering the company’s outstanding performance. The price-to-earnings ratios of First Solar from the last three years (2006 to 2008) were much higher than the industry average ratios. Therefore, it is reasonable to speculate that prospects for earnings in the future are great. Furthermore, positive opinions from the professional institutions, such as “outperform” and “buy”, gave investors much confidence. The analysts, as well as investors, believed that sustainable increasing earnings and new market expansion could provide solid growth prospects for First Solar. Business Environment Analysis – PEST Analysis

Solar energy acting as a promising alternative energy marks a bright future of the solar industry. However, this emerging industry also faces lots of challenges. The following are some factors that could potentially influence First Solar’s operations in early 2009. Exhibit 1 provides a brief summary. Political Environment

Because of high initial cost and severe pressure of innovation, the development of the solar industry badly needs governments to provide a good political environment. Tax incentives and subsidies are two common forms of assistance. It is exciting news that the US Treasury began to offer cash grants and loan guarantees to solar energy producers to finance them in early 2009. But the bad news is that Germany and Spain, two of the key and developed market in the solar industry, had to cut subsidies to utilities and stop the construction of new projects in response to financial crisis in 2008. Unfortunately, Germany was the biggest market of First Solar. This policy greatly halted the growth of the industry. Economic Environment

The financial crisis in 2008 resulted in devastating economic consequences. Large number of investors and customers lost confidence and enthusiasm in the solar industry. The loss of financing was fatal because the solar industry couldn’t develop without significant financing and investing. Also, exchange rate is essential to sales. First Solar’s 2009 10-Q showed that “the average selling price of the company adversely impacted by 5% due to an unfavorable decline in the foreign exchange rate between the US dollar and the Euro.” Social Environment

Mounting concerns over energy prices, climate change and national security have accelerated the development of solar energy, which is renewable and cleaner. However, the falling oil and gas prices affected by the financial crisis in 2008 reduced the attractiveness of solar as an alternative energy source. Sometimes, price is the top concern over other social concerns. Technological Environment

In fact, new technology to decrease the cost of solar energy is constantly being developed and improved. However, cadmium telluride technology, for example, was new and had not undergone the real-world testing, thus leading to potential product warranty, performance and safety risks. Industry Analysis –Porter’s Five Forces Analysis

First Solar (FSLR), with an integrated system covering project development, construction, operating and finance, is good at cost competitiveness in the solar industry. To better evaluate its profit potential, Porter’s Five Forces (Exhibit 2) is applied. Threat of New Entrants- Moderate

Because of...
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