First Solar Seeks to Hold Its Ground as Backlog Slips 15%

First Solar Inc. (FSLR), the biggest maker of thin-film solar panels, said its “expected revenue” fell 15 percent last year and its goal for this year is to avoid slipping further. The shares plunged the most in five months.

The company had $8 billion in expected revenue at the end of 2012, down from $9.4 billion a year earlier, Chief Executive Officer Jim Hughes said yesterday on a conference call with analysts. That’s a new metric the Tempe, Arizona-based company is using to assess its performance and includes panels that will be installed at solar farms it’s building and contracted sales to other developers.

The company expects to add new orders to that revenue pipeline to replace completed orders this year on a one-for-one basis, he said. The goal indicates that the company will be treading water as it completes large power projects and seeks to develop new ones, and it may have trouble even meeting that goal, said Ben Schuman, an analyst with Pacific Crest Securities LLC in Portland, Oregon.

“It will be difficult to do one-to-one on revenue,” Schuman said in an interview yesterday. Increased competition in markets including India will make it harder for First Solar to win new orders, he said.

Photographer: Sam Hodgson/Bloomberg

A contractor for First Solar Inc. works on construction of the Tenaska Imperial Solar Energy Center South project in Imperial County, California. Close

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Photographer: Sam Hodgson/Bloomberg

A contractor for First Solar Inc. works on construction of the Tenaska Imperial Solar Energy Center South project in Imperial County, California.

First Solar slumped 14 percent to $27.04 at the close in New York, the most since Aug. 30. Before today, the shares had gained 23 percent in the past six months.

New Measurement

The company previously measured its backlog in megawatts of panels destined for its own solar projects. It shifted this quarter to expected revenue, which measures its backlog in dollars. That includes contracted panel orders, projects that have been sold and projects under development that have deals to sell power and haven’t been purchased, Hughes said.

“Expected revenue does not have a direct correlation to expected module shipments because the shipments do not represent total systems revenues and do not consider the timing of when all revenue recognition criteria are met,” he said during the call.

The company uses internal projections to value projects that haven’t been sold.

Reducing Capacity

First Solar last year began reducing capacity as a global surplus and waning government support drove down solar-panel prices 31 percent in 2012. The company boosted revenue last year by expanding efforts to build large power plants with its panels, and needs to develop more projects to keep its pipeline filled, according to Rob Stone, an analyst at Cowen & Co. in Boston.

“They need to be booking more than they are now to keep up with the projects they’re completing” because First Solar is finishing high-priced solar farms faster than it’s selling new ones, Stone said today in an interview. “Even worse, if you look at the revenue backlog in the fourth quarter, you see the value per watt is much less than they’re billing now.”

Net income in the fourth quarter was $154.2 million, or $1.74 a share, compared with a net loss of $413.1 million, or $4.74 a share, a year earlier, according to a statement yesterday. Excluding costs related to restructuring, the company earned $2.04 cents a share, exceeding by 27 cents the average estimate of 21 analysts. Sales rose to $1.08 billion from $660.4 million.

‘Battlefield Stock’

“They had a healthy quarter but it looks like revenue guidance for the first quarter was below street expectations,” Sanjay Shrestha, an analyst at Lazard Capital Markets, said in an interview. “This is a battlefield stock and without full guidance for the year the shares are getting hit.”

For the first quarter, sales will be in the range of $650 million to $750 million, less than the $803.6 million average estimate of 18 analysts. That will result in per-share profit of 70 cents to 90 cents, which compares to an average estimate of 78 cents.

First Solar closed its plant in Frankfurt an der Oder, Germany, in the fourth quarter with about 560 megawatts of annual production capacity. The company also idled four production lines in Malaysia.

First Solar has about 1,800 megawatts of panel production capacity, mainly in Malaysia and the U.S., Stone said.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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