First Solar's Surprising Strategy Switch
CdTe and crystalline manufacturer and project developer First Solar (FSLR) announced positive results for Q1 as well as a switch in strategy emphasis from deployment to module sales.
Honestly, revenues, positive net income and other financial metrics matter less in this case than the company’s strategy switch to module sales. Downward price pressure and margin compression along with continued aggressive pricing from China makes this move confusing. Cost leadership is mutable in the PV industry and it is difficult to imagine that First Solar will have an advantage in this regard for long.
First Solar has a history of abrupt strategy changes, typically with successful results. In the mid to late 2000s, when demand in Europe was at its peak, the company shut down module sales to the US and other countries and focused on sales into Europe. As demand in Europe slowed First Solar switched its strategy to projects, selling almost all of its module product to its systems division. Now, with continued margin compression, aggressive pricing and a seemingly stable utility scale market in the US the company switches back to a focus on module sales.
Lesson: Companies in all industries make decisions that lead to head scratching moments for observers. When a company with a strong and leading project business makes a dramatic strategic switch observers should ask themselves what the company sees happening to its project pipeline. Another equally important question is what is happening to the company’s project margins. Given traditional low bidding on PPAs and tenders, the answer may be: Get out while you can.
Paula Mints is founder of SPV Market Research, a
classic solar market research practice focused on gathering data
through primary research and providing analyses of the global
solar industry. You can find her on Twitter @PaulaMints1
and read her blog here.
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