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New Developments Could Push First Solar Down

April 20, 2012 | About:
First Solar (FSLR) lost its NASDAQ-100 premiere ranking to Texas Instruments (TXN) over the weekend. NASDAQ OMX Global Index Group issued a formal statement late Friday announcing First Solar is being replaced as a top 100 indexed securities based on market capitalization. The transition date for First Solar’s replacement is scheduled to take affect April 23. Texas Instruments just recently moved its stock listing from the New York Stock Exchange to the NASDAQ.

Ongoing Investigation

Under allegations of possible breach of fiduciary duties, First Solar is in a continuing legal investigation filed March 12, 2012 by the Law Offices of Howard G. Smith for potential claims against the company and its board of directors. Smith Law Offices are looking into accusations that corporate officers knowingly allowed the manufacturing of defective goods.

With the 2011 end-of-year earnings were reported, First Solar made an official notification it was subject to back charges of $164 million due to warranty issues. A loss of power in certain solar panels requires complete replacement of the equipment in question. Smith Law Offices believe several members of the First Solar Company’s board of directors deliberately incited such oversight causing both a huge financial loss and of greater importance a tarnished reputation. A reputation now in question that in my opinion was the basis for First Solar being selected as being replaced by Texas Instruments on the NASDAQ-100 Index.

The Smith Law Offices, on behalf of shareholders, seeks to recover money directly from certain First Solar board of directors, who it feels acted unscrupulously. The intent is to obtain a court order preventing offending Directors from taking inappropriate actions in the future. I suspect the recovery of share price is not going to be soon enough or financially significant enough to offset the loss of reputation; especially in light of this weekends forced step-down of First Solar from the NASDAQ-100.

In First Solar’s favor are two recent projects added on the books — both revenue boosting. The first is the acquisition in December from First Solar by MidAmerican Energy Holdings, a subsidiary of MidAmerican Energy Company, of the Topaz (550 MW) solar panel farm located in California.

Most importantly, Exelon (EXC) and First Solar are jointly working on the massive Antelope Valley Solar Ranch One project. This project is funded with a guaranteed government loan and is considered one of the world’s largest solar farms of its kind. At 230 megawatts the Antelope Valley solar farm is expected to generate electricity that can power 75,000 California homes. The first array of panels is schedule to be online by the end of this year with California Public Utilities Commission approving a 25-year power purchase agreement.

Subsidies and Tariffs

On the world market, Germany represents the largest share of solar panel production and installations. This year’s first quarter sales show a tripling of installation of solar panels in order to beat the rush to complete projects before subsidy cuts of 30% kick-in. On the other hand, some firms have canceled further development of projects and projects already slated for installation due to anticipation of these forthcoming cuts.

In the U.S., arguments over Chinese solar panel manufacturers, receiving improperly given Chinese government subsidies has resulted in stiff competition for U.S. manufacturer against such imports. Many U.S. companies feel these practices typically undermine U.S. companies. However many argue low-priced imports help consumers intent on best-buy-for-the-dollar to consider alternative energy such as solar where the buying public has not before. The U.S. Department of Commerce is delaying until May 17 a decision on the dumping charges of solar panels by the Chinese on the world market. Tariffs for counter-acting subsidies is less than the higher import taxes for selling below cost.

Is it cloudy weather ahead for First Solar with all this shuffling of subsides, tariffs and import taxes? Last year saw a 40% increase in global demand for solar panels but manufacturing excess created a glut of product forcing companies to slash prices. This glut comes at a time when subsides are declining, making for a difficult first couple of quarters in 2012 as manufacturers await subsidy and tariff decisions. The next two months are slated to have key decisions being made by the Governmental Department of Commerce for this industry that could implement improvements for the solar industry financials. Fortunately for First Solar, the Antelope Valley, Solar Ranch One project is already on the books. However, noted as a worldwide solar entity, First Solar will be watching closely the next two months for governmental decisions.

Balancing Act

NRG Energy (NRG) just announced a 52-week low for shares citing the recession has put a dent in demand plus users are becoming more efficient keeping demand for wholesale and utility market energy low. NRG Energy has underperformed both Calpine (CPN) and National Grid (NGG) but all three have struggled. However, National Grid’s regulated market continues to have promise.

More solar energy is being planned in the U.S. than any other power source right now, but I feel the loss of First Solar NASDAQ-100 ranking alongside of the allegations being charged by the Smith Law Offices calls for a closer watch of stock holdings between now and April 23. This new development over the weekend certainly changes the playing field for First Solar but the Antelope Valley Solar Ranch One project is a major bright spot in the coming year.

First Solar announced on Monday, April 18 a downsizing of operations by closing down its German manufacturing facility and reducing its global work force by 30%. With the anticipation of more subsidy cuts, First Solar plans to refocus and sift to other markets and concentrate more on its large scale systems installations such as the Antelope Valley Project One start-up. This along with the selling of the Topaz solar farm should help steady First Solar’s financials, but with all the ups and downs and recent slump of the solar industry I would keep a close watch on First Solar stock offerings.

About the author:

I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.

I fundamentally analyze every business from the top down.

In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.

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