First Solar, Inc. (FSLR): Limited Impact From Anti-Dumping Duties

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Last week, the US Department of Commerce imposed preliminary anti-dumping tariffs on imports of solar cells and modules from Chinese and Taiwanese manufacturers. The punitive tariffs range from 26%-165% and supplement the anti-subsidy duty that was imposed earlier in June this year, even though the WTO has ruled the tariff as a violation of global trade regulations.

“The recent announcement of anti-dumping duties, along with prior countervailing duties, will have a meaningful impact on US solar equipment prices in the near to mid-term,” says UBS analyst Stephen Chin in a research note of July 29, 2014. “With AD duties ranging from 26% to 42% for Chinese originated modules and 27% to 36% for Taiwanese produced modules, the prior loophole on duties has effectively been closed.”

First Solar, Inc. (FSLR) benefits but capacity is a constraint

First Solar, Inc. (NASDAQ:FSLR) is, on first impressions, an obvious beneficiary of the new tariffs. The stock market appears to certainly think so given its outperformance over Chinese rival Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) in the chart below (source Yahoo Finance):

YGE-VS-FSLR-2014-07-31_1432 First Solar, Inc. FSLR

However, a deeper analysis is required to reveal the ground reality: If Chinese suppliers protest the duties and discontinue supplies can First Solar, Inc. (NASDAQ:FSLR) [and rival SunPower Corporation (NASDAQ:SPWR)] take up the slack?

Perhaps not, says Chin. “The largest difficulty is capacity constraints,” he observes in his note. “SunPower Corporation (NASDAQ:SPWR) doesn’t have a meaningful expansion until its fab 4 line begins ramping in 2015-2016 adding 350MW to their current ~1.3GW while First Solar, Inc. (NASDAQ:FSLR) has close to 2GW with the potential to expand past 3GW by 2018.”

First Solar (FSLR) capacity

The following is a slide from First Solar, Inc. (NASDAQ:FSLR)’s 2014 Analyst Meeting presentation.


It may be noted that First Solar, Inc. (NASDAQ:FSLR) has metamorphosed beyond the supply of solar modules (a commodity business) into a supplier of integrated solar solutions as a PV energy provider (a value added business with higher and more reliable margins). In such a case, its module capacity will first be addressed towards its own project needs.

“Both companies have limited availability of modules for sale outside their own PV power plant businesses regardless of being cost competitive or not with Chinese rivals,” says technology editor Mark Osborne in PVTech, in his analysis of the winners and losers from the tariff decision and referring to First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR).

First Solar (FSLR) Q1 results

First Solar, Inc. (NASDAQ:FSLR) reported Q1 EPS of $1.10 which handsomely beat estimates by $0.58, while revenue at $950 million (up 26% y-on-y) surpassed forecasts by $112.1 million. The earnings beat was driven by a solid boost of 250 bps in the gross margin.

The company will report Q2 earnings on August 5, 2014. Analysts estimate EPS of $0.37 and revenue of $796 million.

Analyst rating

First Solar, Inc. (NASDAQ:FSLR) is rated Neutral by UBS with a price target of $75.00.

The stock closed yesterday at $65.58.

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