Case study 1

  • Please begin this section by reading chapter 6 of your textbook (Entering Foreign Markets).
  • After you have finished reading the chapter, complete the following case study about an American company named “First Solar” and their struggle with increased competition from abroad: First Solar Case Study
    After you have finished reading the case study, please answer the accompanying case questions: BA 625 Case Study 1 Questions x 

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    This case was prepared by Jennifer Ballen, MBA 2017, and Professor Neil Thompson.

    Copyright © 2017, Neil Thompson and Jennifer Ballen. This work is licensed under the Creative Commons Attribution-
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    September 13, 2017

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    First Solar

    Neil Thompson and Jennifer Ballen

    Tymen deJong, First Solar’s senior vice president of module manufacturing,1 fixated yet again on the
    company’s latest 10-K. DeJong had joined the company in January of 2010, at a time when First Solar’s
    future appeared bright. Now, just two years later, First Solar’s cost advantage was eroding and deJong
    was facing challenges that would require tough decisions.

    In 2009, First Solar broke cost records by becoming the first photovoltaic (PV) manufacturer to produce
    panels that generated a megawatt of power at a manufacturing cost of less than $1.00 per watt.2 The
    company’s proprietary thin-film cadmium telluride technology had made it the largest and lowest-cost
    producer for nearly a decade. However, the 2011 Form 10-K on deJong’s desk revealed a net operating
    loss of $39 million, the company’s first year-end net operating loss in the past seven years. Although
    revenues were $2.7 billion, revenue growth had slowed from 66% in FY 2009, to 24% in FY 2010, and
    then to a meager 8% in FY 2011.3 Much of this slowed growth was attributable to broader trends
    affecting the entire PV industry. Chinese manufacturers, subsidized by their government, were flooding
    the market with low-price crystalline-silicon (c-Si) solar panels. Market demand for PV panels was also
    weakening. The 2008–2009 global financial crisis had squeezed government budgets and weakened the
    financial positions of many banks. As a result, the once-heavy European solar subsidies were shrinking
    and the willingness of banks to finance solar projects had virtually disappeared. Silicon raw material

    1 As of July 2015, Tymen deJong became the chief operating officer (COO) of First Solar.
    2 Watt: a unit of power is defined as 1 joule per second; it measures the rate of energy flow.
    3 First Solar Inc., Form 10 K, 2007.

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    prices were also falling. This helped First Solar’s competitors, which produced silicon-based panels,
    but not First Solar, which produced cadmium telluride-based ones.

    As deJong reflected on the company’s recent financial slump, he wondered if First Solar’s competitive
    edge had eroded permanently. How should First Solar respond to the threat from the Chinese
    manufacturers? What could the company do to maintain its cost advantage? Were First Solar’s recent
    acquisitions of down-stream solar panel installers a strategic benefit or a distraction? DeJong knew that
    to answer these questions, he first needed to better understand the sources of First Solar’s competitive
    advantage and whether these sources were sustainable.

    PV Solar Manufacturing and Distribution

    Solar Industry History and Evolution

    In 1839, nineteen-year old French scientist Edmond Becquerel discovered the photovoltaic effect: that
    shining light on the junction of two dissimilar materials, such as a metal and a semiconductor, creates
    electric current. This led to Bell Lab’s 1954 creation of the first functional solar cell. Early solar cells
    were inefficient and costly to manufacture, so their use was limited to high-value applications, such as
    space satellites.4 By the early 1980s, PV solar cell use had broadened to consumer applications, such
    as calculators and watches, and by the mid-1990s utility companies had begun using PV solar plants,
    although costs continued to be higher than nonrenewable energy sources.

    At the turn of the 21st century, two major types of solar technologies had emerged: solar thermal and
    photovoltaic. Solar thermal power plants used sunlight to generate heat that was used to boil water,
    with the resulting steam driving a turbine to create electricity. But, the fastest growing solar market was
    photovoltaics: the conversion of sunlight directly into electricity. First Solar produced exclusively
    photovoltaic panels

    Overview of Photovoltaics

    By early 2012, there were two dominant technologies used to produce PV solar power: (i) thin-film and
    (ii) crystalline silicon (c-Si) (Exhibit 1). The PV supply chains typically involved the following steps
    (Figure 1).

    4 “Solar Explained: Photovoltaics and Electricity,” U.S. Energy Information Administration, October 25, 2015.

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    Figure 1 Steps in the PV Supply Chains

    Production Stage Process for Crystalline Silicon Process For Thin Film

    i) Raw material

    Raw silica, often in the form of
    sand, is purchased and purified.

    A substrate (e.g. glass) and
    semiconductor (e.g. cadmium telluride,
    CdTe) are prepared by 3rd parties.

    ii) Solar wafer production
    Silicon is formed into thin circular


    iii) Solar cell production5
    Solar wafers are layered to
    generate electric current when hit
    by sunlight.

    A thin layer of semiconductor is layered
    on top of the substrate, coated, and then
    defined with a laser.

    iv) Module array

    Solar cells are electrically wired together into solar modules and

    v) System integration and

    System integrators install completed modules and arrays. For utility customers,
    integrators also provide financing, engineering, construction, and ongoing

    Source: Case writers.

    Crystalline silicon was the dominant technology in the market, accounting for nearly 85% of
    manufactured solar panels over the last decade. Crystalline silicon was used for semiconductors in both
    electronics and solar cells. In 2001, 20% of total silicon use was allocated towards solar cell production,
    and 80% towards electronics. By 2010, this had reversed: 80% of total silicon use was for the
    manufacturing of solar cells. The rapid growth in demand from solar manufacturers increased silicon
    prices from $50/kg in 2001 to a peak of $475/kg in 2008.6 In response, crystalline silicon manufacturers
    raced to improve cell efficiency and reduce the thickness of the silicon wafer, which decreased silicon
    use in solar cells from approximately 15 grams per watt in 2001 to 5 grams per watt by EOY 2011.7
    From 2008–2011, supply of silicon ramped up, causing prices to plunge from $475/kg back to $65/kg
    (Exhibit 2). Industry experts predicted that silicon prices would continue to decline further in the near
    future, benefiting First Solar’s competitors.

    An alternative to crystalline silicon was thin film technology, first commercialized in the early 2000s
    by First Solar and a small number of other manufacturers. True to its name, thin film technology
    involved the placement of thin layers of semiconductor material, such as cadmium telluride, on top of
    inexpensive substrates, such as glass or aluminum. Panels using thin film were typically lower cost and
    required 98% less semiconductor material than traditional c-Si panels. In 2011, cadmium telluride use
    in thin film solar panels was approximately 0.1 grams per watt. The price of cadmium telluride varied

    5 “The Difference Between Solar Cells and Solar Panels,”
    6 “Mineral Commodity Summaries,” U.S. Geological Survey, January 2012.
    7 Shyam Mehta, “The Shifting Relationship Between Solar and Silicon in Charts,” Greentech Media, 2011.

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    over time, from $48/kg in 2006 to $192/kg in 2011 (Exhibit 2). Offsetting thin-film’s cost advantage
    was its historically lower efficiency in converting sunlight into power for most applications (Exhibit

    The cost of nonrenewable fossil fuel power had historically been lower than that of renewable power.
    By the end of 2010, ignoring subsidies, it cost utilities approximately $0.15-$0.35/kWh to produce
    electricity from solar power, $0.08-$0.10/kWh to generate electricity from wind, and $0.06-$0.08/kWh
    for natural gas.8 Coal cost only $0.04/kWh, but was the dirtiest form of power. Indeed, many coal plants
    with remaining useful life were being decommissioned to avoid the environmental and health damage
    they caused. Natural gas was becoming cost-competitive with coal due to the reduced cost of extracting
    natural gas through hydraulic fracking,9 a technique that had increased in use substantially over the past
    decade. However, natural gas, while cleaner than coal, still produced carbon emissions and posed
    environmental risks. Historically, the cost of solar was much higher than other forms of power. In 1976,
    the cost of solar was approximately $2.00/kWh, but this cost was falling substantially as producers
    learned-by-doing and took advantage of economies of scale (Exhibit 4).

    Global Market

    Over the last decade, PV solar energy had become the fastest-growing power generation technology in
    the world. Much of this growth was driven by regulatory policies, as solar was still more expensive
    than traditional fossil fuels. Government incentives typically enhanced the returns for solar providers
    in two ways: either providing higher prices for solar power suppliers or requiring utilities to purchase
    a specific amount of solar power.10 For example, Feed-in Tariffs (FiTs) were widely used, particularly
    in Europe, and offered solar producers long-term contracts at above-market, government-mandated
    rates. Another incentive, termed renewable portfolio standards, mandated that certain percentages of
    the energy produced by utilities be sourced from renewables, such as solar, wind, geothermal, or
    hydroelectric power. Renewable portfolio standards were used by many states in the United States,
    most significantly California that had been increasing renewable percentage requirements since 2002.

    From 2002–2008, global PV demand increased at an average annual rate of 48%. However, in early
    2009 the global financial crisis impacted the solar market, tightening the wallets of financial institutions
    and decreasing government spending. Existing subsidies allowed demand to continue increasing, but
    at a slower rate, after 2009. By early 2012, many governments had significantly reduced incentive
    programs. This was particularly evident in Europe, whose share of overall demand fell, albeit from a

    8 “Electricity Generation Estimates,” U.S. Energy Information Administration and Michigan State University, April 2011.
    9 Hydraulic fracking is an extraction technique for oil and gas wells in which pressurized liquid is injected into the cracks in rock formations. Once the hydraulic
    pressure is removed from the well, the remnants of the fracking fluid ease the extraction of oil and gas.
    10 Government incentives came in many different forms including, but not exclusive to: feed-in-tariffs, renewable portfolio standards, quotas, tax credits,
    tendering systems, net metering, rebates, loans, and production incentives.

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    high level (Exhibit 5). Despite this, the total global PV installed base at EOY 2011 was 65 gigawatts
    and experts predicted that this would grow by 400-600 gigawatts by 2020.11

    The biggest change in solar production was the large-scale entry of Chinese producers. In 2001,


    comprised less than 1% of overall solar production, but by 2012 Chinese producers were manufacturing
    nearly 60% of the entire world’s supply of PV panels12 (Exhibit 6).

    Market Segments

    There were three broad markets for solar power: residential homeowners, commercial businesses, and
    utilities. The residential segment represented 29% of the total market and was predicted to grow to 35%
    by 2020. Commercial businesses comprised 40% of the market; this segment was expected to shrink to
    25% by 2020. The utility market was predicted to be the fastest growing segment, with an expected
    increase in market share from 31% in 2011 to 40% by 2020. In all three markets there were numerous
    systems integrators.

    The Residential Market In the residential market, PV solar manufacturers sold panels to third-party
    system integrators, installers, and distributors, who would physically position the panel on a
    homeowner’s roof and connect the panel to the regional electric grid. Residential users were encouraged
    to adopt solar through investment tax credits and net metering incentives (which encouraged solar
    operators to sell unused electricity back to utilities).

    Residential customers typically did not focus on the technology or maker of their solar panels, but
    instead on the overall costs and benefits of the installed system. The key criteria for a residential
    customer purchasing from a panel manufacturer were (in descending order): the levelized cost of
    electricity (an average cost measure per kWh across the lifetime of the system),13 installation and
    distribution costs (expenses that were paid by the homeowner), watts per unit area, and sometimes even
    aesthetics, as some residential homeowners were concerned about the appearance of highly visible
    rooftop panels.

    The Commercial Market Commercial and industrial businesses seeking to lower their operating
    expenses and carbon footprints also purchased solar power systems through third party system
    integrators and distributors. As commercial projects were typically larger in scope and required greater
    wattage per panel, the primary purchase consideration for commercial businesses was the levelized cost
    of electricity. When purchasing panels, commercial customers also focused on watts per unit area,
    installation and distribution costs, and reliability of the technology.

    11 Krister Aanesen, Stefan Heck, and Dickon Pinner, “Solar Power: Darkest Before Dawn,” McKinsey & Company, May 2012.
    12 Robert Castellano, “China’s EV Battery Industry Could Be A Repeat of Solar and Rare Earth Dominance,” Seeking Alpha, October 25, 2016.
    13 See Glossary for more details.

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    The commercial and utility markets both financed solar projects with solar leases and power purchase
    agreements (PPAs), financial contracts between buyers and providers of electricity. With a PPA, the
    developer was responsible for the design, financing, and installation of the solar system at little to no
    cost for the customer. The developer also operated and maintained the system over the duration of the
    contract, typically 10-25 years. In return, the customer purchased the generated energy at a fixed rate
    from the developer. At contract termination, the customer would either extend the PPA, remove the
    system, or purchase the system from the developer. PPAs provided an assurance of both volume (all
    the kWh were sold) and price (as set by the PPA contract).

    The Utility Market In contrast to the residential and commercial markets, the utility market
    encompassed a smaller number of larger-scale projects. For example, in the United States, there were
    approximately 60 new utility-scale solar projects in 2011, as compared to hundreds of thousands of
    projects in residential and commercial markets.14 Some utilities purchased panels directly from PV
    manufacturers, while others purchased from system integrators and installers. System developers
    provided a variety of services to utility customers, including:

    i. Project Development: obtaining land permits, negotiating purchase agreements,
    transmission interconnection, major engineering, and construction.

    ii. Operations and Maintenance: subsequent to development, signing long-term contracts
    to provide on-site operations and maintenance, such as performance analysis, forecasting,
    contractual and regulatory advice, performance reporting, and inventory management.

    iii. Project Finance: negotiating and executing power plant sales, raising capital from debt
    and equity markets, and structuring non-recourse project-level debt financing.

    iv. Engineering, Procurement and Construction: engineering and designing power plants,
    developing grid integration, construction management, and procuring component parts
    from third parties.

    The primary purchase consideration for the utility market depended on the placement. In space-
    constrained areas, the most important factor was typically watts-per-square meter, so that as much
    power as possible could be generated in small spaces. Utilities that were not space constrained were
    willing to purchase less efficient panels if the panels had a lower cost per kilowatt-hour. Many utility
    installations were not space constrained.

    A vendor track record of successful and timely installation was typically the next purchase
    consideration for utilities. PV manufacturers that wanted to sell products to utilities in a certain location
    would often first establish a relationship with integrators that had a favorable track record in order to
    better reach that market. Finally, utilities purchased panels based on proven technology and anticipated

    14 “An Analysis of New Electric Generation Projects Constructed in 2011,” Electric Market Reform Initiative and American Public Power Association, March

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    reliability of the system. Feed-in-tariffs were implemented by many governments to encourage demand
    and required utilities to buy renewable energy at above-market rates. Utilities often passed this
    incremental financial burden to their customers through a small extra fee on monthly electric bills.

    First Solar

    Brief Company History

    First Solar originated as a glass company in 1984 under the name Glasstech Solar, founded by glass
    entrepreneur Harold McMaster. In 1990, the company was renamed to Solar Cells, Inc., and then once
    again in 1999 to First Solar, LLC, after True North Partners purchased a controlling interest in the
    company and the firm was recapitalized. John Walton, the son of Walmart’s founder Sam Walton, and
    Mike Ahearn (who later became co-founder, Chairman, and the first CEO of First Solar) founded True
    North Partners. Walton and Ahearn both believed in the power of technology to accelerate

    On November 17, 2006, First Solar became a publicly-traded company (FSLR), raising $450 million
    at an initial offering price of $20 per share.15 First Solar’s business model focused solely on component
    manufacturing at first: designing and producing PV solar cells and modules to sell to project developers,
    system integrators, and operators of clean energy projects. Beginning in 2007 with a series of
    acquisitions, First Solar vertically integrated, buying system integrators primarily in the United States.
    Through its systems business, First Solar controlled the engineering, procurement, construction,
    operations, maintenance, and development of solar power plants, and at times, project finance.

    Manufacturing and Costs

    First Solar manufactured PV solar cells and modules using an advanced thin-film cadmium telluride
    (CdTe) technology, controlling all stages of production entirely in-house which, according to First
    Solar’s 10-K, “…eliminated the multiple supply chain operators and expensive and time consuming
    batch processing steps that are used to produce crystalline silicon solar modules.”

    In 2005, First Solar produced its first commercial solar module. First Solar used a proprietary vapor
    deposition technology to coat glass panels with two thin layers of semiconductor material: first
    cadmium sulfide, then cadmium telluride. High speed lasers then divided the semiconductor into cells,
    the fundamental units for absorbing light and converting it into electricity. Solar cells were combined
    to form solar modules and solar modules were combined to form solar panels to scale up the amount of
    electricity provided.

    Tymen deJong commented on First Solar’s use of thin-film:

    15 Nasdaq, First Solar Inc. IPO priced November 17, 2006.

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    Most of the early work in photovoltaic generation was done on crystalline silicon, so that’s where
    the R&D investments went. While there was an awareness of thin-film and cadmium telluride, there
    simply was not that much money being invested in it. There are significant technical challenges in
    applying cadmium telluride. We figured it out early and, to this day, we have a tremendous amount
    of IP around how to do that. The barriers to entry to figure this all out are years of R&D and
    hundreds of millions of dollars in capital expenditures. And, to be fair, all of the early efficiency
    records were based on c-Si…it looked like a better technology to new entrants. But, if you want to
    look at thin-film, you have to do all that work yourself. Our company leaders had this vision around
    CdTe and what we could do.

    Historically, First Solar produced all of its modules at its manufacturing plant in Perrysburg, Ohio,
    which later evolved to also become the company’s primary research and development (R&D) center.
    In April of 2007, First Solar expanded production internationally and began to produce modules at its
    Frankfurt/Oder Germany plant.

    As of 2011, First Solar operated 36 production lines in Perrysburg, Ohio; Frankfurt, Germany; and,
    Kulim, Malaysia. Of these, the Malaysian plants had the lowest production costs, but the other plants
    had advantages in terms of R&D or serving particular markets. The company’s newest plant was built
    in Frankfurt, Germany in November of 2011. This was First Solar’s second plant in Frankfurt, adding
    a capacity of 250 megawatts per year to the region. The plant had taken First Solar one year to construct
    and cost roughly 170 million euros (US $230 million).16 First Solar also had two plants under
    construction in Mesa, Arizona and Ho Chi Minh City, Vietnam.17

    Traditionally, First Solar had operated its plants very close to 100% capacity in order to maximize use
    of the expensive fixed capital required to produce PV panels. By 2011, however, the increasing market
    share of Chinese competitors led to First Solar producing only 1.7 gigawatts of panels (approximately
    21 million solar modules) despite having the capacity to produce 2.5 gigawatts.

    The manufacturing cost per watt for First Solar and its competitors is shown in Exhibit 7.

    Customer and Market Strategy

    The majority of First Solar’s early customers were system integrators, developers, and operators,
    primarily located in subsidy-rich Europe. In 2008, approximately 74% of the company’s net sales
    resulted from Germany alone.18 In order to diversify, First Solar expanded into direct sales in high-
    sunshine, non-subsidy reliant markets, primarily selling systems to utilities in Africa, the Middle East,
    and the Americas.

    16 Jonathan Gifford, “First Solar Inaugurates Second German Plant,” PV Magazine, November 3, 2011.
    17 First Solar Inc., Form 10-K, 2011.
    18 First Solar Inc., Form 10-K, 2010.

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    The company first ventured into the systems business in late 2007 with a $34.4 million acquisition of
    system integrator, Turner Renewable Energy. Further acquisitions of Mission Edison’s project pipeline,
    OptiSolar (a power plant contractor), NextLight Renewable Power (a solar panel developer), and Ray
    Tracker (a component parts firm), expanded First Solar’s presence in the systems market.19 While First
    Solar became closer to the customer, these acquisitions also brought with them higher SG&A expenses.
    From 2009 to 2011, First Solar grew its utility-scale systems business from 5% to 25% of overall sales,
    narrowing the gap between itself and systems leader, SunPower, which derived 53% of its business
    from systems in 2010 and 46% in 2011. Chinese manufacturers were largely absent from the systems
    business. Exhibit 8 provides additional details.

    Financial Strategy

    First Solar pursued a conservative financial strategy, borrowing less than its competitors. From 2007–
    2011, First Solar had an average annual debt of $276 million, whereas SunPower had $687 million,
    Suntech had $1.7 billion, and Yingli Solar had $1.1 billion. First Solar also consistently kept more cash
    on hand than competitors, for use in financing promising solar projects. Capacity expansions were
    typically funded with 50% cash and 50% equity. Bruce Sohn, former President and Board member
    (2003–2011), commented on First Solar’s financial approach:

    The reason we pursued a low leverage strategy was because we wanted a strong balance sheet. This
    served to both lower borrowing costs [for First Solar customers] and provide confidence to buyers
    that we would be able to sustain our business for the long-term. We did it by design for those
    reasons. In contrast, our competitors during this time were levering up and borrowing to expand,
    and thus had weak balance sheets. People didn’t trust those companies. First Solar took the opposite

    Exhibit 9 shows both the income statements and balance sheets for First Solar and its main competitors.

    Vertical Integration

    All PV manufacturers produced solar modules, with several outsourcing various aspects of
    semiconductor production. Few forward-integrated into systems, so First Solar was unusual in this
    respect. The company divided its business into two interrelated segments: components and systems.
    The components business manufactured cadmium telluride solar cells and modules, while the systems
    business developed those components into complete solar systems. The components segment had
    historically achieved higher profitability and generated more cash than systems, but the systems
    business had less margin variability because the provision of ongoing maintenance, engineering, and
    construction was less dependent on materials prices.

    19 First Solar Inc., Form 10 K, 2007.

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    Sohn commented on the vertical integration:

    We realized that we could scale our production faster than our customers [the systems integrators]
    were able to scale their business. Our customers were the constraint and we determined that if we
    could vertically integrate, especially in places where our customers did not operate, then we could
    grow significantly faster. This effectively doubled our shipment rate and enabled steep volume
    growth even during a period of heightened competition.

    Having our own utility scale solar business also provided us with the opportunity to optimize
    overall system design…For several years, First Solar was able to deliver systems that yielded up to
    5% better performance than competitors because of our intimate knowledge about the [First Solar]


    United States

    Although U.S. customers were initially slower to adopt PV solar power than their European and Asian
    counterparts, by 2011 U.S. solar installations had grown enormously, doubling from 2009 to 2011. In
    2011, the U.S. market share of total global PV installations increased from 5% to 7%. U.S. market share
    was anticipated to outpace the growth of other nations over the next five years. Reported installed solar
    capacity from 2010–2011 in the United States was a total of 1,855 megawatts, comprised of 16%
    residential, 43% commercial, and 41% utility. The utility market had only recently grown in size, while
    the commercial market had long accounted for over 50% of solar energy growth.20 As in the rest of the
    world, the majority of modules produced in the United States used crystalline silicon technology.

    In 2011, First Solar controlled approximately 41% of the U.S. market. SunPower was the second largest
    PV manufacturer, controlling 38.5%, while the remaining 20.5% of the market went to smaller players
    including Solyndra, SunEdison, SunRun, Evergreen Solar, and Spectrawatt, Inc.21 SunPower
    manufactured highly efficient (18.1%–20.1%) and more expensive, solar panels and modules. In 2011,
    SunPower was suffering a similar fate to First Solar, also recording its first year-end net operating loss
    since 2007. SunPower’s gross margin over the past five years had decreased from 19% in 2007 to 10%
    at EOY 2011. In April 2011, SunPower sold a 60% controlling interest to the oil company Total for
    $1.38 billion. Total offered SunPower up to $1 billion of credit over the ensuing five years.22

    Solyndra, a California-based solar panel manufacturer, also competed in the thin-film market, using a
    copper indium gallium (di)selenide (CIGS) technology to design and manufacture panels, primarily for

    20 “U.S. Solar Market Insight Report 2011 Year-In-Review,” Solar Energy Industries Association, 2011.
    21 First Solar, Inc., Form 10K, 2011; SunPower Corporation, Form 10K, 2011.
    22 “Total to Begin Friendly Tender for Up to 60% of SunPower Shares,” Bloomberg, March 28, 2011.

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    commercial customers. Although Solyndra had increased production from 30 MW in 2009 to 67 MW
    in 2010,23 the company was ultimately forced to declare bankruptcy in September of 2011. Analysts
    speculated the bankruptcy was due to an over-leveraged balance sheet and tightening credit conditions.


    In 2009, the Chinese government declared leadership in PV solar production a national priority,
    ratifying a multitude of solar subsidy programs that transformed China into the world’s largest producer
    of solar panels in just a few short years. Crystalline silicon manufacturers from China began producing
    quickly, cheaply, and in mass quantities, exporting over 90% of their panels abroad.24 Chinese
    manufacturers also had much lower R&D expenditures, typically a third to a half as much as First Solar.
    Major players in the Chinese market included Suntech, Yingli, and Trina Solar.

    The Chinese government subsidized both the demand and supply of PV solar panels. Domestically, the
    government subsidized demand through a series of initiatives. In March of 2009, China released its first
    national solar subsidy initiative called “building-integrated photovoltaics,” a government subsidy
    providing up to 20 RMB (US$3) per watt for such systems and 15 RMB per watt for rooftop systems.25
    By July, the program had offered $1.2 billion in subsidies. That same year, China launched its second
    national solar subsidy program: Golden Sun. This program sought to accelerate the development of
    utility-scale solar projects, offering a 50% subsidy for building, transmission, and distribution costs.
    The subsidy increased to 70% for PV projects in remote areas lacking connection to the grid. The
    government’s stated intent was to install over 500 megawatts of solar power in two to three years.26 A
    variety of similar subsidies were implemented in the following years. Collectively, the yearly
    installation of PV panels in China grew more than 1000% from 2009 to 2011.27

    Chinese subsidization of suppliers is harder to quantify. One 2011 U.S. Department of Energy and
    Stanford University study attempted to quantify the scale of the advantages of producing in China,
    including subsidies, low-cost equipment, cheaper labor, and regional supply chain advantages (Exhibit
    10). This study found that the Chinese cost advantage due to subsidies for PV manufacturers was
    approximately 18-20% of costs, when compared with a 60 MW crystalline silicon U.S. plant. In 2011,
    the World Trade Organization (WTO) began an investigation of Chinese subsidies, ultimately
    concluding that of the 18-20% cost advantage, 1/5 was due to subsidies, most of which manifested in
    the form of lower depreciation. In other words, the Chinese government was primarily subsidizing the
    building of new plants rather than ongoing operations.28

    23 “2010 Solar Technologies Market Report,” U.S. Department of Energy, November 2011.
    24 “Why Millions of Chinese-Made Solar Panels Sat Unused in Southern California Warehouses for Years,” Pacific Standard, June 30, 2015.
    25 It is important to note that this number applies to the entire solar system, not just the panel, and therefore is not comparable to values in Exhibit 2.
    26 Lin Jones, “China’s National Solar Subsidy Programs,” China Policy in Focus, 2012.
    27 Greentech Media Research, PV Pulse, 2008-2011.
    28 Mark Clayton, “China Subsidized Solar Panels, U.S. Finds…”, March 2012.

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    Chinese manufacturers produced so many panels over this period that they had to store millions of
    panels in warehouses in California. Many of these panels sat unused until they became obsolete for the
    U.S. market.29 In October 2011, Solarworld, along with six anonymous PV manufacturers, filed an anti-
    dumping30 lawsuit with the Department of Commerce and the International Trade Commission,
    contending that crystalline-silicon Chinese manufacturers were benefiting from illegal subsidies and
    dumping their modules into the U.S. market. Industry experts had given credence to this anti-dumping
    lawsuit by accusing Chinese suppliers of selling modules below their bill of materials and contending
    that the Chinese government was giving free equipment, gifts of land, deferred taxes and other benefits
    to its domestic manufacturers. The severity of this for First Solar was captured in the company’s 2011
    10-K Filing:

    In 2011, industry average module pricing declined significantly as competitors reduced prices to
    sell-through inventories in Europe and elsewhere. If competitors reduce module pricing to levels
    near or below their manufacturing costs, or are able to operate at minimal or negative operating
    margins for sustained periods of time, our results of operations could be adversely affected. At
    December 31, 2011, the global PV industry consisted of more than 150 manufacturers of solar
    modules and cells. In the aggregate, these (global PV) manufacturers have installed production
    capacity that significantly exceeded global demand in 2011. We believe this structural imbalance
    between supply and demand (i.e., where production capacity significantly exceeds current global
    demand) will continue for the foreseeable future, and we expect that it will continue to put pressure
    on pricing, which could adversely affect our results of operations.


    The combination of the flood of inexpensive panels from China and the drop in subsidies in Europe
    drove down solar prices worldwide, forcing the closure of numerous manufacturing plants, particularly
    in the United States. On August 15, 2011, U.S manufacturer Evergreen Solar, Inc. filed for bankruptcy,
    closing at $0.18 on the NASDAQ, a dramatic end to a stock that in 2007 had a price of $113.10 and a
    promising future. The price of solar wafers, Evergreen Solar’s main product, had dropped 35% in the
    last 12 months.31 Just one week later, SpectraWatt Inc., backed by Intel Corp. and Goldman Sachs
    Group, also filed for Chapter 11 bankruptcy.32 The U.S. solar industry was suffering, and higher-cost
    producers were being hit the hardest.

    29 “Why Millions of Chinese-Made Solar Panels Sat Unused in Southern California Warehouses for Years,” Pacific Standard, June 30, 2015.
    30 Dumping: when a foreign producer sells goods or services in domestic country for a price lower than production costs and/or the domestic producer’s selling
    price. The price difference is referred to as the dumping margin.
    31 Nichola Groom, “Solar Company Evergreen Files for Bankruptcy,” Reuters, August 15, 2011.
    32 Andrew Herndon and Michael Bathon, “Intel-Backed Solar Company Files for Bankruptcy as Prices Slide,” Bloomberg, August 24, 2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 13

    In September of 2011, U.S. CIGS33 manufacturer Solyndra filed for bankruptcy after just six years of
    operation, resulting in the loss of thousands of jobs. Solyndra’s insolvency was also politically charged
    because just two years earlier the company had received a $535 million loan guarantee from the U.S.
    Department of Energy, the first-ever loan recipient under the 2009 American Recovery and
    Reinvestment Act. At the time, U.S. President Barack Obama had publicly praised Solyndra for setting
    a positive example for the “future” of American energy businesses.34 Solyndra had also received over
    $700 million in venture capital funding during its time of operation.35 Although Solyndra was not
    considered a major player in the global solar market, its default on a federal loan guarantee carried
    higher implications than other bankruptcies: Solyndra became a proof of concept for those seeking to
    diminish loan-guarantees and other incentives for clean energy.

    First Solar’s Response

    Protagonist Prepares for Upcoming Meeting

    DeJong was concerned. The quarterly Board meeting was just around the corner and he knew that the
    company’s recent financial underperformance meant he would have to field intense questions from
    employees and investors. The $413 million loss in 4Q 2011 amounted to a per-share loss of $4.78. Just
    one year ago, during 4Q 2010, First Solar had earned a $155.9 million ($1.80 per share) quarterly profit.

    Could First Solar still be profitable if silicon prices continued to fall? Was the systems business a
    competitive advantage or a distraction? What changes did First Solar need to make to counter the threat
    of Chinese entrants? If First Solar was forced to retrench, which market should the company focus on,
    and would it be able to prevail in that market? Could the company maintain its competitive advantage
    or would it follow other American solar manufacturers into bankruptcy in the face of these difficult

    33 CIGS: short for Copper-Indium-Gallium-Selenide, a technology used to manufacture thin-film solar cells and modules.
    34 Joe Stephens and Carol D. Leonnig, “Solyndra Solar Company Fails after Getting Federal Loan Guarantees,” Washington Post, August 31, 2011.
    35 Tom Hals, “U.S. Solar Frm Solyndra Files for Bankruptcy,” Reuters, September 6, 2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 14

    Exhibit 1 Thin-Film and Crystalline Silicon Solar Cells

    Thin film Crystalline Silicon

    Source: First Solar.

    Exhibit 2 Raw Materials Prices36

    Sources: U.S. Geological Survey, Mineral Commodity Summaries, January 2012; PV Insights.

    36 Cadmium telluride prices calculated based on the cost of the two input materials: cadmium and telluride.

    2006 2007

    2008 2009 2010 2011

    Silicon Prices $100 $280 $475 $140 $60 $65

    Cadmium Telluride Prices $49 $47 $115 $81 $118 $192








    Raw Materials Prices

    Neil Thompson and Jennifer Ballen

    September 13, 2017 15

    Exhibit 3 Module Size and Wattage37

    Company Area of Solar Module Watts per Module
    First Solar 8 ft2 80
    SunPower 23.3 ft2 435
    Suntech 13.8 ft2 190
    Yingli 10.76 ft2 130

    Source: Company SEC Form 10-Ks and Annual Reports.

    Exhibit 4 Learning Rates38

    Source: Trancik, Jessika E., Patrick R. Brown, et al. “Technology Improvement and Emissions Reductions as Mutually

    Reinforcing Efforts: Observations from the Global Development of Solar and Wind Energy.” Cambridge, MA: Institute for Data,

    Systems and Society, Massachusetts Institute of Technology, November 13, 2015. URL:

    37 “Yingli-Panel Specifications”, First Solar 10K, “SunPower_PanelSpecs”, “Suntech_Panel Specs”
    38 Learning rate: percentage decrease in costs, given a doubling of production.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 16

    Exhibit 5 New Global PV Installations

    Source: Greentech Media Research, PV Pulse, 2008-2011.

    Exhibit 6 Module Production by Region

    Source: Greentech Media Research, PV Pulse, 2008-2011.












    2008 2009 2010 2011

    New Global PV Installations (MW)






    2008 2009 2010 2011




    Module Production by Region

    Neil Thompson and Jennifer Ballen

    September 13, 2017 17

    Exhibit 7 Manufacturing Cost per Watt

    FIRST SOLAR 2011 2010 2009 2008 2007
    Watts (thousands)39 1,700,581 1,400,696 1,066,711 525,841 205,344
    Manufacturing Cost Per Watt $0.75 $0.77 $0.87 $1.08 $1.23

    SUNPOWER 2011 2010 2009 2008 2007
    Watts (thousands) 1,408,304 999,612 649,509 563,717 234,846
    Manufacturing Cost Per Watt $1.48 $1.71 $1.91 $1.93 $2.67

    SUNTECH 2011 2010 2009 2008 2007
    Watts (thousands) 2,083,841 1,594,451 705,542 677,289 440,621
    Manufacturing Cost Per Watt $1.26 $1.41 $1.78 $2.14 $2.40

    YINGLI 2011 2010 2009 2008 2007
    Watts (thousands) 1,630,835 1,082,250 531,422 285,328 144,167
    Manufacturing Cost Per Watt $1.16 $1.14 $1.50 $3.01 $2.91

    Source: Company SEC Form 10-Ks and Annual Reports.

    39 Total Capacity Watts

    Neil Thompson and Jennifer Ballen

    September 13, 2017 18

    Exhibit 8 Share of Sales in Components and Systems (US$)

    Source: Company SEC Form 10-Ks and Annual Reports.

    First Solar
    2011 2010 2009 2008 2007

    Components Systems Components Systems Components Systems Components Systems Components Systems

    74.8% 25.2% 85.2% 14.8% 95.1% 4.9% 95.9% 4.1% 99.3% 0.7%


    2011 2010 2009 2008 2007
    Components Systems Components Systems Components Systems Components Systems Components Systems

    54.0% 46.0% 46.6% 53.4% 57.1% 42.9% 42.7% 57.3% 40.1% 59.9%


    2011 2010 2009 2008 2007
    Components Systems Components Systems Components Systems Components Systems Components Systems

    95.8% 4.2% 95.3% 4.7% 94.9% 5.1% 92.8% 7.2% 98.8% 1.2%


    2011 2010 2009 2008 2007
    Components Systems Components Systems Components Systems Components Systems Components Systems

    99.6% 0.4% 99.5% 0.5% 99.3% 0.7% 99.6% 0.4% 99.9% 0.1%

    Neil Thompson and Jennifer Ballen

    September 13, 2017 19

    Exhibit 9 Consolidated Financial Statements for First Solar, SunPower, Suntech,
    and Yingli Green Energy

    31-Dec-11 31-Dec-10 26-Dec-09 27-Dec-08 29-Dec-07
    Net Sales 2,766,207 2,563,515 2,066,200 1,246,301 503,976
    Cost of Sales 1,794,456 1,378,669 1,021,618 567,908 252,573
    Gross Profit 971,751 1,184,846 1,044,582 678,393 251,403
    Operating expenses
    Research and
    Development 140,523 94,797 78,161 33,517 15,107
    Selling, general, and
    administrative 412,541 321,704 272,898 174,039 82,248
    Production start-up 33,620 19,442 13,908 32,498 16,867
    Goodwill impairment40 393,365 – – – –
    Restructuring 60,366 – – – –
    Total Operating
    Expenses 1,040,415 435,943 364,967 240,054 114,222
    Operating (loss) Income (68,664) 748,903 679,615 438,339 137,181
    EBIT Margin (%) -2.48% 29.21% 32.89% 35.17% 27.22%
    Foreign currency gain
    (loss) 995 (3,468) 5,207 5,722 1,881
    Interest income 13,391 14,375 9,735 21,158 20,413
    Interest expense, net (100) (6) (5,258) (509) (2,294)
    Other income (expense),
    net 665 2,273 (2,985) (934) (1,219)
    Income (loss) before
    income taxes (53,713) 762,077 686,314 463,776 155,962
    Income tax (benefit)
    expense (14,220) 97,876 46,176 115,446 (2,392)
    NET INCOME (LOSS) ($39,493) $664,201 $640,138 $348,330 $158,354
    Net Margin (%) -1.43% 25.91% 30.98% 27.95% 31.42%

    Source: First Solar Inc., SEC Form 10K, 2007-2011.

    40 As stated on First Solar’s 2011 10K, Goodwill represents the excess of the purchase price of acquired business over the estimated fair value assigned to the
    individual assets acquired and liabilities assumed. First Solar does not amortize goodwill, rather tests for impairment at least annually. First Solar recorded a
    goodwill impairment of $393.4 million during the 4th quarter of 2011 related to its components reporting unit, specifically related to the goodwill that had been
    allocated to the company’s acquisitions of OptiSolar in 2009 and NextLight in 2010.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 20

    Source: SunPower SEC Form 10K Filing, 2007-2011.

    1-Jan-12 2-Jan-11 3-Jan-10 28-Dec-08 30-Dec-07
    Utility and power plants 1,064,144 1,186,054 653,531 823,307 464,178
    Residential and commercial 1,248,350 1,033,176 870,752 614,287 310,612
    Total Revenue 2,312,494 2,219,230 1,524,283 1,437,594 774,790
    Cost of Revenue
    Utility and power plants 967,076 908,326 526,850 659,752 386,532
    Residential and commercial 1,117,214 801,011 713,713 428,221 240,507
    Total Cost of Revenue 2,084,290 1,709,337 1,240,563 1,087,973 627,039
    Gross Margin 228,204 509,893 283,720 349,621 147,751

    Operating expenses
    Research and development 57,775 49,090 31,642 21,474 23,138
    Sales, general, and administrative 319,719 321,936 190,244 173,740 108,256
    Goodwill impairment 309,457 – – – –
    Other intangible asset impairment 40,301 – – – 14,068
    Restructuring charges 21,403 – – – –
    Total operating expenses 748,655 371,026 221,886 195,214 145,462
    Operating Income (loss) (520,451) 138,867 61,834 154,407 2,289
    EBIT Margin (%) -22.51% 6.26% 4.06% 10.74% 0.30%
    Other income (expense) net
    Interest Income 2,054 1,541 2,109 10,789 13,882
    Interest expense (67,022) (55,276) (36,287) (22,814) (12,036)
    Other, net (2,344) 98,281 15,964 (26,313) 2,377
    Other Income Expense, net (67,312) 44,546 (18,214) (38,338) 4,223
    Income (loss) before income taxes
    and equity in earnings of
    unconsolidated investees (587,763) 183,413 43,620 116,069 6,512
    Provision for income taxes (22,099) (23,375) (21,028) (40,618) 22,084
    Equity in earnings of unconsolidated
    investees 6,003 6,845 9,929 14,077 (278)
    Income (loss) from continuing
    operations (603,859) 166,883 32,521 89,528 28,318
    Income from disctd. ops., net of tax – 11,841 – – –
    NET INCOME (LOSS) ($603,859) $178,724 $32,521 $89,528 $28,318
    Net Margin (%) -26.11% 8.05% 2.13% 6.23% 3.65%

    Neil Thompson and Jennifer Ballen

    September 13, 2017 21

    Source: Suntech SEC Form 10K Filing, 2007-2011.

    31-Dec-11 31-Dec-10 26-Dec-09 27-Dec-08 29-Dec-07
    Net Revenues
    PV modules 3,014,000 2,766,300 1,606,300 1,785,800 1,331,700
    Others 132,600 135,600 87,000 137,700 16,600
    Total Net Revenues 3,146,600 2,901,900 1,693,300 1,923,500 1,348,300
    Cost of Revenues
    PV modules 2,626,200 2,211,900 1,235,600 1,448,200 1,057,600
    Others 133,800 146,900 95,700 132,400 16,600
    Total Cost of Revenues 2,760,000 2,358,800 1,331,300 1,580,600 1,074,200
    Gross Profit 386,600 543,100 362,000 342,900 274,100
    Selling expenses 162,600 118,000 82,100 59,300 30,600
    General & Administrative

    248,800 125,100 76,900 85,800 44,500

    Research & Development

    38,600 40,200 29,000 15,300 15,000

    Provision for prepayment to

    120,000 8,000 – – –

    Impairment of goodwill 281,500 – – – –
    Impairment of long-lived assets 180,300 54,600 – – –
    Total operating expenses 1,031,800 345,900 188,000 160,400 90,100
    Income from operations (645,200) 197,200 174,000 182,500 184,000
    EBIT Margin (%) -20.50% 6.80% 10.28% 9.49% 13.65%
    Interest expense (143,300) (99,500) (103,300) (106,100) (49,400)
    Interest income 7,400 7,600 9,600 32,600 31,200
    Other (expense) income, net (171,300) (94,400) 11,200 (76,700) (8,700)
    Earnings before income taxes,
    non-controlling interest and equity
    in net earnings (loss) of affiliates

    (952,400) 10,900 91,500 32,300 157,100

    Equity in net earnings (loss) of

    (98,700) 250,800 (3,300) 300 (700)

    Income (loss) from continuing
    operations before tax

    (1,051,100) 261,700 88,200 32,600 156,400

    Tax expense (benefit) 47,200 (23,800) (2,500) (1,600) (13,200)
    Income (loss) from continuing
    operations before tax

    (1,003,900) 237,900 85,700 31,000 143,200

    Loss from disctd ops., net of tax (14,100) – – – –
    NET INCOME (LOSS) ($1,018,000) $237,900 $85,700 $31,000 $143,200
    Net Margin (%) -32.35% 8.20% 5.06% 1.61% 10.62%

    Neil Thompson and Jennifer Ballen

    September 13, 2017 22

    Source: Yingli SEC Form 10K Filing, 2007-2011.

    31-Dec-11 31-Dec-10 31-Dec-09 31-Dec-08 31-Dec-07

    Net revenues
    Sales of PV modules 2,287,467 1,860,129 1,048,717 1,091,358 550,515
    Sales of PV systems 8,537 8,585 7,354 4,043 268
    Other revenues 36,090 25,223 6,773 11,673 5,700
    Total net revenues 2,332,094 1,893,937 1,062,844 1,107,074 556,483
    Cost of PV modules sales 1,891,594 1,232,002 799,643 857,634 418,868
    Cost of PV systems sales 6,876 7,453 5,838 2,820 205
    Cost of other revenues 44,409 25,272 6,206 7,762 6,240
    Total cost of revenues 1,942,879 1,264,727 811,687 868,216 425,312
    Gross Profit 389,215 629,210 251,157 238,858 131,171
    Selling expenses 129,971 118,219 50,916 23,054 15,071
    General & administrative
    expenses 95,763 70,836 60,080 38,369 20,538
    R&D expenses 45,267 20,837 27,005 8,391 2,405
    Provision for (recovery of)
    doubtful accounts receivable 6,195 (1,985) 47,271 – –
    Impairment of intangible asset 361,465 – 19,217 – –
    Impairment of goodwill 43,436 – – – –
    Provision for inventory
    commitments 135,321 – – – –
    Total operating expenses 817,418 207,907 204,489 69,814 38,014
    Income from operations (428,203) 421,303 46,668 169,044 93,157
    EBIT Margin -18.36% 22.24% 4.39% 15.27% 16.74%
    Other income (expense)

    Equity in loss of affiliates, net (1,518) (95) (406) (319) (152)
    Interest expense (99,578) (66,365) (55,133) (21,868) (8,888)
    Interest income 4,584 2,423 926 1,867 1,867

    Foreign currency gains (losses) (30,264) (51,245) 5,624 (9,716) (4,478)

    Loss on debt extinguishment – – (35,855) – –
    Loss from revaluation of
    derivative – – (33,892) – –

    Other income 14,902 1,782 1,079 893 –
    Earnings (loss) before income
    taxes (540,077) 307,803 (70,989) 139,901 81,507
    Income tax benefit (expense) 21,197 (50,524) 4,663 819 (1,772)
    NET INCOME (LOSS) ($518,880) $257,279 ($66,326) $140,720 $79,735
    Net Margin -22.25% 13.58% -6.24% 12.71% 14.33%

    Neil Thompson and Jennifer Ballen

    September 13, 2017 23


    31-Dec-11 31-Dec-10 26-Dec-09 27-Dec-08 29-Dec-07
    Cash and Cash Equivalents 605,619 765,689 664,499 716,218 404,264
    Marketable Securities 66,146 167,889 120,236 76,042 232,686
    Accounts Receivable, net 310,568 305,537 226,826 61,703 18,165
    Inventories 475,867 195,863 152,821 121,554 40,204
    Deferred tax assets, net 41,144 388 21,679 9,922 3,890
    Prepaid expenses and other current assets 1,113,917 149,094 165,210 91,962 103,300
    TOTAL CURRENT ASSETS 2,613,261 1,584,460 1,351,271 1,077,401 802,509
    Property, plant, and equipment, net 1,815,958 1,430,789 988,782 842,622 430,104
    Non-current project assets 374,881 320,140 131,415 – –
    Deferred tax asset, net 340,274 259,236 130,515 61,325 51,811
    Marketable securities 116,192 180,271 329,608 29,559 32,713
    Restricted cash and investments 200,550 86,003 36,494 30,059 14,695
    Investment in related party – – 25,000 25,000 –
    Goodwill 65,444 433,288 286,515 33,829 33,449
    Inventories 60,751 42,728 21,695 – –
    Other assets 190,303 43,488 48,217 14,707 6,031
    TOTAL ASSETS $5,777,614 $4,380,403 $3,349,512 $2,114,502 $1,371,312
    Current Liabilities:
    Accounts Payable 176,448 82,312 75,744 46,251 26,441
    Income taxes payable 9,541 16,831 8,740 99,938 24,487
    Accrued expenses 406,659 244,271 186,682 140,899 76,256
    Current portion of long-term debt 44,505 26,587 28,559 34,951 39,309
    Other current liabilities 336,571 99,676 95,202 59,738 14,803
    TOTAL CURRENT LIABILITIES 973,724 469,677 394,927 381,777 181,296

    Neil Thompson and Jennifer Ballen

    September 13, 2017 24

    Accrued solar module collection and
    recycling liability 167,378 132,951 92,799 35,238 13,079
    Long-term debt 619,143 210,804 146,399 163,519 68,856
    Other liabilities 373,506 112,026 62,600 20,926 10,814
    TOTAL LIABILITIES $2,133,751 $925,458 $696,725 $601,460 $274,045
    Stockholders’ Equity
    Common stock 86 86 85 82 79
    Additional paid-in capital 2,022,743 1,815,420 1,658,091 1,176,156 1,079,775
    Contingent consideration – 1,118 2,844 – –
    Accumulated earnings 1,626,071 1,665,564 1,001,363 361,225 12,895
    Accumulated other comprehensive loss (5,037) (27,243) (9,596) (24,421) 4,518
    TOTAL STOCKHOLDERS’ EQUITY $3,643,863 $3,454,945 $2,652,787 $1,513,042 $1,097,267
    Total Liabilities & Stockholders’ Equity $5,777,614 $4,380,403 $3,349,512 $2,114,502 $1,371,312

    Source: First Solar SEC Form 10K Filing, 2007-2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 25

    1-Jan-12 2-Jan-11 3-Jan-10 28-Dec-08 30-Dec-07
    Cash and cash equivalents 657,934 605,420 615,879 202,331 285,214
    Restricted cash & equivalents, current 52,279 117,462 61,868 13,240 –
    Short-term investments – 38,720 172 17,179 105,453
    Accounts receivable, net 390,262 381,200 248,833 194,222 138,250
    Estimated earnings in excess of billings 54,854 89,190 26,062 29,750 39,136
    Inventories 397,262 313,398 202,301 248,255 148,820
    Advances to suppliers, current portion 43,143 31,657 22,785 43,190 52,277
    Project assets – plants & land, current 24,243 23,868 – – –
    Prepaid expenses & other current assets 482,691 192,934 104,442 101,735 33,110
    TOTAL CURRENT ASSETS 2,102,668 1,793,849 1,282,342 849,902 802,260

    Restricted cash/ equivalents, noncurrent 27,276 138,837 248,790 162,037 67,887
    Property, plant, and equipment, net 607,456 578,620 682,344 622,484 377,994
    Project assets – plant & land, noncurrent 34,614 22,238 – – –
    Goodwill 35,990 345,270 198,163 196,720 184,684
    Other intangible assets, net 4,848 66,788 24,974 39,490 50,946
    Advances to suppliers, net of current 278,996 255,435 167,843 119,420 108,943
    Other long-term assets 183,349 178,294 91,580 92,693 61,024
    TOTAL ASSETS $3,275,197 $3,379,331 $2,696,036 $2,082,746 $1,653,738

    Accounts payable 416,615 382,884 234,692 259,429 124,723
    Accrued liabilities 234,688 137,704 114,008 136,116 79,434
    Billings in excess of estimated earnings 170,828 48,715 17,346 15,634 69,900
    Short-term debt – 198,010 11,250 – –
    Convertible debt, current portion 196,710 – 137,968 – 425,000
    Customer advances, current portion 46,139 21,044 19,832 19,035 9,250
    TOTAL CURRENT LIABILITIES 1,064,980 788,357 535,096 430,214 708,307

    Neil Thompson and Jennifer Ballen

    September 13, 2017 26

    Long-term debt 355,000 50,000 237,703 54,598 –
    Convertible debt, net of current portion 423,268 591,923 398,606 357,173 –
    Customer advances, net of current 181,947 160,485 72,288 91,359 60,153
    Other long-term liabilities 152,492 131,132 76,822 50,715 21,188
    TOTAL LIABILITIES $2,177,687 $1,721,897 $1,320,515 $984,059 $789,648

    Common stock 100 98 97 86 85
    Additional paid-in capital 1,657,474 1,606,697 1,305,032 1,064,916 883,033
    Retained earnings (accumulated deficit) (540,187) 63,672 100,733 67,953 (22,815)

    Accumulated Other Compr. Income 8,540 3,640 (17,357) (25,611) 5,762
    Treasury stock (28,417) (16,673) (12,984) (8,657) (1,975)
    TOTAL STOCKHOLDERS’ EQUITY $1,097,510 $1,657,434 $1,375,521 $1,098,687 $864,090
    Total Liabilities & Stockholders’ Equity $3,275,197 $3,379,331 $2,696,036 $2,082,746 $1,653,738

    Source: Sunpower SEC Form 10K Filing, 2007-2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 27

    31-Dec-11 31-Dec-10 26-Dec-09 27-Dec-08 29-Dec-07
    Cash and cash equivalents 492,400 872,500 833,200 507,800 521,000
    Restricted cash 216,600 142,500 124,900 70,700 94,700
    Inventories 516,500 558,200 280,100 231,900 176,200
    Accounts receivable, net of ADA 466,600 515,900 384,400 213,100 237,600
    Other receivables, net of ADA 14,300 19,000 39,300 46,800 30,700
    Advances to suppliers 84,400 84,400 48,800 56,900 61,400
    Deferred tax assets, net 21,400 22,600 10,800 7,200 1,700
    Amounts due from related partners 67,700 55,100 185,500 101,000 –
    Other current assets 206,100 142,200 249,00 86,500 134,200
    TOTAL CURRENT ASSETS 2,086,000 2,412,400 2,156,000 1,321,900 1,257,500
    Property plant and equipment, net 1,569,200 1,236,200 777,600 684,500 293,000
    Intangible assets, net 23,000 156,000 140,800 176,700 86,000
    Goodwill – 278,000 86,100 87,600 29,800
    Investments in affiliates 454,200 545,900 251,400 221,100 1,000
    Long-term prepayments 185,100 213,800 188,100 248,800 161,700
    Long-term loans to supplier – 53,000 54,700 84,000 103,300
    Amounts due from related parties 67,600 94,100 193,600 278,000 –
    Other noncurrent assets 152,200 137,700 135,400 121,200 24,700
    TOTAL ASSETS $4,537,300 $5,127,100 $3,983,700 $3,223,800 $1,957,000
    Short-term borrowings 1,573,400 1,400,800 800,400 638,500 321,200
    Accounts payable 555,300 457,000 264,200 117,500 58,900
    Other payables 207,200 170,300 126,700 137,600 57,400
    Income tax payable – 66,700 4,300 12,800 7,300
    Other current liabilities 273,000 275,200 322,500 70,300 33,300
    TOTAL CURRENT LIABILITIES 2,608,900 2,370,000 1,518,100 976,700 478,100

    Neil Thompson and Jennifer Ballen

    September 13, 2017 28

    Long-term bank borrowings 133,300 163,300 138,000 5,900 20,700
    Convertible notes 580,900 551,200 516,900 981,200 500,000
    Accrued warranty costs 94,100 81,000 55,200 41,400 22,500
    Deferred tax liabilities – 15,600 33,100 38,800 22,100
    Other long-term liabilities 167,300 155,800 109,600 96,900 7,700
    TOTAL LIABILITIES $3,584,500 $3,336,900 $2,370,900 $2,140,900 $1,051,100
    Ordinary shares 1,800 1,800 1,800 1,600 1,500

    Additional paid in capital 1,148,000 1,134,800 1,114,700 597,100 530,800
    Retained earnings (365,000) 653,600 416,700 412,300 324,100
    Accumulated other comprehensive income 161,600 77,500 64,900 63,400 31,600
    Suntech Power Holdings Co. Ltd Equity 946,400 1,867,700 1,598,100 1,074,400 888,000
    Non-controlling interest 6,400 12,500 14,700 8,500 17,900
    TOTAL STOCKHOLDERS’ EQUITY $952,800 $1,880,200 $1,612,800 $1,082,900 $905,900
    Total Liabilities & Stockholders’ Equity $4,537,300 $5,217,100 $3,983,700 $3,223,800 $1,957,000

    TOTAL LIABILITIES $3,584,500 $3,336,900 $2,370,900 $2,140,900 $1,051,100
    Ordinary shares 1,800 1,800 1,800 1,600 1,500

    Additional paid in capital 1,148,000 1,134,800 1,114,700 597,100 530,800
    Retained earnings (365,000) 653,600 416,700 412,300 324,100
    Accumulated other comprehensive income 161,600 77,500 64,900 63,400 31,600
    Suntech Power Holdings Co. Ltd Equity 946,400 1,867,700 1,598,100 1,074,400 888,000
    Non-controlling interest 6,400 12,500 14,700 8,500 17,900
    TOTAL STOCKHOLDERS’ EQUITY $952,800 $1,880,200 $1,612,800 $1,082,900 $905,900
    Total Liabilities & Stockholders’ Equity $4,537,300 $5,217,100 $3,983,700 $3,223,800 $1,957,000
    Source: Suntech SEC Form 10K Filing, 2007-2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 29

    31-Dec-11 31-Dec-10 31-Dec-09 31-Dec-08 29-Dec-07
    Cash 664,300 887,293 475,847 162,538 131,752
    Restricted Cash 227,567 97,716 31,526 16,011 982
    Accounts receivable, net 338,483 289,291 256,508 214,727 170,656
    Inventories 424,366 382,569 243,927 299,118 172,896
    Prepayments to suppliers 61,478 86,960 48,266 120,797 144,871
    Value-added tax recoverable 150,778 141,187 44,028 67,656 –
    Amounts due from & prepayments to
    related parties 88,268 44,176 44,496 595 51,836
    Prepaid expenses & other current
    assets 68,671 26,423 21,033 7,092 24,691
    TOTAL CURRENT ASSETS 2,023,911 1,955,615 1,165,631 888,534 697,684
    Restricted Cash, non-current – – 24,579 – –
    Long-term prepayments to suppliers 210,158 76,413 99,373 98,815 87,362
    Property, plant, and equipment, net 1,968,443 1,505,145 963,075 496,252 202,866
    Land use rights 83,131 54,369 51,943 9,237 7,536
    Intangible assets, net 17,539 24,318 30,447 57,569 45,421
    Goodwill – 41,464 40,092 40,112 3,819
    Other assets 63,492 7,600 6,540 31,861 7,323
    TOTAL ASSETS $4,366,674 $3,664,924 $2,381,680 $1,622,380 $1,052,011
    Current liabilities:
    Short-term debt + current portion of
    Long-term debt 1,306,833 887,557 512,903 299,626 172,905
    Accounts payable 473,034 375,063 271,351 92,181 21,670
    Advances from customers 142,045 151,711 – 7,612 3,036
    Amounts due to related parties 38,541 12,800 4,562 1,299 836
    Convertible senior notes 22,140 – 189,256 – –
    Other current liabilities 74,893 55,138 38,554 14,001 17,618
    TOTAL CURRENT LIABILITIES 2,057,486 1,482,269 1,016,626 414,719 216,065

    Neil Thompson and Jennifer Ballen

    September 13, 2017 30

    Convertible senior notes – 13,838 14,670 182,031 173,105
    Medium-term notes 382,337 151,686 – – –
    Long-term debt, excluding current 548,451 378,255 110,287 97,172 –
    Other liabilities 257,686 82,266 40,861 27,606 10,766
    TOTAL LIABILITIES $3,245,960 $2,108,314 $1,182,444 $721,528 $399,936
    Stockholders’ Equity:
    Ordinary shares 1,908 1,800 1,665 1,454 1,355
    Additional paid-in capital 1,028,952 971,666 898,180 539,588 496,371
    Treasury stock (19,675) – – – –
    Accumulated OCI 22,085 8,967 1,873 4,979 1,672
    Retained earnings (213,238) 282,852 70,327 150,338 49,203
    Total equity attributable to Yingli
    Energy 820,032 1,265,285 972,045 696,359 548,601
    Non-controlling interests 300,682 291,325 227,191 204,493 103,474
    TOTAL SHAREHOLDERS’ EQUITY $1,120,714 $1,556,610 $1,199,236 $900,852 $652,075
    Total Liabilities & Stockholders’ Equity $4,366,674 $3,664,924 $2,381,680 $1,622,380 $1,052,011

    Source: Yingli SEC Form 10K Filing, 2007-2011.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 31

    Exhibit 10 Core Manufacturing Costs

    1 On level playing field, China advantage < 4% 2 Government supported export industry, scale is a significant factor 3 Industry scale has reduced regional supply chain benefits: purchasing power, regional supply chain benefits

    Source: “Solar PV Manufacturing Cost Analysis: U.S. Competitiveness in a Global Industry,” Stanford University and National

    Renewable Laboratory, October 10, 2011.









    U.S. (60 MW plant) China (60 MW plant) 2,000 MW plant Discount Equipment Discount Materials

    . c
    t p


    Plant Type

    Wafer Based Silicon Cell: Core Manufacturing Costs

    Wafer Metallization Other materials Labor Energy Depreciation Maintenance





    Fully Automated

    Neil Thompson and Jennifer Ballen

    September 13, 2017 32


    Balance of Systems (BOS) costs: the additional component costs of a solar system beyond the
    modules, such as the costs of installation labor, mounting hardware, wiring, and inverters, which
    generally comprised over half of the total costs of a utility-scale system.

    Grid Parity: occurs when the cost to generate power through solar energy or other alternative source
    of energy is less than or equal to the cost of purchasing electricity directly from the electrical grid.

    Hydraulic fracking is an extraction technique for oil and gas wells in which pressurized liquid is
    injected into the cracks in rock formations. Once the hydraulic pressure is removed from the well, the
    remnants of the fracking fluid enable ease of extracting oil and gas, increasing the rate of extraction
    (source: Investopedia).

    Levelized Cost of Electricity (LCOE): the present value of the per-kilowatt hour cost (in real dollars)
    of building and operating a generating plant over an assumed financial life and duty cycle. LCOE takes
    into account capital costs, fuel costs, fixed and variable operations and maintenance (O&M) costs,
    financing costs, and an assumed utilization rate for each plant type (source: U.S. Energy Information

    Manufacturing throughput: the amount of time required for a product to pass through a
    manufacturing process, thereby being converted from raw materials into finished goods. The concept
    also applies to the processing of raw materials into a component or sub-assembly.

    Net Debt: short-term debt plus long-term debt less cash and cash equivalents.

    Net Metering: a system that credits residential and commercial owners of solar systems for excess
    electricity fed back to the grid. For example, a residential homeowner with a solar panel on his/her roof
    might generate more energy than required by his/her house. Any excess energy supplied back to the
    power grid is credited, usually in the form of a reduction from the monthly electrical payment.

    Photovoltaic capacity: the maximum power output a solar module is capable of generating.

    Photovoltaic effect: the phenomenon in which the incidence of light or other electromagnetic radiation
    upon the junction of two dissimilar materials, as metal and a semiconductor, induces the generation of
    an electromotive force.

    Photovoltaic efficiency: the amount of sunlight that can be converted into electricity; the conductivity
    of solar energy.

    Neil Thompson and Jennifer Ballen

    September 13, 2017 33

    Physical vapor deposition (PVD): describes a variety of vacuum deposition methods, which can be
    used to produce thin films. PVD uses physical process (such as heating or sputtering) to produce a
    vapor of material, which is then deposited on the object, which requires coating.

    Power Purchase Agreement (PPA): a financial contract between a buyer and provider of electricity
    that eliminates up-front installation costs. Developer installs solar system on customer’s land for free
    and the customer purchases electricity from the developer at a fixed rate, typically below the rate
    provided from the utility, for the duration of the contract.

    PPE: Property, plant, and equipment (PP&E) is an account on the balance sheet that represents the sum
    of a company’s purchases of property, manufacturing plants, and equipment to that point in time, less
    any amortization.

    Pure Play: a publicly traded company focused on only one industry or product.

    SG&A: an acronym used to refer to Selling, General, and Administrative Expenses, which is a major
    non-production cost presented in an income statement.

    Watt: a unit of power defined as 1 joule per second.

    Carefully read the Case Study “First Solar” that is posted in this module and answer the following the Questions. The total length of your response should be about 3 pages with 1.5 spaced lines.

    1.) Analyze the competitiveness of this industry using Porter’s five forces framework. Be sure to carefully define what market First Solar is in. To make it easier, rate the strength of each force as low, medium, or high, and justify your reasoning.

    2.) What are the key resources for first solar? Analyze the strength of any resources you identify using Jay Barney’s VRIO (or S) framework.

    Note that one way to assess a company’s competitive advantage quantitatively is to calculate the return on assets (ROA), or ROA= (Net Income / Total Assets). Using the balance sheets provided in exhibit 9, calculate the ROA for First Solar and for its competitors (that is, Suntech, SunPower, and Yingli) for the years 2008, 2009, 2010, and 2011. Do the numbers suggest that First Solar has a competitive advantage relative to its competitors? Does this align with your assessment of First Solar’s competitive advantage using Barney’s framework?

    3.) Finally, make recommendations for what first Solar should do: That is, what market(s) should First Solar focus on? Where should it focus geographically? How should it deal with increasing competition? Be sure to justify your answer to each question.

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