First Solar Inc. (FSLR:US)’s acquisition of General Electric Co. (GE:US)’s solar technology brings a stakeholder with connections in the utility industry that may help the renewable-energy manufacturer sell large-scale power plants.
First Solar acquired GE’s cadmium-telluride technology portfolio in exchange for 1.75 million shares, the companies said in a statement yesterday. The 1.77 percent stake in the Tempe, Arizona-based solar manufacturer is worth $81.8 million, based on yesterday’s closing price.
First Solar also reported profit yesterday that fell short of analysts’ estimates as revenue from its current project pipeline slumped. The shares plunged the most in five months. GE, the world’s largest supplier of power equipment, will now help market First Solar’s panels to companies building large-scale solar farms, according to First Solar Chief Executive Officer Jim Hughes.
“We will see near-term benefit from access to the GE sales force, particularly on hybrid installations,” Hughes said yesterday on an earnings call with analysts.
GE has promoted the idea of combination power projects using both wind turbines and solar panels. It’s the top U.S. wind-turbine maker and sells inverters that link solar panels to the grid. It plans to market First Solar panels under its own name, and now will be able to offer both generating technologies to customers, said Anne McEntee, Fairfield, Connecticut-based GE’s head of renewable energy.
“We’re shifting to what we’re good at, and that’s utility-scale power systems,” she said in an interview yesterday.
First Solar’s second-quarter sales declined 46 percent to $519.8 million from $957.3 million a year earlier, largely because of lower revenue from selling power plants, the company said in a statement yesterday.
Net income fell to $33.6 million, or 37 cents a share, from $111 million, or $1.27, a year earlier. Excluding one-time items, per-share profit was 14 cents below the 53-cent average of 16 analysts’ estimates compiled by Bloomberg.
The company now expects earnings of $3.75 to $4.25 a share this year, down from a May forecast of $4 to $4.50. Sales will be $3.6 billion to $3.8 billion.
First Solar shares slumped 12 percent to $41.19 at 10:17 a.m. in New York, the most intraday since Feb. 27.
“It was a miss, clearly; there’s no way of getting around that,” Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, said in an interview. “They missed our estimate pretty badly. It was really a top-line miss.”
First Solar needs to expand its sales of utility-scale plants, according to Dan Ries, an analyst at Maxim Group LLC in New York.
“We do not believe they are booking new business for late 2015 and 2016 at the pace needed to remain fully utilized,” Ries said in an Aug. 5 note to clients. He estimated First Solar needs to sign contracts for at least 500 megawatts each quarter to keep factories running at capacity. “Thus far in 2013 it has not approached that pace.”
GE’s support will boost First Solar’s utility business, said Sanjay Shrestha, an analyst at Lazard Capital Markets in New York who has a buy rating on the shares.
“GE provides an ideal ally for First Solar to maintain a global dominance in utility-scale solar,” he said in an interview. “It validates their technology, it validates their manufacturing process and it projects them on a global scale.”
First Solar also announced yesterday the acquisition of a 1.5-gigawatt pipeline of solar projects from Element Power. Terms weren’t provided. The projects are in various stages of development and permitting, and the deal gives First Solar access to Mexico, according to a statement.
GE and First Solar have been racing to improve their cadmium-telluride efficiencies to drive down costs. GE reached an 18.3 percent cell efficiency at the National Renewable Energy Laboratory in October. About four months later, First Solar beat that with a cell that converts 18.7 percent of the energy in sunlight into electricity.
The transaction marks GE’s exit from long-dormant plans to become a solar manufacturer. It acquired a minority stake in the cadmium-telluride company PrimeStar Solar Inc. in 2007 and then bought the rest of it in 2011, announcing plans then to build the biggest U.S. solar factory. It purchased a Colorado site for the plant that never began commercial production, and McEntee said yesterday it never will.
Cadmium-telluride technology doesn’t have the performance of cells made from polysilicon, which are more widely used in the industry. SunPower Corp. (SPWR:US) claims the most efficient polysilicon-based solar products, with rates as high as 24 percent.
The GE-First Solar collaboration includes efforts to improve panel efficiency. “We’re working with First Solar to move our technologies forward together,” McEntee said.
The partnership with GE includes “a specific commitment purchase obligation,” Hughes said on the call. “There is a larger commitment that has agreed pricing and extends over an extended period of years.”
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