第一太陽能 (FSLR) 2010 Q4 法說會逐字稿

Good day everyone, and welcome to the First Solar fourth quarter and year end 2010 earnings conference call.

This call is being webcast live on the Investor section of First Solar's website at www.firstsolar.com.

At this time, all participants are in a listen-only mode.

As a reminder, today's call is being recorded.

I would now like to turn the call over to Mr.

Larry Polizzotto, Vice President of Investor Relations for First Solar, Incorporated.

Mr.

Polizzotto, you may begin.

Good afternoon, everyone, and thank you for joining us for First Solar's fourth quarter 2010 conference call.

Today after the market closed the Company issued a press release announcing our fourth-quarter and full-year financial results for 2010 and our guidance update for 2011.

If you did not receive a copy of the press release, you can obtain one from the Investor section of First Solar's website at firstsolar.com.

In addition, First Solar has posted the presentation for this call, as well as key quarterly statistics and historical data on financial and operating performance, on our IR website.

We will be discussing the presentation during this call and webcast.

An audio replay of this call will be available approximately two hours after the conclusion of the call.

The replay will remain available until Tuesday, March 1, 2011 at 7.30 PM Eastern Time and can be accessed by dialing 888-203-1112 if you're calling from within the United States, or 719-457-0820 if you're calling from outside the United States, and entering the replay passcode 8382775.

A replay of the webcast will be available on the Investor section of First Solar's website approximately two hours after the conclusion of the call and remain available approximately 90 calendar days.

If you are a subscriber of FactSet or Thomson ONE you can obtain a written transcript from them.

With me today are Rob Gillette, Chief Executive Officer; TK Kallenbach, Executive Vice President of Marketing and Product Management; Jens Meyerhoff, President of the Utility Systems Business Group; and James Zhu, Chief Accounting Officer and interim Chief Financial Officer.

Rob will present an overview of the Company's fourth quarter and 2010 results, and give you an update on the market and business.

Jens will review the fourth-quarter financial results and update guidance for 2011.

We will then open up the call for questions.

During the Q&A period, as a courtesy to those individuals seeking to ask questions, we ask that participants limit themselves to one question.

First Solar has allocated approximately one hour for today's call.

I will remind everyone that all financial numbers are reported and discussed on today's call are US Generally Accepted Accounting Principles, except for free cash flow as a non-GAAP measure, which is reconciled in the operating cash flow in the back of our presentation.

Now I'd like to make a brief statement regarding our forward-looking remarks that you may hear on today's call.

During the course of this call, the Company will make projections and other comments that are forward-looking statements within the meaning of the federal securities laws.

The forward-looking statements in this call are based on current information and expectations and are subject to uncertainties and changes in circumstances, and do not constitute guarantees of future performance.

Those statements involve a number of factors that could cause actual results to differ materially from those statements, including the risks as described in the Company's most recent annual report on Form 10-K and other filings with the Securities and Exchange Commission.

First Solar assumes no obligation to update any forward-looking information contained in this call or respect to announcements described herein.

During the first quarter of 2011, First Solar will be attending the following conferences.

Morgan Stanley's technology conference in San Francisco on March 1, Canaccord Genuity's sustainability forum in Deer Valley, Utah on March 3 and 4, UBS alternative energy conference in New York City, March 8.

It's now my pleasure to introduce Rob Gillette, Chief Executive Officer of First Solar.

Rob?

Great.

Thanks, Larry and welcome to our Q4 earnings call.

Thanks for joining us today.

Let me start by saying that 2010 was a good year and we exceeded the 2010 EPS guidance we set a year ago despite the many market uncertainties we faced.

The strong results demonstrate the capability of our low-cost technology and PV system solutions, the diversification of our markets, and the strength of our systems pipeline, as well as some really good execution in operations.

For 2010 our net sales of $2.6 billion were up 24% year-over-year.

Fourth-quarter net sales of $610 million decreased 24% over the third quarter of 2010, primarily because the prior quarter included completed contract revenue recognition for the 60-megawatt Sarnia project, and Q4 was impacted by our decision to divert some volumes to expedite the module replacement program.

Our fourth-quarter net income was $156 million, or 25.6% of net sales, resulting in diluted EPS of $1.80.

Diluted EPS for 2010 was $7.68, which exceeded our guidance.

Return on net assets was 19.5%, on a four-quarter rolling basis, representing an EVA of over 7%, or 200 basis points above our target.

Our cash and marketable securities balance of $1.1 billion increased $117 million sequentially.

Our Q4 production was 395 megawatts, up 27% versus prior year and 13% quarter-over-quarter.

The sequential increase was driven by higher line throughput, improved conversion efficiency and six additional days of production due to our adoption of a calendar year for financial reporting.

The annual capacity per line increased by three-megawatt quarter-over-quarter to 62.6-megawatt per line.

Across all production lines this adds 138 megawatts to our current and planned annual capacity.

Our conversion efficiency was 11.6%, which is up a half a percentage point year-over-year.

Both conversion efficiency and capacity per line benefited as we successfully completed the process changes we began implementing in Q2.

Our manufacturing cost per watt was $0.75, which is down $0.09, or 11% year-over-year, and down $0.02 compared to the third quarter.

We also began construction of our new four-line manufacturing plant in Vietnam, but expected volume production in the third quarter of 2012.

Moving to Page 7.

In terms of market development, we've made progress in several areas.

We completed construction of both the 30-megawatt Cimarron and the 48-megawatt Copper Mountain projects.

We sold a 290-megawatt Agua Caliente project to NRG Energy, contingent on receiving a federal loan guarantee.

NRG subsequently received a conditional commitment for that guarantee from the DOE, and the sale is expected to be finalized when the loan closes in the second quarter.

We expect to begin recognizing revenue on the first construction milestone in the second quarter.

The PNM and Santa Teresa projects began construction in the first quarter.

We also achieved a number of milestones in our project portfolio.

The AV Solar Ranch 230-watt -- 230-megawatt project received its final environmental impact report and conditional use permit from LA County.

The Silver State North 50-megawatt project received its right-of-way grant from the Bureau of Land Management to proceed with construction.

And we signed a 250-megawatt PPA with Southern California Edison for our Silver State South project.

In Europe, as we previously discussed, in December we implemented planned price changes for 2011 that reflect market economics given expected feed-in tariff adjustments.

The new pricing is designed to drive sell-through by supporting project economics and yielding acceptable return to project investors and partners.

We also made progress in developing the Chinese and Indian markets.

First Solar signed a memorandum of understanding with China Guangdong Nuclear, to build Phase I of the 30-megawatt Ordos project.

Under the MOU, CGN will be the majority owner of the project and perform the EPC.

We plan to work together with CGN to establish the project economics with the government in China.

In addition, we are discussing other project opportunities with partners across China.

We also signed module agreements in India, including with ACME Tele Power, which contracted for 15-megawatt, and Moser Baer Clean Energy, which contracted for 25-megawatts.

We see continued strong demand for our products in India.

On Page 8 you can see we completed 138-megawatt AC of North American projects in 2010-- Sarnia, Copper Mountain and Cimarron.

All three were completed early and under budget, built at a velocity two to three times faster than their predecessors.

Two of those projects are also record breakers, with Sarnia now the largest operating PV plant in the world at 80 megawatts, and Copper is the largest in the United States at 58 megawatts.

Overall, 2010 balance-of-systems costs improved almost 30% compared to 2008, which is well ahead of our 2014 balance-of-systems cost reduction roadmap.

The strong performance demonstrates the improvements our EPC team has made in reducing cycle time and cost per watt through engineering design improvements and economies of scale.

Since BOF costs make up a large portion of LCOE, these achievements are important as we advance to our goal of grid parity.

Slide 9 shows the progress that we have made in adding new customers for utility scale systems and in selling additional projects to existing customers.

Since the Q3 earnings call, we have sold 400 megawatts of projects, and signed 37 megawatts of EPC agreements.

NRG Energy has significantly expanded its relationship with us through its purchase of the Agua Caliente project, and by hiring us to do EPC and provide modules for their Santa Teresa project.

Enbridge also purchased two additional projects in Ontario.

NextEra, GE and Plutonic have become new buyers of First Solar projects and here in Arizona a new utility customer, APS, selected First Solar to develop and provide EPC modules for their Paloma project -- EPCN modules for their Paloma project.

On Page 10 you can see how we've grown our systems pipeline over time, including the increase from 2.2 gigawatts in 2010 to 2.4 gigawatts as of today.

The orange line shows our increase in project construction from 12 megawatts in 2008 to the planned 400 megawatts in 2011.

This slide also illustrates the expansion and diversification of our utility systems' customer base, including IPPs, utilities and financial investors.

The next slide provides a detailed update of projects we intend to begin constructing in 2011, as well as a list of our contracted projects that are in development.

Our current North American pipeline is 2.4 gigawatts of PPA EPC for Ontario RESOP contracted projects.

First Solar has the leading position of the 11-gigawatt contracted solar projects in the United States.

We expect to execute on 400-megawatt DC from 12 projects in 2011, up from three in 2010, and we have the flexibility to build additional megawatts in 2011.

The growth in construction from about 165-megawatt DC in 2010 to 400-megawatt in 2011 also improves the economies of scale for both our development and balance of systems costs, and the stable economics of these projects provides a buffer against declining fits in Europe.

We've now sold almost all the projects we intend to construct in 2011 and are in discussions to sell the remainder.

We also expect to sign new EPC agreements with partners that may contribute to 2011 growth.

Overall we're experiencing strong buyer demand for our utility scale systems projects due to our proven systems performance, low LCOE, fast lead time to generation and attractive project economics.

With the addition of the new Silver State South PPA we are developing almost 1.7 gigawatts of projects with PPAs, as well as other projects that do not yet have PPAs.

On Page 12 is the latest analyst consensus forecast of the billable PV market demand.

On average, the 17 analysts included in this survey estimate that the 2010 market grew to 16 gigawatts, up 122% year-over-year, primarily driven by Germany, Italy, and North America.

Analysts have a wide range of market estimates with a consensus of 2011 growth up 10% to 17.6 gigawatts.

This is up 2.5 gigawatts from the December consensus, due to an increase in expectations for Italy and North America.

The market is expected to continue to diversify in 2011, with Germany declining from 7.4 gigawatts in 2010 to 6.2 gigawatts in 2011, Italy at three gigawatts, North America at 2.4 gigawatts and Japan, China, and the rest of Europe at about one gigawatt each.

However, there is market risk due to several governments discussing potential changes in feed-in tariff structures and caps.

Turning to Slide 13, I want to update you on how we see the key markets evolving and how they relate to First Solar's growth strategy and investments.

In Europe, as a result of the strong 2010 growth, the major European governments are seeking to balance subsidy costs with their 2020 commitment to the EU on renewable energy targets.

Germany, France, and Italy are in the process of discussing additional changes to their feed-in tariff structures and potential market caps.

This creates risk going forward and highlights the importance of global market development and project pipelines.

In Germany the government is expected to adopt the partial July and September pull-in of the January 2012 FiT digression.

Germany appears to be targeting a market size of 3.5 to four gigawatts per year.

The French FiT program moratorium continues, with the government considering a 500 to 800-megawatt cap on the annual market size and a reduction of the FiT, as well as introduction of a tender system for large projects.

Italy is evaluating additional subsidy changes for 2012 beyond planned reductions in 2011.

This may include FiT restrictions on some prime agricultural land based on regional decisions.

As a result of these anticipated changes, we expect a strong first half in Germany and Italy, with potential for tighter economics in the second half of 2011 as the industry adjusts to lower FiT rates.

We've taken a number of steps to mitigate these risks.

First, pricing to our third-party module business is at levels that we continue to believe are sufficient to drive sell-through.

Second, as we have in 2010, we plan to use our 2.4-gigawatt North American pipeline as a buffer against demand fluctuations in Europe.

Most of our 400-megawatt North American systems builds are planned for the second half, and we have the flexibility to build additional megawatts if needed.

We expect to continue to add new EPC and PPA agreements in North America to increase our pipeline.

We are increasing our investment in market development to diversify our market exposure in North America, India, Australia and China.

We are investing to drive for the lowest LCOE and maximize energy yield.

In North America, the market could double to two gigawatts in 2011.

The ICC cash grant was extended through 2011, which improves market liquidity.

The industry is working to include the DOE loan guarantee extension and government budgetary legislation.

The DOE program opens the capital markets and builds an investor base, which we hope will support the ability to place long-term unguaranteed project bonds into the US institutional market.

In California, the legislature is currently considering a bill, which would increase California's renewables portfolio standard from 20% by 2010, to 33% by 2020.

We believe that California IOUs are well on their way to fulfill their 33% RPS requirements, but a meaningful percentage of these contracted agreements may not be realized, so we look at this as an opportunity for First Solar.

We are also working to encourage policy in other states, like Florida and Texas, to support the development of sustainable PV markets.

Meanwhile, new southwestern US PPA prices are already declining from the $0.14 to $0.16 per kilowatt hour in our contracted projects towards grid parity of $0.10 to $0.12 per kilowatt hour by 2014.

In China, the government has stated its commitment to developing a solar market of at least 20 gigawatts by 2020.

Although the market has potential demand, the systems providers need viable public economics to realize projects, and current economics do not support sustainable market development.

Currently concessionary bidding prices serve as price benchmarks, and there is the possibility of an additional round of bidding in 2011.

In India, the National Solar Mission objective is 22 gigawatts by 2022.

In addition, several states, including Gujarat, continue to drive additional meaningful demand through their own programs.

We are investing resources to help the Indian market realize its potential and are working with a number of customers to deploy more than 100 megawatts of projects in 2011.

The market is expected to grow to about 600 megawatts in 2012, constrained by the high cost of capital, which pressures the system prices.

In Australia, the federal government's flagship -- Solar Flagship program and state FiTs of promoting market growth with first-utility-scale production realization expected in the first half of 2011.

We are participating in a number of programs with local partners, including two of the four short-listed PV projects that are in the first phase of this Solar flagship's program.

The winner is expected to be announced in Q2 of 2011.

On Slide 14 you can see the progress we're making in diversifying our demand.

The German portion of our megawatt shift declined from approximately 77% in 2008 to 46% in 2010.

North America's became the second largest portion at about 18%.

We estimate France, Italy and Spain are about 17%, 12% and 4% respectively.

We expect the German portion will continue to decline to 30% to 35% in 2011.

India is driving our growth in Asia from about 1% in 2010 to 8% in 2011.

I want to highlight, again, that in 2011 we are significantly increasing our investment in market development, to solve the unique challenges of new markets and segments.

We are increasing spending in places like India, China, Australia, and the Middle East.

We are working with existing partners as they expand globally, as well as adding new partners in local markets.

First Solar's scale, global reach, and systems expertise make us an attractive partner on a global basis, which gives us a competitive advantage.

As a result, First Solar expects to have a greater percentage of sales in non-German European and North American countries than the industry in 2011 compared to market estimates.

Overall, we have good demand visibility in 2011, in line with typical industry seasonal patterns, and the growth of our systems business we have confidence in our ability to sell the two gigawatts that we plan on producing.

We illustrate on Slide 15 that our planned capacity expansion is now 2.9 gigawatts by the end of 2012, which is up 138 megawatts quarter-over-quarter based on the Q4 increase in annual line run rate to 62.6 megawatts per year.

Our annual line run rate has improved 17% since Q4 of 2009, and we will continue to execute on our capacity expansion plans.

Malaysia Plant 5 began production in late December and will ramp to full production by the end of the first quarter.

Malaysia Plant 6 is on schedule to ramp in the second quarter.

As announced in the guidance call, the Frankfurt Oder expansion ramp was moved up one quarter to Q3 of 2011.

In Vietnam we broke ground on our initial four-line factory in the Da Nang industrial park.

We expect initial production in the third quarter of 2012.

At our new Vietnam and new US sites, we are investing in land and infrastructure to provide the option to expand beyond the initial four lines to meet future capacity needs.

Our Blanquefort, France plant construction remains on hold pending clarity on the French subsidy framework, which we expect in March.

We remain hopeful that a compromise will be reached to support a transparent, sustainable photovoltaic market in France.

To summarize, we delivered solid Q4 and 2010 results that position us well for 2011 and 2012 growth.

We expect solid growth in European markets in the first half of 2011, with tightening economics in the second half.

First Solar will manage in this environment similar as we did in 2010.

We're diversifying geographically and by segments.

Our pricing is set to drive sell-through with expected FiTs and competitive environment.

We are continuing to execute our emission and growth strategy.

We're confident in our ability to sell what we make, with good demand visibility through European and Indian contracts, and in North American project flexibility.

We are investing in market development and we're organized to execute.

First Solar is on a roadmap to minimize LCOE and maximize energy yield.

The North American utility scale pipeline grew to 2.4 gigawatts, and we sold 400 megawatts of projects.

Our 2012 year-end capacity is now at 2.9-gigawatt with expansions on plan in Malaysia, Germany, the United States, and Vietnam.

With that I'd like to turn over the call to Jens, who will discuss our fourth quarter and full-year 2010 financial performance and our updated guidance for 2011.

James?

Thank you, Rob.

Good afternoon.

Let me start with Page 18.

First Solar delivered solid financial results in 2010.

Net sales grew 24% year-over-year to approximately $2.6 billion.

Operating margin was 29.2%, and fully-diluted earnings per share came in at $7.68, above the guidance range we provided in December of 2009, and also above updated guidance from our third-quarter 2010 earnings call.

We achieved a return on net asset of 19.5%, exceeding our weighted average cost of capital by 7%.

Moving on to net sales.

During the fourth quarter, demand met our expectations with continued strength in our module business.

Net sales for the fourth quarter were $609.8 million, down $188.1 million or 24%, compared to the third quarter of 2010.

The decrease was primarily driven by the lower system revenue recognition.

For example, Sarnia Phase II revenue recognition occurred in the third quarter.

Additionally, ESP declined due to mix, and due to the implementation of 2011 pricing in December.

In the slide mentioned earlier, we delivered certain volumes to expedite the module replacement program.

These impacts were partially offset by positive effects of increased sales volume, conversion efficiency improvement [benefits] and foreign exchange.

Our EPC revenue mix declined from 28% of total net sales in the third quarter to 5% net sales in the fourth quarter.

The blended exchange rate in the fourth quarter increased 1.5% sequentially to $1.33 per euro, while the spot rate increased 6% to $1.36 per euro.

However, the stronger euro added to net sales by only about 1%, as we were heavily hedged, in line with our long-term strategy.

We produced 395 megawatts during the fourth quarter, up 13% compared to the prior quarter.

The increase was driven in part by a 5% improvement in the line throughput to 62.6 megawatts per year and by the improvement of our module conversion efficiency to 11.6%.

We also had six additional production days during the fourth quarter after moving to a calendar year.

Our module costs per watt in the fourth quarter was $0.75, down $0.02 from prior quarter.

Our core manufacturing cost per watt also declined by $0.02 to $0.73.

This improvement was driven by our conversion efficiency improvement, the increase of line throughput and a material cost savings, which was partially offset by annual equipment maintenance and upgrades, foreign exchange, and the ramp penalty.

On to the next slide, fourth-quarter gross margin was 48.7%, up 8.4% from the prior quarter.

The increase was the result of the mix shift to more module sales, as well as lower module cost per watt, including the conversion efficiency improvement.

The increase was partially offset by foreign exchange in the lower module ASP, also.

During the fourth quarter we reserved an additional $8.5 million for the module replacement program discussed with you in our second-quarter 2010 earnings call.

In Q4 we concluded a claims process and based on our field data and execution today, we updated our total replacement cost estimate.

Our module gross margin was 49.1% during the fourth quarter, in line with the prior quarter, but the cost-per-watt improvement and the strong euro offset a decline in average selling prices.

Turning to Slide 22, operating expenses were up $20.8 million quarter-over-quarter due to an $8.4 million sequential increase in plant start-up costs due to our capacity expansion, the year-end increasing bonus expense, R&D investments and the infrastructure investments and ERP implementation costs.

Slide 23 shows operating income trends.

Operating income for the fourth quarter was $165.7 million compared to $211.6 million in the third quarter, due to the decrease in total net sales and increased investments.

Operating margin for the quarter was 27.2% compared to 26.5% in the prior quarter, due to the mix shifting to our module segment that was partially offset by increasing operating expenses just described.

On the next slide, net income was $155.9 million, or $1.80 per share on a fully diluted basis.

The effective tax rate was 10% for the fourth quarter.

For the full year, earnings per fully diluted share were $7.68 and effective tax rate was 12.8%.

Slide 25 illustrates that in the fourth quarter we generated $105 million of free cash flow, driven by operating cash flow of $350 million.

We spent $212 million for capital expenditure, and the depreciation was $41 million.

For 2010 we generated $143 million of free cash flow, even after investing $589 million in capital to execute on our capacity expansion plan.

Operating cash flow was $705 million.

Our balance sheet remains strong as cash and all other marketable securities increased about $117 million quarter-over-quarter, to over $1.1 billion at the year end.

Debt decreased by $13 million and our debt-to-equity ratio continues to remain low at 7%.

This leads me to our updated guidance for 2011.

We have made several key assumptions underlining our guidance.

We maintain our spot exchange rate assumption of $1.30 per euro.

For the first quarter, we are fully hedged at the rate of $1.32 per euro.

For the full year, about a 58% of our net sales and a 72% of our expected net income are hedged at an average rate of $1.32 per euro.

As of today, percent change in the dollar-euro spot rate would impact our revenue guidance for the year by about $6 million and our net income guidance by about $3 million.

We adjusted pricing in December of 2010 to position our channel partners for sell-through in 2011, in anticipation of feed-in tariff declines in Germany and other European markets.

Our guidance reflects expected feed-in tariff changes in 2011.

We continue to plan to build 400-megawatt DC of system projects in North America.

We retain the flexibility to increase this amount should demand in other markets fall short of current expectations.

However, debt flexibility will naturally decline as we progress through the year unless utilized.

We began shipping Malaysia Plant 5 in the first quarter and we plan to ramp Plant 6 in the second quarter, followed by our second German plant in the third quarter.

Our capital spending is primarily driven by the capacity expansion in Malaysia, Germany, Vietnam, the US, and France.

Slide 28 shows that based on these assumptions, we expect net sales to range from $3.7 billion to $3.8 billion.

The new factory ramp penalty in cost of goods sold will range from $15 million to $20 million, and the factory start-up expense will range from $60 million to $70 million, slightly below our guidance.

Stock-based compensation is expected to be between $115 million and $125 million, with approximately 20% allocated to cost of goods sold.

That is in line with our prior guidance.

GAAP operating income is expected in the range of $910 million and $980 million, which is up from prior guidance.

We expect our 2011 effective tax rate to be between 11% and 13%.

We estimate that the year-end 2011 fully-diluted share count to be in the range of 87 to 88 million shares.

Earnings per fully-diluted share to range from $9.25 to $9.75, up from prior guidance.

Capital expenditure for the year is expected to be between $1 billion to $1.1 billion.

Approximately 75% of our capital budget in 2011 is for capacity expansion and another 15% to 20% is for factory maintenance, which includes productivity improvements and R&D expenditures.

The remainder covers infrastructure spending for IP systems, facilities, and other.

Operating cash flow is projected in the range of $1 billion to $1.1 billion.

Return on net assets will range from 17% to 18%, in line with our goal to deliver returns exceeding our weighted average cost of capital by at least 5%.

Finally, Slide 29 is an update of expected quarterly profile of revenue recognition and operating margins through 2011.

Please note that if you read across horizontally from Q1 to Q4 on each chart, the sum of all quarters is 100%.

Note that for first quarter we're expecting to recognize less than 15% of our full-year revenue guidance, and less than 12% of our full-year operating income guidance.

The profile you see here is driven by the following assumptions.

First, factory capacity is ramping throughout 2011.

Second, Aqua Caliente revenue recognition starts in the second quarter then accelerates into the fourth quarter.

Third, Canadian projects under the completed contract accounting, showing revenue recognition, primarily in the fourth quarter.

Finally, we will continue to use our systems pipeline as a buffer against the European demand fluctuations, which could affect our balance of systems revenues.

With this, we conclude our prepared remarks and open the call for questions.

Operator?

Thank you.

(Operator Instructions).

And, our first question will come from Smitti Srethapramote with Morgan Stanley.

Yes, hi, guys, just a quick question on your line upgrades.

Now that you have recently converted all of your lines to -- upgrade all your lines to 11.6% conversion efficiencies, I was wondering what you plan to do next to move it up to the 12% level?

Hi, Smitti, it's Rob.

We're going to continue to execute on the project and plans that we have in place roughly 25 per year.

So I think -- as we discussed, I think Q3, when we made some modification and changes that it's something that because of the number of lines and the way we executed, we'll make progress on and then it may level out in a given quarter and then continue to make progress.

So, we're continuing to invest in that and it still is our plan to drive the 0.5 per year.

We'll now go to our next question.

That will come from Satya Kumar with Credit Suisse.

Yes, hi, thanks.

I was wondering if you could give additional color on the non-German European volumes.

Just given the risk in Italy and the potential for a cap in France, I was wondering if you could give any granularity in the megawatt exposure you might have to these two other European markets, like what you had in slide 14?

Yes, it's Rob again.

I would say that, obviously, there's been considerable amount of change.

I'll give you some framework for us.

We talked about a gigawatt in each outside of Germany is the estimate and it's an estimate based on everything we know.

We expect to ship about 10% to 15% of our module production to France in 2011.

And, as it relates to Italy, I think we're planning to do --

15% to 20%.

10% to -- wait a minute, we'll get Larry here.

15% to 20%.

15% to 20%, I'm sorry, I was looking at a wrong number.

15% to 20% of our megawatt shift to Italy.

So, we spent a lot of time there and continue to work with and [going the markets] and trying to see what we can do to make it sustainable and transparent over time and it's been interesting.

We'll now go to our next question from Rob Stone with Cowen and Company.

My question has to do with India, it looks like a rapidly increasing market opportunity but how will you address local content requirements?

It's one of the things that we're working on and considering in the future and really, actually, recently, just TK visited in India.

He's here with us so he can have a few comments, as well.

But, for us, it's more determining the market and what the opportunities are and then considering what the best way is to maximize value for First Solar and our customers, so we're open to different ways to do that with partnerships and through our own efforts.

TK, if you want to add to that?

Sure, this is TK.

So we -- when the National Solar Mission first came out last year it had some discussion around local content requirements and our position -- and we encouraged the folks in India, the government officials to think about local content requirements further down the road.

So, our position to them was that at some point local content you want to encourage but you don't want to encourage it very early on in the marketplace.

So, initially, they exempted quite a bit of local content requirements in order to evaluate a number of technologies.

If you're familiar with the marketplace in India, there are a number of smaller utility scale 5-megawatt projects as part of the National Solar Mission and there are three or four very active state programs, again, that are encouraging a number of, I would call them smaller utility scale projects.

And so, so far, they've allowed local content requirements to not be met so they could investigate technologies like ours, which are not available for production in India today.

Our belief is that potentially three or four years down the road, after the market is established, they may re-engage in that discussion but at that point the market has been validated and the market will tend to pull on the technologies that make the most sense for installation in India and I think we're fine with that particular policy position.

And, we'll now take a question from Dan Ries with Collins Stewart brokerage firm.

Hi, I wonder if you could -- it seems like you've changed the wording a bit for the 400-megawatt plus or minus.

Has there been a decision to -- it seems like you're more firm on the 400 at this point rather than the range that you gave back in September.

Can you discuss the factors that led to that shift if I'm correct that that's a minor shift?

No, I think you may be interpreting a little into work full year, right?

So, generally, we're keeping flexibility in that pipeline.

I think as we reiterate here today, there's large projects that are pretty much up already, that have either started or in the process of starting construction.

We're building the BOS [Inaudible] in a way that we have variability with respect to how fast and how many megawatts we can deploy in those projects.

So that flexibility remains.

I think one comment we did make in the script today is that, obviously as we move throughout the year that flexibility for the year can decline and which is much more of the mathematical function of how much time you have left to install how many megawatts.

But, for the time being right now we have the flexibility but at the same point in time we generally see a strong global demand environment and time will tell whether we have to deploy that flexibility to its fullest or that we can move some of those volumes into 2012.

We'll now hear from Mark Wienkes with Goldman Sachs.

Thank you, just following up on that.

Could you give us maybe, in megawatt terms, how much flexibility you'd have through the first part of 2011?

I think the flexibility is more focused on the second half of 2011 because, as we mentioned, we're focused on satisfying the strong demand in Europe in the first half.

So, it's really geared towards the second half, where Agua Caliente is ramping, then we even have a project like [Inaudible], possibly, in the mix, as well, which is another large utility scale project here in the southwestern United States.

So, I think in the past, we stated that flexibility can go up into the 700-megawatt range.

So, I think we're preserving that optionality and, again, we're well prepared towards any form of market fluctuations in the later half of 2011, should those occur.

And Vishal Shah has our next question from Barclays.

Hi, thanks for taking my question.

I just wanted to clarify, your guidance on the quarterly basis for operating income and net sales has changed from the December conference call.

I was wondering what drove the reduction in the first quarter, especially for operating income?

Thank you.

Well, actually, it's -- so we don't guide for the quarter -- I jump in on this one here.

And, if you look at the profile that we presented, I think for the first quarter, I think the guidance we're providing today is actually quite consistent with that profile.

However, we got a little more precise on the profile for the first quarter today because of the average consensus to some degree ignoring the shape of that profile and having shown higher numbers.

We'll now take a question from Sanjay Shrestha with Lazard Capital.

Great, good afternoon, guys.

So, it seems like 2011 is a pretty strong year for the industry and you guys, as well.

My question is really more about -- two-part question.

What is -- what sort of a pricing dynamics are you guys seeing in the US market with the continuously depressed price of natural gas?

And, the second part of the question is, how do you guys see the industry dynamics unfold into 2012 with you having the flexibility, other folks not having that flexibility from a pipeline standpoint?

Thank you.

Well, I'll go ahead and make some comments and then Jens can chime in on the US market.

We're, as you know, continuing to develop our pipeline and putting on PPAs and other things and we mentioned in the body of the presentation that they're moving from the $0.14 to $0.16 range that we have today to in future-type applications to $0.10 to $0.12.

Which is our objective and goal over time to be able to sell and we believe -- as it relates to peaking grid parity.

I think the issues related to Europe and the feed-in tariff will cause some rush to demand again like we saw in 2010.

So that's why we believe that 2011 first half will be very strong and then the issues probably will be pressure in the market in the second half and then stabilization.

What we do is -- we've talked to all the officials and regulatory body and our customers and what we push for is the transparency for the future and we support the declining feed-in tariffs but we want to make sure that we have visibility as we plan our production and make our strategy and planning in the future.

So, we -- that, I think, 2012 in terms of the market in Europe will unfold better as the year progresses and we get past the July timeframe and we know what's going to happen with some of the feed-in tariffs.

So, I think that's why we continue to -- and I mentioned we're going to invest in growth in new markets, in new regions, and set aside significant resource and energy to do that and make sure that we have continuing diversity in our pipeline in demand.

I'll let Jens make some comments about the North American market.

Well, I think if you look at the US market right now, what we see as it relates to signing new PPAs on the power side, as you go into the outer years, the market has certainly become a lot more competitive and, generally, bidding activities are moving closer and closer to the grid parity goals as they should and, as we described in our strategy.

I would say that in the near term that there's a big focus on the customer side as it relates to project realization and execution track record and ability to hit aggressive schedules.

So, the utilities want to realize the generation capacity in order to get closer to their RPS goals on a true generation side.

So we're seeing that ability have value in the market, but, overall, it's a competitive market.

I think the industry overall sees, obviously, that the US is the fastest growing, highest-volume market for the next couple years.

It is not a fast turns business, as we see in Europe, so unless we have a significant pipeline it becomes increasingly difficult to participate in that growth.

Yes, and, I would add, one of the values of the North American pipeline is its multi-year dynamic.

It's -- while it doesn't develop super quickly, it's got a nice multi-year dynamic.

But, in addition to what both Rob and Jens said, one of the things I think you can expect from us is we're going to continue to diversify our marketplace.

So, if you look at page 14 and we extend that out into 2012 and 2013 our intent is to continue to diversify globally and have more of these kind of markets so that they -- if there are situations where one goes up and one goes down, there is a diversity protection in the overall market system.

We'll now hear from Steven Milunovich with Banc of America-Merrill Lynch.

Thank you.

On the guidance call, you talked about this 500-megawatts of quote, unaccounted for modules that you expect to sell in Europe and various places.

How do you feel about placing those today?

In particular, is your view on the pricing of those modules any different than it was a few months ago?

Well, I think from the guidance call, we were continuing to see the demand for the modules be steady, so, as we've looked at the overall economics of the feed-in tariff discussions in France and in Italy and in Germany have changed over the last eight weeks.

But, fundamentally, those are still markets that are quite viable to the kind of economics that we're looking at in the first half.

Should Germany make another decrease in mid year we'd see that to be more of a tightening of the economics.

But, fundamentally, as we look at it, you saw the announcements on some of the India volume, which is a new location for us.

It obviously helped us.

So part of what we're doing is for the small amount of volume that we don't have currently completely contracted throughout the entire year, we're looking at where we would place that in new markets to make those go and it's a very small percentage at this point.

It's way out in Q4.

Keep in mind, Steve, when we said we had high confidence in 2011 here.

Yes, and I think that part is unchanged.

We'll now hear from Stephen Chin with UBS.

Thank you.

Hi, Rob, thanks for taking my question.

Just a follow up on the operating margin question.

The new 2011 operating guidance looks like it's up a few basis points versus the prior guidance.

Is there a trend that makes you more comfortable to raise that margin guidance slightly?

Is there maybe a step function improvement in the cost per watt as we go through 2011 that may happen?

Thanks.

Yes, we have -- hello, Steve, this is James.

We have a high confidence in terms of the operating margin and then we continue to have efficiency [Inaudible] and the continued cost per watt at the same time that we diversify our market.

And as our price is set to our sell-through so we have visibility in the pipeline, especially with our captive pipelines in the US [Inaudible], as Rob and TK pointed out in terms of flexibility that we have.

So, yes.

Steve, just to add, I would say, too, a couple of points.

On the systems side, our pricing is based on the established economics and the PPAs and we know that.

We transition, too, from planning to do EPC on some of the projects in China to having a partner do EPC, so there's a mix effect to that so that's another piece of the equation.

And then having better understanding and clarity another quarter into the process about the demand streams and the competitive situations so we feel pretty good about being able to provide that guidance.

And, we continue to have resilience in there.

Tim Arcuri with Citi has the next question.

Hi, I had a question on share.

You before stated that your goal -- longer-term goal's 30% global share and there was another company just tonight that basically is indicating that between 21 and 25-gigawatts worth of modules will ship into the market this year, which would put your share sub-10%.

So, you're running way behind that goal and you're chasing a market that's growing much faster.

So, I'm wondering how you think about that share goal, as it relates to what your share was in 2010 and what it looks like it's going to be this year?

Thanks.

Okay, it's Rob.

I would say that we set that as a goal, so, an aspiration.

I would tell you, too, that there's certain pieces of the market that are not accessible to all, so we define the market a little bit differently.

When we show you the total analyst forecast as an average you see the numbers and one thing we all know is that it's hard to be accurate in terms of forecasting this market.

So, there's certain aspects of the marketplace that we believe are realistic markets for First Solar to serve for all kinds of reasons and we think that we can continue to grow our share position and grow the business.

So we're really focused on growing the entire market and then participating in that growth.

We'll now hear from Ramesh Misra with Brigantine Advisors.

Hi, good afternoon, guys.

My question was regards to your production costs across the various geographies.

Is it safe to assume that all the new plants that are coming up will have generally similar production costs or will there be a difference?

Well, it's Rob.

So, what we do is we take a look at all the costs, both raw material, labor, and the mix of plants and facilities that we have, so when we plan the cost reduction roadmap, we consider all those different elements, in terms of our plans.

So, we still have the objective to be between $0.52 and $0.60 by 2014 and we think we're making good progress to that end with the improvements in efficiency in Q4 and the $0.02 gain from Q3 to Q4 and as well, the 11% reduction year over year.

So, that's still our plan and it includes the mix that we have.

Our next question will come from Stuart Bush with RBC Capital Markets.

Yes, hi, thanks for taking the question.

If I compare your guidance today versus your guidance in December, it looks like some of the upside in the operating income is partly driven by $15 million to $20 million less in start-up expense and a 1% lower average range for the tax rate.

Can you discuss what you changed your assumptions there?

Sure.

Hello, Stuart, this is Jens again.

Basically, we're looking at is, we pointed out the visibility and, really, the uplifting in terms of the operating income is really where we are seeing the benefit of the volume increase.

Also, the better pricing that we're seeing in the European market because we're able to actually move some of the volumes to better pricing and customers.

Secondly, we actually benefit from FX, as well.

So, as I pointed out earlier, we continue to drive efficiencies in the cost per watt down and that will contribute to the increase in operating margins.

So, all those together, I think that those are just really the key elements to why we actually have an increase in the operating income.

Maybe to add, Jens, the change in the start-up cost is a combination of the acceleration of a plant, so those costs are -- the couple million dollars that are being reclassified in this guidance from startup into cost of goods sold due to earlier production start and the other part of the start-up relates to the delays on the French plant.

That's right.

Remember that [our volume] -- most of the volume hedged, and we have lock in a lot of good economics of pricing.

We'll now take our next question from Jed Dorsheimer from Canaccord.

Hi, thanks.

Can you just talk a little bit more about your approach to project development outside of North America and, of course, the project in China?

So, outside of North America, I think we're much more focused on mid to late-stage developed assets, so we've taken an approach.

Especially in Europe right now, where there's a pretty broad market where developers that easily financially strained or [Inaudible] has the working capital to project execution that are seeking partners.

So, we're seeing quite a few of those opportunities.

Out of those opportunities the one that fit our risk appetite and project profile those are the ones we're acquiring.

Generally, you should think of that effort as a fairly fast-turning business.

These are projects that generally should be realized within a nine, 12 months timeframe.

So, if we look at Italian assets, for example, we're keenly focused, if we acquire any of those and realize them, that they are realizeable in 2011.

As you go beyond that effort and you look at markets like China, I would not necessarily describe ourselves as a developer in China.

I think, in China, we're bringing our core competency, being a system provider, having EPC capability, having design know-how, and obviously, a very low cost [talent] technology to partner with local developers.

And, I think -- this is TK, I would add to the China piece of that.

Because of the way that you do development in China, in order to apply and get a pre-feasibility study and feasibility study approved, which is typically what we think of as project development, you have to be a state-owned enterprise so you have to be one of the companies there.

So, for instance, the project that we're doing in Ordos, one of the pieces of value that China Guangdang Nuclear brings is they are a state-owned enterprise that has the ability to work with us and get the bulk of those feasibility studies approved.

So, that's our intent.

I think long term in China is to work with the state-owned enterprises just like we are doing with China Guangdang Nuclear.

We'll now take our final question from Colin Rusch with ThinkEquity.

Can you just give us an update on the cost of capital efforts that you guys have engaged in, diversity of sources that you're looking at for financing a number of these large projects and trend lines in terms of actual costs as you look into 2011 and 2012?

Yes, I think you've got to look at the cost of capital geographically.

I would say if you think about the project finance market for PV solar in the United States, for example, that it's still in its infancy and, with that, we continue to see further rationalization and more aggressive bids as it relates to the weighted average cost of capital on the projects.

That comes from an increased interest and understanding of the extremely-favorable payback profile of a solar investment in the US and more and more capital competing for fairly few shovel-ready projects.

If you're thinking about the US on the debt side, as the US commercial debt market is opening up to project finance with longer terms and step by step gradually terms that are more comparable to Europe so that's gradually getting there, while not yet quite at the same volume.

As you know, we're executing a multi-prong strategy between commercial debt financing.

We're working on rating on some of the large projects for bond offerings and, obviously, we're very engaged with the DOE in both of their programs.

If you look in Europe, in Europe I will tell you that overall the capital costs are gradually increasing.

Here we're generally seeing a much more mature market, so the continued derisking of the assets has less leverage, as compared to the US.

And, at the same in point in time, obviously, there's upward pressure on the yield curve in the outer years we're financing along this asset.

So, we have seen increase in interest rates.

If you just look at KFW's lending rate, for example, in Germany that has risen slightly over 100-basis points in the last couple months.

Ladies and gentlemen, that's all time we have for questions today and that does conclude today's conference call.

We thank you for your participation.