A Good Year: First Solar Forecasts 46% Sales Growth in 2011

First Solar (FSLR) is heading into 2011 with a cheerful sales forecast, even though demand for its products could shrink substantially in some of its key markets.

The solar-panel maker Tuesday said it expects 2011 sales of between $3.7 billion and $3.9 billion, or $8.75 to $9.50 per share. Tempe, Ariz.-based First Solar, which also develops solar projects, anticipates generating between $2.8 billion and $2.9 billion in sales from its solar-panel business and between $0.9 billion and $1 billion from its project-development division.

The midpoint of the sales forecast, at $3.8 billion, would represent a 46% jump from the $2.6 billion midpoint of its 2010 forecast. The guidance also exceeded Wall Street's expectations. First Solar's share rose 2.5% to reach $140.5 per share in after-hours trading.

Shifting Market Demand

But a bit of gloom lurks amid the good cheer. Germany, historically First Solar's largest market, will probably lose that status in 2011, the company said. It expects to ship 25% to 30% of its products to Germany in 2011, compared with 45% in 2010.

For years, the European country has been the largest solar market in the world, thanks to its government subsidies -- called feed-in tariffs -- that offer a higher price for solar electricity than for electricity from conventional sources, such as coal. Analysts say the country may have seen a record 8 gigawatts of solar installations in 2010, bringing its total solar-electricity-generation capacity to between 17 and 18 gigawatts.

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But the incentives have been falling, and they're set to drop even more next year. First Solar has turned to other European countries with similar incentive programs, as well as the U.S., which -- although it offers no federal feed-in tariff -- some solar companies and analysts say has the potential to be the next big solar market. First Solar also is eyeing developing countries with ambitious plans to boost their renewable-energy generation. The company last week announced a small deal to supply 15 megawatts of solar panels to ACME Tele Power in India.

Aside from Germany, the market outlook also is uncertain in France, where utility Électricité de France also pays higher prices to buy up all the solar electricity available for sale within the country. The policy led to a huge boom in solar projects in France, but the success could also end up undermining the program as the government takes political heat from consumers who have to pay higher electricity rates. The French government recently suspended the incentive program for any project larger than 3 kilowatts in capacity (3 kilowatts is the typical size of a residential rooftop system in California).

Back in 2009, First Solar was considering building a factory in France to take advantage of the country's incentive program. That plan isn't firm at this point, First Solar CEO Rob Gillette said during a conference call with analysts on Tuesday afternoon.

Project Development Business Looks Bright

A few years ago, First Solar entered the project-development business in order to create sales opportunities for its solar panels. Since 2007, the company has bought two developers -- and the sales pipeline of another developer -- in order to take over projects that already were under development and that, for the most part, already had lined up utility buyers.

On Tuesday, First Solar said it is selling a 290-megawatt project in Arizona to NRG Solar. The project in Yuma County, Ariz., is scheduled to be completed in 2014. The electricity will go to Pacific Gas and Electric Co., which serves central and northern California. First Solar declined to discuss the cost of the project, but Chief Financial Officer Jens Meyerhoff said the company is working on a federal loan that it expects to close in late first quarter or early second quarter of next year.

Overall, the company is working on 2.1 gigawatts worth of projects, in the U.S. and Canada, that already have power sales agreements in place. First Solar has installed 189 megawatts of solar projects to date.

It also is planning a huge factory expansion to meet its anticipated demand. First Solar said it will build new factories, or expand existing ones, in the U.S., Germany, Malaysia and Vietnam. The company plans to spend up to $1.1 billion to boost its global production capacity from 1.4 gigawatts in 2010 to 2.7 gigawatts in 2012, maintain its existing factories and expand its services.