For this assignment you will create a slide deck and record a presentation of the deck highlighting key issues and reccomendations related to your Final Consulting report. In this

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First Solar

Anderson Kaye

Florida Atlantic University

Fin 4422: Cases in Financial Management

Sofia Johan

February 25th, 2024

Introduction:

First Solar is a manufacturer of photovoltaic solar cells and modules, handling every facet of production internally. In order to begin manufacturing modules in their Germany plant, they boosted internal output in April 2007. In 2011, they operated 36 production sites at different locations. The business has been successful for a very long time since its founding. According to Thompson and Ballen (2017), it was the pioneer maker of solar panels that produced a single megawatt of electrical power at a cost of under a dollar per watt. In addition to leading the globe in solar manufacturing, the corporation entered the systems industry and made a number of acquisitions to gain control over the design, procurement, manufacturing, research and development, and ongoing operation of significant solar power projects worldwide.

However, as time passed, the first solar company's bright future began to fade. The new competitors in the market attacked its lone comparative advantage of cost leadership. The solar industry gained popularity, and as a result of its ease of entry, Chinese producers entered it. They employed more sophisticated technology to create photovoltaic cells that were identical in price but more affordable (Thompson & Ballen, 2017). This indicates that the company, which had been at the top continuously for at least ten years, had ceased to be a cost leader. Strong industry rivalry brought about by the entry of Chinese producers resulted in a decline in market share, revenue, and profit. The business experienced severe losses as a result, making it impossible for it to continue operating.

Is the solar industry an attractive industry? Why or why not?

First Solar is involved in both the solar and PV sectors. The solar sector, while at first seeming promising, proved to be less attractive than these companies had thought. The 2011 10-K form, which was on DeJong's desk, showed a net operational loss of thirty-nine million dollars, the business's first in the preceding seven years. Revenue growth had stopped, falling from sixty-six percent in 2009 to twenty-four percent in 2010 and eight percent in 2011. This slower development was due to broad reasons that influence the photovoltaic (PV) industry in its entirety.

Chinese companies were overproducing crystalline-silicon (c-Si) solar panels for the market, which were made with a less costly alternative. The fall in demand for solar panels was a result of the global financial crisis, which also put strain on government budgets and negatively impacted the financial condition of several institutions in 2008 and 2009. In 2014, Suntech Power applied for Chapter 15 bankruptcy protection (Stech, 2014). Their debt was a total of $2.3 billion, mainly to China due to a glut in the market that lowered the cost of solar panels. With a closing value of $0.18, Evergreen Solar, Inc. filed for bankruptcy in 2011. Intel Corp., SpectraWatt Inc., and the Goldman Sachs Group submitted for Chapter 11 bankruptcy just three days later (Thompson and Ballen, 2017, p. 12)

The return that investors receive on the total assets of the company is measured by the net return on assets, or ROA. where ROIC stands for return on capital invested. This is the amount of return that investors are receiving on their money invested in the company. A larger return indicates more efficient utilization of long-term investments. Profits are generated for shareholders by the money they invest in the business. A larger return indicates more efficient utilization of long-term investments.

ROIC and ROA for First Solar from 2007 to 2011:

SunPower:

Suntech:

Yingli:

The industry was appealing in its early years (2007–2008), declined in 2009, and then rebounded in 2010 for certain companies, according to the data (ROIC and ROA) above. The year 2011 revealed a sharp downturn in the solar and photovoltaic industries. Every organization's ROIC and ROA were negative, indicating a loss for every business. The Industry was ultimately in a decline.

Discuss what Porter’s Five Forces reveal about the solar industry.

Threat of new entrants:

A producer needs to first develop a competitive technology at an affordable cost in order to enter the solar market. First Solar is capable of developing novel products and services, thereby enhancing its clientele base. In addition, they can increase their R&D expenditures, which will provide them with a competitive advantage over new entrants given that First Solar is an established company that consistently establishes benchmarks. As a consequence, the solar market will become less attractive to new entrants due to their diminished profitability.

Rivalry among established companies:

The market for solar photovoltaics is extremely competitive due to its constant growth and evolution. On average, the solar energy industry has expanded by fifty percent, according to research data compiled by Solar Industry Research Data. Numerous businesses engage in competition within the industry. Twenty-five percent of the solar power market is held by EverGreen Solar, SunEdison, Solyndra, SunRun, and Spectrawatt, Inc. SunPower, the second-largest photovoltaic manufacturer, holds 38.5%, with First Solar holding the lion's share at forty-one percent. Thompson and Ballen (2017). Due to a decline in customer demand in 2011, Suntech and several other organizations initiated the process of bankruptcy. First Solar was now better positioned to acquire more customers as a consequence of the losses sustained by its competitors as a result of various strategies, including lowered prices and sales promotions (Thompson et al., 2017 p. 53).

The threat of substitute’s: 

When a sector experiences a decline in profitability due to the introduction of new products that only marginally satisfy consumers' requirements then the sector will suffer. In contrast to China, which utilized low-cost crystalline silicon (c-Si) photovoltaic cells, First Solar implemented a thin-film cadmium telluride (CT) technology system. First Solar was imperiled by the introduction of a novel, low-priced product to the market. Nevertheless, they possessed a benefit over the c-Si panel in that their thin-film process was consistently more cost-effective and demanded 98 percent less semiconductor materials (Thompson & Ballen, 2017).

The bargaining ability of buyers:

Their products have a solid reputation in the solar industry due to their efficacy in terms of cost per watt. Despite being in high demand, this enables consumers to exercise a degree of selectivity. Customers typically make purchases from businesses that provide the most competitive prices. Solar may initially mitigate the negotiating leverage of purchasers by virtue of its substantial customer base. By developing novel and inventive products, First Solar can expand their product line and sustain customer interest. Additionally, offering a diverse range of products will deter their existing clientele from defecting to their competitors.

Suppliers have the ability to set prices in accordance with marketing requirements; therefore, the price will rise if there exists a demand for the raw materials. First Solar can effectively mitigate the influence of customers' bargaining power by establishing a supply chain comprising multiple providers. Furthermore, they may engage in material experimentation through the development of alternative products, enabling them to transition to a more cost-effective material in the event that the cost of a certain material escalates.

From 2007-2011, First Solar was consistently more profitable than its major competitors: SunPower, Suntech, and Yingli. What are the sources of First Solar’s competitive advantage?

First Solar will be able to assess its resources with the use of the VRIO, enabling them to assess its competitive advantages and possibly disadvantages. Valuable:

It is evident from the case's financial accounts that their financial resources are extremely valuable. They will benefit from this when they invest in outside opportunities and, conversely, it will mitigate outside threats. Rareness:

Their robust financial resources are uncommon, particularly in relation to their rivals. In this industry, only few other businesses have substantial financial resources. Their distribution network is unique since it would take a significant financial investment and a significant amount of time for rivals to develop a better distribution network than theirs. This is something that very few other businesses in the sector have.

Since other competitors may easily obtain their products on the market, they are not very unique. As a result, they can obtain a competitive edge while using the same resources. For First Solar, this is therefore considered competitive. First Solar can still utilize this, therefore it remains a significant resource for them. Imitability:

First Solar's financial resources are hard to match because of how long they have been in business compared to their rivals. They managed to obtain this because of their longevity. New competitors in the market would not be able to make profits comparable to First Solar in order to have the same level of financial resources as. Their items are easily replicable because they don't require a lot of money. Consequently, if rivals invest in R&D, they could copy this. This is quite competitive and imitable because it does not take a long time to obtain.

A rival could have to invest a lot of money and effort to replicate First Solar's distribution network. A rival would have to put in time to replicate First Solar's distribution market development, as it took years for them to establish. Organization:

In order to create value, First Solar has arranged its financial resources. They are able to strategically invest where necessary as a result. By doing this, they will be able to repel the challenges posed by their rivals and seize additional chances. Demonstrating that this is a long-term competitive advantage.

The way that First Solar's products are arranged makes it easy for customers to purchase them, which also makes it easy for competitors to do the same. It implies that this is not a long-term edge over competitors. The structure of First Solar's distribution network enables them to demonstrate to clients how easily their products can be obtained. It further demonstrates that this is a long-term competitive advantage.

Are they sustainable?

Since First Solar's distribution network and financial resources are difficult to replicate, it would take a significant investment of time and money for other businesses to achieve where First Solar is, as demonstrated above within the VRIO. particularly in the areas where First Solar is currently accumulating years of experience. When their products are freely accessible to both them and their rivals, they do not provide a sustainable competitive edge.

Looking forward, what are the biggest threats to First Solar’s strategy?

1. Political Factor (Withdrawal of government subsidies):

Positives: As a result, there will be substantial future taxes on Chinese imports. With $83.4 billion invested, it was the least since 2013.

Drawbacks: political pressure, corporate lobbying, and an innate reliance on fossil fuels according to Bartlett et al. (2023) nevertheless hamper the transition from the long-standing fossil fuel business to the renewable energy sector. The risks associated with climate change are beginning to have a significant impact on human life.

2. Volatile Market:

Positives: They have been successful in maintaining their position for a long time. China caused First Solar to fall from its peak position; yet, it is unlikely that they would ever regain their position as the industry leader. They will continue to be stronger than new entries and industries because they can maintain their position as leaders. Their continued leverage on their balance sheets indicates that they are in a respectable position relative to their competitors. (Thompson and Ballen, 2017 pg. 19–30).

Cons: Given how quickly the solar business is changing, they might not be able to adjust their skills in time. There will be intense competition going forward.

Recommendation / Solution:

I would recommend that they continue to expand internationally. This will allow them to develop their abilities as opposed to focusing on a limited number of areas. Because the demand for renewable energy sources can be substantial in another region even when it is low in one, their installation in a location with low demand will prevent a decline. By identifying locations and markets with a more viable demand for solar power, they can also discern growth opportunities. Prominent utility initiatives in emerging markets across Asia, Africa, and the Middle East may contribute an increasing proportion of First Solar's revenue to these regions (Haberman & Federici, 2019).

This First Solar case study will enhance readers' comprehension of the solar industry and its constituent parts, which includes the solar power market. The analysis in this paper will showcase the competitors of First Solar as well as its commercial acumen. Although the entry of inexpensive solar panels from China caused the demise and bankruptcy of other companies, a single instance illustrated how First Solar was able to persevere and even prosper. This exemplified First Solar's competitive positioning and business strategy. It exemplified their resilience in the face of such a volatile and unpredictable market. In contrast to its competitors, First Solar utilized a film technique as opposed to crystalline silicone. It is more cost-effective due to the fact that this narrow layer requires 98 percent less semiconductor material.

From 2006 to 2011, cadmium telluride was priced at a range of $192 per kilogram. This increase in expense was substantial. Notwithstanding its volatile nature, my research leads me to believe that the photovoltaic industry has potential and promise for expansion. A venture into this sector would be fraught with risk. First Solar is and will keep on to be the market leader due to the fact that they are superior in the minds of both their competitors and themselves. In spite of the unpredictability of the future, the economy has evolved since the financial meltdown of 2008. As a result, an increasing number of consumers, both residential and business, will favor investing in renewable energy, specifically solar energy. The 2011 net profit of First Solar was diminished due to reorganization and reparations. This will facilitate the company's industry expansion and foster sustainable growth in the long run.

References

Bartlett, K., Black, A., Frankel, D., Kroll, K., Lambrou, J., Padilla, K., Sutton, D., & Tai, H. (2023). Build together: Rethinking solar project delivery | McKinsey. Www.mckinsey.com. https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/build-together-rethinking-solar-project-delivery

Haberman, J., & Federici, J. (2019). Case Study: First Solar, 2006 – 2012. Www.csis.org. https://www.csis.org/analysis/case-study-first-solar-2006-2012

Stech, K. (2014). Suntech Power Holdings Files For Chapter 15 Bankruptcy Protection. WSJ. http://online.wsj.com/article/SB10001424052702304610404579403444220271228.html

Thompson, A. A., Strickland, A. J., & Gamble, J. (2021). Crafting and executing strategy : the quest for competitive advantage : concepts and cases. Mcgraw-Hill/Irwin.

Thompson, N., & Ballen, J. (2017). First Solar. https://mitsloan.mit.edu/sites/default/files/2020-03/First%20Solar.IC_.pdf

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