First Solar, General Electric deal faces skepticism
GE's technology is at a very early stage and unlikely to contribute to the solar energy company's earnings for several years.
By Dan Freed
First Solar announced it had purchased General Electric's global cadmium telluride solar intellectual property portfolio, in exchange for 1.75 million shares of First Solar. GE has agreed to retain the shares for at least three years.
Deutsche Bank analysts voiced some skepticism about the GE deal in a note, arguing it "raises some questions about timing/intent, especially considering the fact that the technology portfolio is unlikely to impact efficiency until 2017 timeframe. Bulls would argue that this transaction is a stepping stone towards a much larger longer term relationship. We believe the scope of partnership is unlikely to be any more than a few 100MWs of negotiated volume contracts over the next few years."
Credit Suisse analysts also raised concerns over the GE deal.
"The acquisition from GE appears defensive, in our view, and may serve as one more indication that First Solar's core technology is not cost-competitive in today's low-poly environment. While there may be other driving factors and potential synergies with the similar technology to help improve First Solar's own efficiency and costs, we struggle with the fact that First Solar has purchased two different technologies over the course of 4 months, both of which are relatively early-stage. Secondly, any take-out premium investors may have embedded in FSLR's valuation is further called into question, with the most likely candidate (GE) now an unlikely bidder," the analysts wrote.
First Solar reported second quarter net income per share of $0.37, compared to $0.66 in the first quarter of 2013 and $1.27 in the second quarter of 2012. Shares were down by 8.24% to $42.90 about 30 minutes before Wednesday's open.
"The sequential decrease in earnings was primarily due to lower revenue recognition for AVSR and lower sales volumes to third-party module-only customers in the second quarter compared to the first quarter. The year over year decrease in earnings was primarily due to lower systems business revenue recognition, partially offset by higher manufacturing utilization and higher module sales to third-party customers in the second quarter of 2013 compared to the second quarter of 2012," the company stated in a press release.
Some analysts urged investors to buy the stock on weakness.
"Into 2Q13, we saw First Solar as likely to post weak results. With an unexpected cut to 2013 guidance adding to spotty execution, we expect shares to come under pressure near term. That said, 2H13 project delays appear to be masking positive developments on First Solar's ability to refill backlog - a key investor concern - and we would use any weakness to buy the stock," wrote analysts at Goldman Sachs.
In a similar vein, Lazard Capital Markets analysts urged investors "to focus on FSLR's strategic initiatives to enhance its LT leadership position, rather than being too focused on lumpiness in NT quarterly results."
Credit Suisse, however, was decidedly more downbeat.
"We were disappointed with the results, especially the significant guidance reduction, lack of incremental project bookings, and seemingly defensive acquisition of GE's solar technology. We reiterate our Neutral rating and maintain our $33 Target Price, based on what we believe to be fair-value for First Solar's backlog and future development prospects," wrote analysts at the Swiss bank in a report.
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