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First Solar is an American
photovoltaic(PV) manufacturer of rigid thin film modules and solar panels to
convert sunlight into electrical energy.  It uses Cadmium Telluride(CdTe) as a
semiconductor to produce solar panels that are vying well with conventional silicon
technology. First Solar was the first company in the Solar industry that
lowered its manufacturing cost to less than a dollar per watt (Thompson and
Ballen, 2017, pg. 1). Instead of being only a component manufacturer, in 2007,
First Solar did series of acquisition and ventured in to the systems business to
control the engineering, procurement, construction, operations, maintenance,
and development of solar power plants, and at times, project finance (Thompson
and Ballen, 2017, pg. 7 & 9). During this period, Chinese manufacturers
were largely absent from the systems business (Thompson and Ballen, 2017, pg.

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In contrast to their competitors,
First Solar pursued a low leverage strategy, borrowing less than its
competitors to have a strong balance sheet to provide confidence to buyers that
the company would be able to sustain in their business for the long-term
(Thompson and Ballen, 2017, pg. 9). Even after coming up with the best business
strategies, as per the case study, in 2011, there is a financial slump in the
company. In the early 2010s, faced a series of challenges: expanding production
by subsidized Chinese PV manufacturers (Thompson and Ballen, 2017, pg. 11);
declining purchase subsidies in important European markets (Thompson and
Ballen, 2017, pg. 4).; and, declining prices for silicon as shown in Exhibit 2
on the case study (Thompson and Ballen, 2017, pg. 2 & 14), the key input
raw material for its competitors’ panels. These challenges threatened First
Solar’s competitive advantage and overall profitability, and it needed to
decide how to respond.


This case focuses on the early 2010’s
when First Solar faces a profound threat from subsidized Chinese PV
manufacturers. The purpose of this case study is to determine where a firm
making solar panels has competitive advantage by looking at its costs and
customers’ willingness to pay; understand whether such an advantage can be
maintained in the face of substantial market shifts; and, illustrate the
complexity of the energy industry, particularly PV solar power, including the
barriers to entry, market segments, government subsidies, and international

case study was written to provide the student an insight into:

Industry attractiveness, competitive advantage and First Solar’s key challengesFirst
Solar’s capabilities and strategiesRich
data to analyze whether First Solar’s capabilities are sufficient to maintain a
competitive advantage (Thompson and Ballen, 2017, pg. 14-31).

Q1. Is the Solar industry an
attractive industry? Why or why not? Be specific. Use Exhibit 9 to calculate
ROA, ROIC, and Porter’s Five Force Model to respond to the question

A1. The
five competitive forces described in Porter’s five-forces model helps to assess
the overall profitability and competition of a business within the Solar industry.
Let us analyze each competitive force of Solar industry and its competitors to
understand the intensity of Solar industry.

The solar PV market is competitive and rapidly evolving. EuPD Research in 2008 enlightens,
the annual growth rate of solar energy in worldwide market exceeds 30% and a lot
of competitors within Solar energy industry globally (EuPD Research, 2008). Since
enough subsidies are given by the governments to encourage renewable energy,
many new entrants are coming into renewable energy industry (not specifically
on the Solar industry) and proven as a big industry player in the energy
market. The competition is coming from various domestic and international
firms. The new rivals react more quickly to new or emerging technologies or
changes in customer requirements, because they have greater financial, technical,
human, marketing and purchasing resources. The competition mainly arises from
renewable technologies (also called substitutes) like wind or geothermal and
other power generation sources that burn conventional fossil fuels. Solar
industries should compete with other renewable and fossil fuel energy firms on
price per watt, maintenance and support. Since there are more options and
alternatives, competition is really high.


Power: Supplier power is usually measured by how easy it is
for suppliers to increase prices and is driven by factors such as

the number of suppliers who manufacture each
key materials, the exceptionality of suppliers’ product
or service the cost of switching from one supplier to


the raw materials and components required for the Solar industry are supplied
by fewer suppliers (and small companies), greater the Solar industry need help
from suppliers (First Solar 10k, 2009). Most of the components and raw
materials are customized and sole source, hence if the suppliers fail to supply
under their contract for some reason like equipment failure or materials
shortage, it would disrupt the production. Since the suppliers are small
companies, most of the time, the supplies are based on a purchase order and not
by a long-term contract. Based on all these reasons, the suppliers have more
power and it could impact the price and contractual agreements.


Buyer Power:
In the solar industry, the products are mainly distinguished on the basis of
its cost per watt efficiency, which empowers buyers to be very discriminant
(Balayan et al, 2009). For example, consider the solar company First Solar. Both
within and outside of United States, First Solar has its marketing,
distribution and manufacturing operations. The international customers put
First Solar at a number of risks including unfavorable political, regulatory
and tax conditions in their country. Even though First Solar’s long-term
contracts with customers gives power to the company than buyers, once the contract
expires, the buyer power would increase as the renewable energy market will
have further developed and it would impact the revenue and net income when
getting new customer contracts or renewing existing customer contracts. That
tells buyer power in the Solar industry is relatively strong.

Threat of New Entrants:
One of the main barriers to entry into the Solar industry is robust R to
manufacture a competitive technology at a competitive price. Even though many
countries encourage green technology, either their government don’t give
subsidies or in some cases begin to cut back existing subsidies. Hence cost to
enter Solar industry will rise and may become less attractive to new companies unless
any new upcoming technology innovation makes it cheaper (Harlin, 2011).

Threat of Substitutes:
There is a strong competition within Solar industry among the producers of crystalline
silicon solar modules, thin-film solar modules, and solar thermal and
concentrated PV systems. For example, the thin-film solar panel industry such
as First Solar has several substitutes including silicone based photovoltaic
cells and other types of photovoltaic cells. Increasing popularity of other
renewable energy technologies, the companies of the Solar industry could strongly
be impacted.  For example, hydrogen fuel
cell based on natural gas is economically attractive and it produces low carbon
emissions and generates high levels of electricity (Nail et al, 2011).

Table 1 below shows summary of the significance of
each force in the Solar industry.


Internal Rivalry

Supplier Power

Buyer Power

Entry and Exit


Strategic Significance






Table 1 Significance of 5 Forces in the
Solar Industry

Based on Exhibit 9, ROA and ROIC:

The prudent investor recognizes that
solar is in a deflationary market, prices are falling across the board e.g. raw
materials and manufacturing cost per watt. It is both a blessing and a curse.
While falling prices opens up new opportunities by making solar more
competitive with other sources of energy, they also expose producers to intense
competition and can erode margins. The larger problem by far, however, has been
a fundamental weakness in many solar companies’ business plans. This has been
highlighted by a series of high profile bankruptcies, such as those of Solyndra
and Evergreen Solar (Thompson and Ballen, 2017, pg. 12-13). These companies
were all beset by strong market headwinds, but their business strategies left
them without the margins of safety required to survive. Thus, when favorable
assumptions about the market proved unfounded, they lacked the means to
maneuver into a safe harbor. This is not true of all solar companies, however.
First Solar especially has done an excellent job of navigating the solar
market. As shown in Fig. 1 in Appendix, the average return on assets and return
on invested capital of First Solar between 2007 and 2011 is far better than its

Q2. 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? Are they
sustainable? Quantify where you can.

A2a. First
Solar’s competitive advantage is strategic assets through the resource-based
model of the firm. The resource-based model describes, the organization is made
of tangible and intangible resources, and capabilities, which can be put
together to offer a competitive advantage. This section depicts First Solar’s
strategy through the resource-based model.

Financial Resources:
From a financial standpoint the stronger a company is the less risky it is.  The “current ratio” is one of a key
performance indicator(KPI) to measure how the company is financially secure and
defensive. Total current assets divided by total current liabilities is the
formula for current ratio and the calculated value must be greater than or
equal to 2, which means that the company holds current assets equal to twice or
more the amount of current liabilities. As per the analysis is shown in Fig. 2
in Appendix, First Solar scored high value in this benchmark compared to its
competitors and confirms it is financially secure and defensive. First Solar
pursued a conservative financial strategy, borrowing less than its competitors.
Table 2 in Appendix clearly highlights that First Solar was having enough cash
in hand, limited liability and consistent growth by reaping the fruits from
R&D investment during the period 2007-11, that is the competitive advantage
of First Solar. Other KPIs, like Y-to-Y growth, ROE, ROIC and ROA in Table 2 also
clearly shows how First Solar is sustainable on its financial resources than
its competitors. For more details, please open the attached excel doc in

Physical Resources:
Physical resources include manufacturing plants, and solar panel products. First
Solar currently has 4 high-tech manufacturing plants: one in Ohio, United
States; one in Frankfurt, Germany; and two in Kulim, Malaysia (Thompson and
Ballen, 2017, pg. 8). Two more plants were under construction in Arizona, USA
and Ho Chi Minh City, Vietnam. As per 2011 annual report, FS Series 2 PV Module,
and FS Series 3 PV Modules are the two photovoltaic modules used by First Solar
during this tenure (First Solar, 2011).

Human Resources:
As per 2011 annual report, the following is the details of First Solar’s human
resources comprise its executive management, the board of directors and
employees. Rob Gillette, Chief Executive Officer, TK Kallenbach, President of
Components Business Group, James Zhu, Chief Account Officer and Chief Financial
Officer, Bruce Sohn, President, Operations, David Eaglesham, Chief Technology
Officer, and Carol Campbell, Executive Vice President, Human Resources, are the
executive members of the company. First Solar is dependent upon the services of
these individuals and others who are part of the senior management. The total
number of employees in First Solar is 6,100 in 2011 (First Solar, 2011).

Technological and Intellectual
Resources: First Solar’s intellectual property
resources are those aspects of their technology, designs and methodologies, and
processes that provide significant advantages of differentiation from
competitors. Technological resources include the company’s innovative thin film
semiconductor technology (Investor First Solar, 2007). First Solar depend on a
combination of patents, trademarks and trade secrets, as well as employee and
third-party confidentiality agreements to protect their intellectual properties
(Zahringer, 2011). Within the United States, as of 2008, the company held 23
patents, with expirations between 2009 and 2026, and had 37 patent applications
pending. In foreign jurisdictions, First Solar held 17 patents and had over 70
patent applications pending (First Solar 10k, 2009). As of December 29, 2007,
First Solar held two trademarks, “First Solar” and “First Solar and Design” in
the U.S. and has registered “First Solar and Design” mark in China, Japan and
the European Union, and seeking registration in India and other countries
(Investor First Solar, 2007).




Financial: First
Solar’s good cash in hand is an indication of its capability to develop new
technologies and manage supply/demand fluctuations better than its competitors.
Its financial low risk will attract capital investors.

Operations and Manufacturing:
The operating and manufacturing capabilities of First Solar are, engineering,
procurement and construction services, operating and maintenance services and
finance (Thompson and Ballen, 2017, pg. 7). Also, it has component segment as
well as systems segment. Systems segment of operation provides a solar power
system for the commercial environment.


Using above mentioned resources and
capabilities, First Solar gained core competencies like knowledgeable R&D
scientists, low-cost production, continuous and scalable production, replicable
production and long-term supply contracts. These competencies enabled First
Solar to have a sustainable competitive advantage.

Are they sustainable? Not
all above mentioned competitive advantage resources are sustainable. For
example, the patents will expire at a certain date. The board of directors and
executives are not permanent and they may go away for some better opportunity. In
addition, we should recognize that the Solar industry is in a deflationary
market, prices are falling across the board, there is a possibility of
financial instability. First Solar has a history of operational excellence,
industry-leading technology, continuous innovation and a healthy balance sheet
by adopting a slower-growth strategy and reducing debt, that helped the company
to have sustainable sources.

Q3. Looking forward, what are the
biggest threats to First Solar’s strategy? What recommendations would you make
to Tymen deJong to guide First Solar?  

A3a. Threats

High competition and Substitutes: There are more
than 150 solar PV manufacturers worldwide (Thompson and Ballen, 2017, pg. 12),
and there are few competitors they sell solar panels near the cost of their production
e.g. Chinese producers, which can impact net contribution margins and growth of
First Solar. Also, any breakthroughs in alternative renewable energy solutions
(solar thermal, wind, geothermal, tidal, hydro, biomass) might make thin-film
cells obsolete.

High risk on raw material Tellurium
(Te) and in need of more innovation:
of the raw material called Tellurium used by First Solar is quite rare,
existing in concentrations in the crust similar to Platinum. It is a mainly
produced as a by-product of copper refining. While a great deal of material
recycling can occur, there is always the possibility of a supply bottleneck
that could erode First Solar’s price advantage. There is the possibility for an
advent of a breakthrough in solar technology, such as a new manufacturing
technique could produce new low-cost thin film cells e.g. Tin Sulfide (CZTS).
First Solar should come up with a replacement for Tellurium and bring new
innovations from their R&D to produce low-cost thin films with more
available raw materials.

Volatile market:
Any careful investor would recognize that Solar industry is in a deflationary
market, that means, prices are falling across the board. Falling prices would
open opportunity for new entrants and make the Solar industry stronger than
other energy industries e.g. fossil fuel. But it would also create tough
competition within the Solar industry and can erode margins.

Political factors:
Poor political responses include new policies, legislature, and tax incentives to
boost the growth of an investment in renewable energy in order to cut greenhouse
gas emissions can change the game plan.

A3b. Recommendations

First Solar should do the following
things overall to sustain and become a leader in the market.

and further develop technologies, especially find more cost-effective PV cells by
not using Telluride e.g. use copper indium gallium selenide (CIS/CIGS) which
has more solar module efficiency than CdTe.Continue
to expand overseas instead of just focusing on very few countries.Grow
and develop domestically across all statesKeep
produce strong balance sheetUse
available cash for more R&D and M&A, to be a leader in the marketSecure trade secrets and increase the
number of patents to safeguard the intellectual property.


The business of solar remains
volatile even though it has an explosive growth and enormous potential. It will
always be a calculated risk to invest in an industry with such characteristics.
Focusing on quality would only help the company to become a leader in the
market. Based on the analysis of this case study, there is no solar company in
this space of higher quality than First Solar. As discussed above its
resources, capabilities and competencies, it has a history of operational
excellence, industry-leading technology, and a healthy balance sheet. For any
new entrant in the Solar industry, First Solar strategies are the best examples
to follow. By adopting a slower-growth strategy and reducing debt, First Solar has
sustained well enough in the green-energy industry. It is still making profits
better than its competitors.

Based on this case study data, First
Solar is significantly more adept than its competitors. but as the SEC knows,
“past performance does not necessarily predict future results.” The economy
is coming back well from 2008 crash, positively more residents and companies
show interest to spend money on renewable energy especially in solar in the
coming years. Since First Solar has to restructure and do asset impairment, it
lost its net profit contribution in 2011, but it would help the company to do
well in the coming years. Doing a surgery to live longer and healthy would be
necessary not only for the human being, even for business.

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