It's the end of week and time to follow up on a couple of recent stories, including First Solar's latest results and cautionary tales about the Chinese semiconductor industry.
It must be nice when your company beats investment community expectations and your stock value goes up 30% in one day as a result.
That's what happened on Wednesday when First Solar announced its quarterly and fiscal year-end results and its share price shot up to over $228 at the end of trading. The leading thin-film photovoltaic company reported annual revenues of $504 million, up considerably from the $135 million it took in the previous year. Net income for 2007 was $158.4 million, which was more than its entire 2006 revenue stream and completely blew its 2006 income---$4 million---out of the water.
During a conference call held at the egregiously early time of 5 am PST (OK, so it was 8 am EST, and I listened to the recording anyway), company chairman Mike Ahearn, president Bruce Sohn, and CFO Jens Meyerhoff were on hand to make prepared remarks and answer questions. Here are some highlights:
- CdTe module production now surpasses 200 MW, with saleable watts per module hitting 70.3 W for the whole year. Conversion efficiencies moved up a bit from quarter to quarter, from 10.5% to 10.6% (which keeps them on track for reaching 12% in 2010-2012), and there were "significant gains" in module throughput. Manufacturing costs were $1.23 for the full year, and $1.12 for the final quarter.
- The company's Frankfurt-Oder plant actually ramped ahead of schedule (and is in full production mode); as a result, the 2Q/3Q08 ramp-up for First Solar's first Malaysian line has been accelerated, with production expected there by 4Q08. The construction of the other three Malaysian lines continue on the previously announced schedule, which will mean that when they all come online by 4Q09, the company will have overall production capacity of about 1 GW. No further capacity expansions have been considered---"we're building four fabs at once, so our hands are full now," quipped Ahearn---although the company is "assessing constantly" market demand.
- A question about rumors alleging "yield problems" at First Solar's fabs was quashed. "To our knowledge, we're not having any," Ahearn said. As for having a secure raw and processed materials supply chain, specifically tellurium, they expressed confidence they will have enough to meet the demand of their capacity expansion.
- During Meyerhoff's 2008 guidance statements, he believes the company will bring in revenues between $900 million and $950 million in the next fiscal year, despite seeing a decline in 1Q08 sales numbers compared to 4Q07, due to some contractual issues.
Now to China, or at least an online briefing on the Chinese chip sector that I listened to last Friday. The title gave an idea of what was in store: "A Sober View of China's Semiconductor Industry: The Cause of Profitless Prosperity." The presenter was long-time China watcher and industry veteran Danny Lam of the Fairview Group, and Wright Williams & Kelly cosponsored the event. (I'm told by WWK honcho David Jimenez that "Dr. Lam is also available to hold private sessions with companies that may have issues they wish to discuss out of the public arena.")
To call Lam's critique "scathing" might be a bit strong, but not by much. He detailed a provocative argument of how, despite its strategic and critical importance in the eyes of the government, the homegrown Chinese semi industry is "fundamentally flawed." Shortcomings cited by Lam included how billions of dollars have been invested in building "bricks and mortar" capacity for high-volume, low-/no-margin production, with little money put into real R&D, resulting in a paucity of truly valuable IP (and also resulting in a disruption of the global foundry model); and the diffusion of economic power (local trumps national, interprovincial trade barriers are higher than the international ones) and lack of central control or planning efforts.
He also pointed out the prevailing non-team player attitude among the Chinese as well as the lack of a "bona-fide national champion" company. "China wants to join the exclusive club but does not want to pay initiation fees and dues," as companies like NEC, Samsung, and TSMC have done when their respective countries made their first serious pushes into the semi market.
Unlike Japan, Korea, or Taiwan, Lam believes there's "a lack of a self-sustaining industry...China is notable for how little it's achieved with how much it has spent," according to Lam. Even SMIC, considered by some as the darling of the Chinese chipmaking community, "relies on expansion to cover its losses" and has developed little of its own IP, while Grace Semi has yet to make one RMB in profit. After seeing so little return for their money, Chinese banks and government agencies are backing off their spending spree on semi boondoggles, although Lam expects some locals to continue to "throw money" at dicey projects, citing the recent Shenzhen province deal with SMIC as an example.
Other than a profitless low-end chip business, he doesn't see the PRC's future fortunes changing in the semi arena either, especially at the high end once the Moore's Law paradigm runs out of gas past 22 nm and the real innovation companies will be increasingly reticent to transfer technology and licenses to Chinese companies, "given the way China does business."
Some industry experts may dispute elements of Lam's analysis of the Chinese semiconductor sector, but he has definitely stirred the discussion pot on the current state and future prospects for chipmaking in the world's most populous land.
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Comment by GUEST on 2008-02-18 09:52:27
Danny Lam is preaching to the choir for me.
Good to see this "sober" China business briefing in the blog today.
I suppose I am a bit cranky when it comes to doing business in China, but I think it's been a case of "fool me once, shame on you, fool me twice, shame on me."
I am up to fool me thrice I think, and counting. And it seems I am not alone.
But when you realize China is just a "profitless low-end chip" producer, it all makes sense.
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