First Solar Taps Robots for Competitive Advantage

A year ago, First Solar Inc.’s future looked uncertain. Deeply underpriced by a string of Chinese competitors, the Tempe, Ariz., maker of solar panels laid off hundreds of workers, sold equipment, and shut down its factory on the outskirts of Toledo, its only one in the U.S., as it prepared to gut and remodel the plant. That last move, however, has paid off. The Ohio plant has been reborn as an almost fully automated operation, daily churning out hundreds of solar panels for a fraction of what it costs rivals to make them. The secret: supersize panels made with cadmium telluride (cad-tel), an energy-absorbing metal compound that First Solar engineers figured out how to spray on glass sheets in a thin film. First Solar invested more than $1 billion in researching and developing the cad-tel spray over the course of two decades. Its success upended the business of solar panel production even before the administration announced tariffs on overseas solar hardware.

Early in the plant renovation process, “when I first saw that empty factory floor, my heart sank,” Chief Executive Officer Mark Widmar recalls. He was unsure the automation would pay off. “I thought, what have we done? But we’re now in a better competitive position than ever.” Today a visitor to the factory, which reopened in December, looks out over a line of robotic arms guiding sheets of specialized conductive glass onto rollers that snake 3 miles through cleaning, grinding, and spraying machines. A final robot grabs the completed panel, about the size of a large flatscreen TV, and places it in a box for shipment. There are just a few dozen workers scattered about; before the renovation, there were hundreds. The company acknowledges that it has cut jobs, but it says the ones that remain are safer and pay better.

First Solar’s patented handful of steps takes just three and a half hours, compared with the three days the leading Chinese solar companies need to make similar-size silicon panels. The conventional process requires more than 100 steps, including fabricating silicon ingots in a furnace, shaving them into wafers, wiring on metal contacts to make cells, and assembling 60 or so of those cells. The panels coming off the new line in Ohio are triple the size of First Solar’s previous model and produce 244% more power at a manufacturing cost of as little as 20¢ per watt, about 30 percent less than the cheapest Chinese equivalent. The advantage widens in hot, humid, and low-light conditions. “They have a great new product and a significant cost advantage for at least a couple years,” says Jay Rhame, a portfolio manager at Reaves Asset Management, which has invested in First Solar.

Using cad-tel for solar energy dates to the 1950s, and companies including General Electric, Kodak, and BP worked on the technology before abandoning it. In the 1990s, First Solar founder Harold McMaster came up with a method for spraying a liquid form of the compound onto sheets of glass. He later sold the company to John Walton, a son of Walmart Inc. founder Sam Walton. The Walton family remains First Solar’s largest shareholder. First Solar was the leading supplier of solar panels a decade ago, but it struggled to make them big enough or quickly enough to compete, once Chinese companies entered the market in earnest. The new entrants’ cheap labor and economies of scale, combined with an 83 percent drop in the cost of silicon, allowed them to slash prices and wipe out much of the U.S. industry. (Remember Solyndra?) First Solar was one of the few survivors, thanks to federally funded contracts in California.
In the past few years, automation has proven the key to success, advancing enough to make bigger cad-tel panels. “Cad-tel is by far the best semiconductor for solar,” says Raffi Garabedian, First Solar’s chief technology officer. “It’s just 3 microns thick, and it’s black, so it absorbs all the light.”

CEO Widmar has committed an additional $1.4 billion over the next two years to expand production at two new factories in Vietnam and to retrofit four others the company runs in Malaysia. Those factories are exempt from the administration’s tariffs, giving the company a further advantage. Wall Street has taken note: While solar stocks have typically remained flat at best over the past year, First Solar shares have more than doubled.

Beyond the short term, though, First Solar will be depending on the success of its Asian plants. It will also have to continue spending to keep pace with further advances. Researchers worldwide are working on a new ultra-cheap, semiconductive material based on perovskites, natural crystals that are easily replicated in labs. In nature, these crystals tend to degrade when exposed to sunlight, but if they could be stabilized, panel makers could leapfrog cad-tel, says Ben Kallo, an analyst at Robert W. Baird & Co. China remains a threat, says Rhame of Reaves Asset Management: “We don’t know when their next breakthrough will come.”

Citations

https://bloom.bg/2Fi5bnW – BusinessWeek
http://bit.ly/2E7MGTT – Green Tech Media

GE Reels from a Bad Bet on Long Term Care Insurance

The trouble at General Electric Co. (GE) began decades ago when a hole started to form inside its sprawling financial unit. The hole became a $15 billion shortfall in insurance reserves, disclosed just recently. It has prompted a Securities and Exchange Commission investigation, called into question the oversight of GE leadership, pushed down the share price, and shocked investors who were asking how this icon of American capitalism could allow the situation to deteriorate to this point.

“It sure seems that previous management had a rosy view,” said Scott Davis, an analyst with Melius Research in New York. “There seemed to be no effort on their part to get ahead of the liability. I find it very hard to believe that mysteriously overnight GE found problems they didn’t know existed.” In 2004, GE spun out an insurance unit, Genworth Financial Inc., through a stock offering. The move was important to the parent company. It helped eliminate one of the biggest drags on GE’s earnings. At the time, underwriters including Goldman Sachs Group Inc. and Morgan Stanley told GE the share sale could run into obstacles, people familiar with the deal said. Some Genworth businesses were too weak for investors’ tastes. GE would need to backstop them. GE agreed to reinsure some of the weakest parts of Genworth’s long-term-care insurance. Genworth confirmed its former parent company took on the financial risks for certain businesses. The company, then run by Immelt, raised $3.53 billion in its first Genworth share sale. The insurer’s stock rose 67 percent by the time GE sold the last of its stake for $2.8 billion in 2006.
Long-term-care insurance is a business that has gotten tougher over the years. Policyholders are living longer. Medical costs have risen. Some insurance companies have quit selling the product altogether. Genworth has taken write-downs to shore up the business with cash reserves. GE is certainly not the first company to get its assumptions wrong, and the insurance policies date as far back as the 1980s. No new contracts were written after 2006. But GE did not change its assumptions in a big way, a decision that baffled industry veterans.

Genworth posted a $1.2 billion loss for 2014 after a revamp of its actuarial assumptions and identifying a calculation error. It was a warning sign to the industry that long-term-care insurance policies were more toxic than initially thought. It also captured the attention of people familiar with the GE reinsurance contracts. They asked why Genworth was revising its assumptions while executives at the financial conglomerate mostly left theirs alone. Losses “would have been substantially greater had Genworth not proactively managed that business,” said Julie Westermann, a Genworth spokeswoman. She added that the company moved early to ask for rate increases to offset major costs.

Boston-based GE added at least $1 billion to its reserves over five years to mitigate some operating losses, according to a July report by ratings firm A.M. Best. Over a decade, the company contributed about $4 billion, said a person familiar with the situation. GE’s reinsurance portfolio also includes variable annuities, which provides lifetime income to retirees, and structured settlements, payouts often tied to legal cases.

Some employees were aware that long-term-care insurance was in bad shape. And even as it sold the bulk of its finance business, executives resisted selling reinsurance assets, even when bankers encouraged them. Doing so would have forced GE to book a huge charge to reflect a drop in value, according to people with familiar with the situation who asked for anonymity because they weren’t authorized to speak. That was an indication that the business was worth less than what GE reported to investors, the people said. For years, actuarial firm Milliman Inc. signed off on reserves for a GE unit that held the long-term-care risk, according to regulatory filings.

GE disclosed last year that it was reviewing the long-term-care business and would suspend dividends paid to the parent company. In November, while the process was still underway, Chief Financial Officer Jamie Miller said the company would likely take a charge of more than $3 billion. When GE disclosed final results, Wall Street was shocked by the magnitude of the financial hit, a $6.2 billion charge against earnings and $15 billion to be put into reserves over seven years. On a recent conference call with management, one analyst asked whether GE still had faith in its auditor, KPMG, while Jeff Sprague of Vertical Research Partners mused, “It’s hard to imagine a $15 billion problem materialized in the course of the year.”

Citations

https://bloom.bg/2rENe14 – Bloomberg

http://cnnmon.ie/2BvzLZ8 – CNN Money

The Good News Is . . .

Good News

Leading indicators rose 0.6% in December, more than the 0.5% expected by economists surveyed by Reuters. The index rose 0.4% in November, coming in line with expectations. The Index of Leading Economic Indicators is a closely followed indicator used to forecast global economic trends and take a pulse on the U.S. economy. The Conference Board determines a composite value based on 10 key metrics, including manufacturers’ new orders, stock prices and average weekly unemployment claims to create the composite value. The index’s gains were widespread across its component indicators.
General Dynamics Corp., a global aerospace and defense company, reported earnings of $2.50 per share, an increase of 32.3% over year-earlier earnings of $1.89 per share. The firm’s earnings topped the consensus estimate of analysts by $0.12. The company reported revenues of $8.3 billion, an increase of 8.1%. Management cited backlog growth in its defense business and robust order intake for its Gulfstream aviation products as reasons for its strong revenue and earnings results.
The French drug maker Sanofi said that it had agreed to acquire Bioverativ, a biopharmaceutical company focused on treatments for hemophilia and other rare blood disorders, for $11.6 billion in cash. Sanofi has used acquisitions to bolster its portfolio of drugs, particularly because it faces declining sales for its diabetes drug, Lantus, which has lost its patent protection. Rivals are moving to introduce generic versions of the treatment. The deal would enhance Sanofi’s presence in specialty care and rare diseases create a platform for growth in other rare blood disorders. Under the terms of the deal, Sanofi would pay $105 in cash for each share of Bioverativ.

Citations

http://bit.ly/1fLVlWY – The Conference Board
http://cnb.cx/2lwnm3s – CNBC
http://bit.ly/2DQySj1 – General Dynamics Corp.
http://nyti.ms/2DBuaSQ – NY Times Dealbook

Planning Tips

Guide to Tax Preparation Software

Tax season is here and you may be thinking about how you will file. If you want to go the do-it-yourself route, you have plenty of software options. Some have a wealth of features, and many are low cost—even free. You might also want to check if your bank, credit card issuer or other financial institution has any tax-filing deals. For example, Fidelity offers customers a $20 discount on TurboTax. Below are some software options to consider. Be sure to check with your financial advisor for tips on the software most appropriate for your situation.

TurboTax – TurboTax features include an artificial intelligence system that will recommend deductions based on your profession, as well as access to certified public accountants and other tax experts who can help you throughout the process. You can join a Q&A with a tax professional or use TurboTax Live, in which you can see the pro helping you, but they cannot see you. If you use a 1040EZ or 1040A form and make under $100,000 a year, you may qualify for TurboTax Absolute Zero—which means your tax filing is free. The price range for Turbo Tax is $39.99-$149.99.

H&R Block – Both H&R Block’s deluxe and premium packages offer free online consultations with experts. You can import forms and track your refund from your phone. (And if you get lost in the process, you can always stop in at one of H&R Block’s 12,000 retail sites.) H&R Block also offers free filing for people who use the 1040EZ, 1040A or the 1040 with Schedule A form. The program, called More Zero, also offers free state return filing. The price range is $29.95-$89.95.

TaxAct – TaxAct offers complimentary email and phone support, and you can easily import your tax returns from previous years. There is also a $39 option exclusively for independent contractors and other freelancers. Federal and state return filings are free for taxpayers with simple returns using 1040EZ or 1040A forms. The price range is $27 – $51.

TaxSlayer – The classic e-filing version of TaxSlayer is just $17 (one of the cheapest options around). Users can even opt to have their filing fees deducted from their refund, rather than paid out of pocket. Simple tax returns can be completed and filed via the company’s app. The price range is $17 – $55.

IRS Free File – The IRS offers the Free File program, administered through a nonprofit alliance of tax-prep service providers. Each provider has its own restrictions on who qualifies. This tool on the IRS website will help you find the free software that fits your situation. Volunteers for the IRS, through The Volunteer Income Tax Assistance program, provide free filing for people who make less than $54,000 a year, are disabled or speak limited English. You can find a location near you on the IRS’ website.

Citations