Introduction

Tymen deJong, First Solar’s senior vice president of module manufacturing, 1 fixated yet again on the company’s latest 10-K. DeJong had joined the company in January of 2010, at a time when First Solar’s future appeared bright. Now, just two years later, First Solar’s cost advantage was eroding and deJong was facing challenges that would require tough decisions.

In 2009, First Solar broke cost records by becoming the first photovoltaic (PV) manufacturer to produce panels that generated a megawatt of power at a manufacturing cost of less than $1.00 per watt.2 The company’s proprietary thin-film cadmium telluride technology had made it the largest and lowest-cost producer for nearly a decade. However, the 2011 Form 10-K on deJong’s desk revealed a net operating loss of $39 million, the company’s first year-end net operating loss in the past seven years. Although revenues were $2.7 billion, revenue growth had slowed from 66% in FY 2009, to 24% in FY 2010, and then to a meager 8% in FY 2011.3 Much of this slowed growth was attributable to broader trends affecting the entire PV industry. Chinese manufacturers, subsidized by their government, were flooding the market with low-price crystalline-silicon (c-Si) solar panels. Market demand for PV panels was also weakening. The 2008–2009 global financial crisis had squeezed government budgets and weakened the financial positions of many banks. As a result, the once-heavy European solar subsidies were shrinking and the willingness of banks to finance solar projects had virtually disappeared. Silicon raw material prices were also falling. This helped First Solar’s competitors, which produced silicon-based panels, but not First Solar, which produced cadmium telluride-based ones.

As deJong reflected on the company’s recent financial slump, he wondered if First Solar’s competitive edge had eroded permanently. How should First Solar respond to the threat from the Chinese manufacturers? What could the company do to maintain its cost advantage? Were First Solar’s recent acquisitions of down-stream solar panel installers a strategic benefit or a distraction? DeJong knew that to answer these questions, he first needed to better understand the sources of First Solar’s competitive advantage and whether these sources were sustainable.