The question : Based on the above competitive advantages of First Solar, determine whether First Solar is sustainable? Kindly explain it separately for each points above.

(Side note: Please refer to MIT Management Sloan School, First Solar case study by Neil Thompson and Jennifer Ballen)

QUESTION 2 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? Where you can, be quantitative. The sources of First Solar's competitive advantage for regularly surpassing its key competitors SunPower, Suntech and Yingli from 2007 to 2011 are listed below. a. Lower manufacturing costs This is the most important feature that allows First Solar to achieve a competitive advantage in the solar industry. With its innovative thin-film cadmium telluride technology, First Solar emerged as the lowest cost per watt option in an industry traditionally dominated by low-cost Chinese suppliers. Below shows the graph of manufacturing costs per watt of all of First Solar and its major competitors from 2007 to 2011: Manufacturing cost per watt ($) Manufacturing Cost per Watt from 2007 to 2011 3.5 3 2007 2008 2009 2010 2011 1.23 1.08 0.87 0.77 0.75 2.67 1.93 1.91 1.71 1.48 2.40 2.14 1./8 1.41 1.26 2.91 3.01 1.50 1.14 1.16 Figure 1.0: Manufacturing cost per watt from 2007 to 2011 2.5 2 1.5 1 0.5 0 -First Solar SunPower -Suntech Yingli Total average cost 0.94 1.94 1.80 1.94 From the above graph, it shows that the average cost of manufacturing per watt for First Solar is $0.94. Following that, its major competitors SunPower, Suntech and Yingli have average manufacturing costs per watt of $1.94, $1.80 and $1.94. This proves that First Solar has the lowest manufacturing cost among its competitors across the five years. The priority of the company is to reduce costs while maintaining healthy margins. First Solar broke cost records with its technology in 2009, producing panels capable of producing one megawatt of power for less than one dollar per watt. First Solar made this breakthrough in early 2009, and by the end of 2010, it had reduced its per-watt manufacturing cost to nearly $0.75. The company has also concentrated on increasing manufacturing capacity in low-cost manufacturing locations. b. Large customer and market segment First Solar has a sizable customer base and a strong market position. To diversify, First Solar entered direct sales in high-sun, non-subsidy-reliant markets, primarily selling systems to utilities in Africa, the Middle East, and the Americas. For example, the German market grew rapidly to around 3GW and remained the largest in the industry in 2009. Italy's market is expected to be the second largest in Europe in 2010, with France coming in third. First Solar also has international business experience in several European countries, as well as the United States and China. First Solar has signed a contract in China to construct a multi-phase, 2GW solar power plant near Ordos City in Inner Mongolia. In Australia, First Solar is pursuing over 500MW of rooftop, ground-mount, and off-grid opportunities. The utility market is expected to grow significantly over the next ten years, with a market share increase from 31% in 2011 to 40% by 2020. Since First Solar has its own utility scale solar increase from 31% in 2011 to 40% by 2020. Since First Solar has its own utility scale solar business, we were able to optimise overall system design. For several years, First Solar has been able to deliver systems with up to 5% better performance than competitors due to their expertise. In 2011, First Solar controlled roughly 41% of the US market. SunPower was the second largest PV manufacturer, making up for 38.5%, with others 20.5%. As a result, First Solar is now well-positioned to conduct profitable global business in other countries. C. Strong financial strategy First Solar has less borrowing than its competitors, which have average annual debts of $276 million, $687 million, $1.7 billion, and $1.1 billion, respectively. It demonstrates that, in the current environment, debt-free companies are a safer investment. First Solar has a very low debt-to-equity ratio, which may indicate that the company is mature and has amassed significant wealth over time. In addition, First Solar has consistently kept more cash on hand than competitors, which it has used to fund promising solar projects. This served to reduce borrowing costs while also assuring stakeholders that we would be able to sustain our business over time. From 2007 to 2011, the following debt-to-equity ratios were calculated for First Solar and its major competitors: Total liablities Debt-to-equity ratio= Total stockholders of equity First Solar SunPower Suntech Yingli 0.61 2007 0.25 0.91 1.16 2008 0.40 0.90 1.98 0.80 2009 0.26 0.96 1.47 0.99 2010 0.27 1.04 1.77 1.35 2011 0.59 1.98 3.76 2.90 Total 1.76 5.79 10.14 6.65 Table 1.0: Debt-to-equity ratio of First Solar, SunPower, Suntech and Yingli from 2007 to 2011 According to table 1.0, First Solar has the lowest debt-to-equity ratio, followed by SunPower, Yingli, and Suntech, who have the highest debt-to-equity ratio for the last five years (2007-2011). As First Solar fails to capitalise on growth opportunities, their strategy of maintaining a low debt-to-equity ratio is a wise one. On the other hand, SunPower, Suntech, and Yingli are at a higher risk of bankruptcy if their businesses do not perform as expected and they have a large debt payment obligation. d. Long-Term Supply Contract The long-term supply contract is the significant breakthrough that allowed this company to get a competitive advantage in the market. Long-term supply contract provides on-site operations and maintenance, such as performance analysis, forecasting, contractual and regulatory advice, performance reporting and inventory management. Long-term supply contracts with pre-sold capacity are helpful in planning and predicting demand. Consequently, it minimises the risk of oversupply or undersupply of solar modules. As First Solar expands quickly, it eventually realises economies of scale, further reducing its manufacturing costs. First Solar is wise in planning its production, hence its competitive image in the market. e. Technological and Intellectual Resources First Solar was able to achieve competitive advantage due to its ever developing technological resources. Through its effort of vertical integration, First Solar could control all its production stages in-house, including research and development to come up with the best technology for solar panels. Its intellectual resources include the designs of the solar panels and processes that provide product differentiation advantage from its competitors. First Solar has made its name by being among the first few manufacturers to commercialise advanced thin film semiconductor, producing solar panels with inexpensive substrates. To protect its intellectual resources, First Solar depended on a combination of patents, trademarks and trade secrets, signing confidentiality agreements with its employees and third-parties. As of 2011, First Solar has a total of 337 patents and patent applications. It had two trademarks in the United States as of June 30, 2007, being "First Solar" and "First Solar and Design and had registered the "First Solar and Design" mark in China, Japan, India and the European Union. (Murphy, 2010)