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first solar company

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  • 1. Equity Report | January 12, 2009 | Ticker FSLR First Solar Inc. (FSLR) The Company is a leading low cost thin film solar module manufacturer. CURRENT $149.93 TresVista Recommendation BUY TARGET$174.37 Executive SummarySector Solar Energy Investment Thesis:Ticker FSLR Market Cap. $12,157.8 We have initiated our coverage of First Solar Inc. with a Buy rating. We have arrived Enterprise Value$11,595.9 at our valuation based on a DCF analysis, company comparable analysis, the currentLTM Revenue$1,013.4 and future outlook for the company, and the outlook for the solar sector as a whole. Per Share Data The Company has been consistently showing improvement in earnings and is poised asCurrent Price$149.93 one of the strongest players in the solar energy sector and will continue in this regards 52 Week High $317.00 due to its technological advantage over its competitors. With the solar industry outlook52 Week Low $85.28 in 2009 being forecasted to decline in terms of revenue, we believe First Solar will not% of 52 Wk. High47.3% be adversely affected as much as its competitors, and will continue to deliver consistent Number of Shares81.090 earnings. Multiples Validation: PE LTM 57.0x First Solar is currently the industry leader and has tremendous benefits of being the lowest cost producer in the market. Although the stock is already trading at a premium2008E 35.6x to almost the entire sector, it is also forecasted to outperform the sector. This is due to 2009E 17.6x greater visibility of contracted supplies, a streamlined manufacturing process, EV/EBITDA consistency of earnings, conservative estimates on the part of the management, andLTM 36.7x diversification of operations through strategic acquisitions. 2008E 23.2x 2009E 13.5x The thin film technology adopted by the company largely eliminates the risk associated with fluctuation in the prices of raw materials. Crystalline silicon module manufacturers have historically faced significant problems with the sourcing of polysilicon, which is the major raw material used in the manufacture of modules, and also accounts for majority of the cost. With heavy expansion plans underway, the company aims to significantly build its capacity in the next few years. The balance sheet of the company, having a substantial net cash amount, increases the ability of the company to further lever its capital structure in case of need for expansion capital. Risks to our recommendation include fluctuations in exchange rates related to foreign currency denominated revenues, slowing growth in overall demand, competition from other thin film technologies, decrease in silicon prices, toxic and rare nature of raw materials, and other macroeconomic factors. $ mn.52 Week Stock PerformanceHistorical Sales 60.0% 600.0504.0 40.0% 500.0 20.0% 400.0.0 %0.0%254 GR 300.0 CA (20.0%) (40.0%) 200.0 135.0 (60.0%) 100.048.1 (80.0%) 3.213.5 0.0 88 08808809 2003 20042005 2006 2007 l- 0-0-0-0 -n-n-ar ovepay -J u-J a-J a -M -S -M -N 121212 12 12 12 12First Solar Inc.S&P Global Clean Energy Index TresVista Financial Services: All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Bloomberg and other vendors. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES ARE LOCATED IN DISCLOSURE APPENDIXConfidential 1 of 41

2. Equity Report | January 12, 2009 | Ticker FSLR Table of Contents1. Company OverviewHistory and BackgroundBrief Management DescriptionOwnership Status3. Sector OverviewIntroductionSolar TechnologiesSolar Value ChainSubsidies and Support Schemes for the IndustryThe Grid Parity ConceptMajor Solar Energy MarketsFuture Trends of the Solar Market4. First Solar Business Model5. Recent Financials and Guidance6. Key Risks Faced7. Key Investment Highlights8. Valuation9. Conclusion10. Sources of InformationConfidential2 of 41 3. Equity Report | January 12, 2009 | Ticker FSLR Company Overview History and Background Firs Solar was formed through an equity investment made by True North Partners (previously known as JWMA Partners) founded by John Walton (late son of Sam Walton and heir to the Wal-Mart empire) in 1999. The influx of capital amounted to $45.0 million with another $100.0 million being pumped in to get its first commercial production line running in 2004, in Perrysburg, Ohio.11 With its IPO in November 2006, the company raised around $458.0 million and an additional $618.0 million during its follow on primary offering in August 2007.6 First Solar Ltd., based in Phoenix, Arizona, is a leading manufacturer of solar panels. The Company designs and manufactures solar modules using thin-film technology which employs the use of cadmium telluride (a crystalline material formed by both cadmium and tellurium) as its main semiconductor material. Each module is manufactured using a thin layer of cadmium telluride semiconductor material to convert sunlight into electricity. First Solar is currently the largest producer of thin-film solar panels worldwide and is also the lowest cost producer. The Company aims to provide a cleaner, lower costing means of renewable electricity thereby reducing dependence on conventional electricity and the use of fossil fuels. Facilities There are totally seven manufacturing facilities with 28 operating lines6. They include the original Ohio Base plant, one manufacturing facility in Frankfurt, Germany which is fully operational, four facilities in Kedah, Malaysia4, and an expansion of the Ohio facility. The expansion of its original Ohio facility is currently underway and is expected to be completed by 2010. The first and second plants in Malaysia have already come on-stream and the third and fourth plants are expected to be operational in 2009. The company has setup operations in Malaysia to avail of its advantages as a low cost geography. The companys manufacturing capacity has increased ~12.0x from 25 WM in 2005 to 308 MW in 2007, with the expected capacity to double at the end of 2008 to 735 MW.3 The total capacity is expected to reach around 1,127 MW by the end of the 2009 fiscal, based on 2008 run rates. The Company uses a systematic replication process for the construction of new manufacturing facilities which are comparable to the operating performance of the original plant in Ohio. This is called the Copy Smart process which has effectively increased the companys capacity in a short span of time. First Solar is currently ramping up its production capacity by commissioning new facilities and aims to expand its geographic presence. Shown below are the different manufacturing facilities operated by the company and the time line for the construction and capacity to come on-stream: 32007 200820092010Facility Q1Q2Q3Q4Q1 Q2Q3Q4Q1Q2Q3 Q4Q1 Q2Q3Q4 Ohio Base Fully Operational GermanyQualRamp Fully Operational Malaysia 1 Start ConstructionQual RampFully Operational Malaysia 2Start ConstructionQualRampFully Operational Malaysia 3StartConstruction QualRamp Fully Operational Malaysia 4 Start Construction QualRampFully Operational Ohio ExpansionStartConstructionQual RampFully Operational Applications The company sells its modules mostly to solar project developers, system integrators, and utility companies. First Solar works in close contact with the customer to ensure highest system efficiencies and economics through the System Design Application (SDA). This helps promote the safety, reliability, operational performance, and the predictable energy yield over the life of the system.Confidential 3 of 41 4. Equity Report | January 12, 2009 | Ticker FSLR The solar modules are used in mainly three types of applications:1) Free field power plants2) Commercial rooftop systems3) Residential rooftop systems Free Field (Ground Mounted) Plant9Commercial Rooftop System10 Residential Rooftop System10 First Solars foray into residential rooftop application of its PV modules is a relatively new venture and began with the acquisition of SolarCity Corp, which is a leading residential and small commercial solar power and solar leasing company based in the USA. The Company invested $25.0 million in the preferred shares of SolarCity and entered into an agreement to provide 100 MW of PV modules to SolarCity between 2008 and 2013 for residential installation purposes.2Confidential4 of 41 5. Equity Report | January 12, 2009 | Ticker FSLR Brief Management Description5a) Michael J. Ahearn - Chief Executive Officer, Chairman Michael J. Ahearn has held the position of CEO and Chairman since August 2000 and has also formerly served as President of First Solar from August 2000 to March 2007. He is a qualified B.A. in Finance and also received a J.D., both from Arizona State University. He has been Partner and President of the equity investment firm, JWMA Partners (previously known as True North Partners L.L.C.), currently the majority stockholder of First Solar. Prior to joining JWMA, Mr. Ahearn practiced law as a partner with Gallagher & Kennedy.b) Bruce Sohn - President Mr. Sohn has been on First Solars Board of Directors since 2003 and joined in March 2007 as President. Prior to this, he worked as a senior executive at Intel Corporation and during his 24 year tenure at Intel, he was heavily involved in developing semiconductor technology. Mr. Sohn graduated from the Massachusetts Institute of Technology. He is currently in charge of technology development, manufacturing, expansion, quality, sales, EHS, supply chain, MIS, and worldwide human resources at First Solar.c) Jens Meyerhoff - Chief Financial Officer Jens Meyerhoff joined First Solar in May 2006 as its Chief Financial Officer, prior to which he served in numerous organizations in various roles. He served as CFO of Virage Logic Corporation, a market leader in embedded infrastructure intellectual property. He also served as COO, Senior Vice President of Operations, and