Is 5N Plus losing traction with First Solar?

Shares of Montreal-based 5N Plus (TSE:VNP) were down more than 4.5 percent to close at C$6.35 (US$5.85) today on the news that the company might be losing its position as the key supplier of cadmium telluride to thin-film leader First Solar (Nasdaq: FSLR). 

5N Plus, which manufactures high-purity metals for the electronics and solar-power industries, supplied 54 percent of First Solar's cadmium telluride (CdTe) in 5N's fiscal fourth quarter of 2009—down from 74 percent in the previous quarter, according to an estimate from Ian Tharp, an analyst with Dundee Capital Markets.

That indicates that First Solar is either relying on new suppliers, or that the company has aggressively reduced its per-watt CdTe requirements, Tharp wrote in a report released today.

Tempe, Ariz.-based First Solar said in February that it was able to drive down the cost to produce thin-film panels to less than $1 per watt (see First Solar buys OptiSolar's pipeline of projects for $400M). In its Q2 earnings report last month, the company said it reduced the manufacturing cost to $0.87 per watt, down 6.5 percent from the previous quarter. The company produced nearly 298 megawatts of CdTe modules in the quarter, up 32 percent over Q1. First Solar plans to expand its manufacturing capacity to 1,100 MW this year.

The First Solar supply deal accounted for 78 percent of 5N's revenue in the fourth quarter, down from 80 percent in Q3. If the current trend continues, 5N could suffer unless it finds a more diverse client base, Tharp wrote. In June, the companies extended their supply agreement through July 2013.

5N also reported record net earnings of C$5.7 million, or C$0.13 per share, for the fiscal Q4, which ended May 31, and record sales of C$18.11 million. For the same period a year earlier, 5N reported C$2.7 million in earnings and $9.4 million in sales.

The company's new, $18 million production facility in Eisenhuttenstadt, Germany, is expected to help it meet the order backlog of $52 million, up 73 percent from a year earlier.

Dundee established a 12-month price target of C$8, partially due to 5N's $65 million in cash that could be used for acquisitions and to expand its product line, both of which could diversify clients. Its 'buy' rating was also noted as 'high risk.'

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