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First Solar, Inc. (NASDAQ:FSLR) 2017 Analyst Day December 5, 2017 10:30 AM ET

Executives

Stephen Haymore - Director of Investor Relations

Mark Widmar - Chief Executive Officer

Alex Bradley - Chief Financial Officer

Georges Antoun - Chief Commercial Officer

Tymen deJong - Chief Operations Officer

Raffi Garabedian - Chief Technology Officer

Paul Kaleta - Executive Vice President, General Counsel

Chris Bueter - Executive Vice President, Human Resources

Analysts

Christian Ruiz - TD Magazines

Colin Rusch - Oppenheimer & Company

Brian Lee - Goldman Sachs

John Segrich - Luminus Management

Vishal Shah - Deutsche Bank

Paul Coster - JP Morgan

Stephen Haymore

Good morning, everyone. My name is Steve Haymore, the Director of Investor Relations for First Solar. We would like to welcome you to our webcast, both those who are attending with us here at our Perrysburg, Ohio facility, as well as those that may be tuning in via the Internet.

We're grateful you could be here with us today and look forward to updates from our management team on important strategic updates. There's just a couple of housekeeping items that we would like to make you aware of. First, we would ask that whether viewing on the Web site or in the room, on the back of your agendas today, we have a Safe Harbor statement. We would ask that you take a moment to review those, as it pertains to any forward-looking statements that will be discussed today. We have our agenda that's also available and for there to view. We would ask that you please hold any questions until our Q&A session, which will take place at the end of the presentations today.

We ask also for those in the room to please turn off their ringers on their cell phones while we are doing the presentation.

With that, we will kick things off with our Chief Executive Officer, Mark Widmar.

Mark Widmar

Thanks, Steve. And welcome everyone to Perrysburg. I appreciate you all making the flight here today. We got a lot of materials today. We are going to try to go through as fast and as efficiently as we can. We also want you to be interactive but we’re going to keep the Q&A to later after the formal presentations.

What I thought I would start off with was one year ago. So one year ago, we gave guidance for 2017. We gave it here actually in Perrysburg. And one reason we made the decision to come here, I was here, Tymen was here and Raffi was here is that we’re going to make some pretty significant announcements that we’re going to impact a number of the associates here in Perrysburg, as well as across a number of other locations, not only here in U.S. but internationally.

Alex will go through some of the actual announcements in more detail, but one that I wanted to highlight was that we made the decision to accelerate our Series 6 introduction. And some of you may remember when we last communicated, externally we had a view that we would transition the Series 6 and we would start production in 2019, and we would get about little less than a gigawatt of production in 2018. A year ago, we made the decision that we were going to move that forward. As a result of that acceleration, we would actually get a gigawatt in 2018. We pulled the schedule 12 months forward. So gigawatt in 2018 and exit with capacity of approaching a run rate exit of 4 gigawatts in 2019.

So this is what the shaft forward look like. This is all the Series 4 equipment and what it look like. If you go now shortly thereafter, this is what the shaft will look like, and it shows you how quickly we moved and we started our journey, this was in January effectively. We started right at the beginning of the year and by January, beginning of the February this is what the shaft will look like.

Now you guys will get a chance to go out and see the shaft forward today and it’s going to look tremendously different than this. The team have done a tremendous job moving us forward as quickly as efficiently as possible as it relates to Series 6. And I put that as a backdrop because we say that common strength of this company is its people. We let go over 400 -- almost 450 associates from this facility as a result of the announcements we made in November. And the very first thing they wanted to do after we settled down the impact around having those number of associates, being let go, was getting on to this as quickly as possible. So by January, this is the way, way the shaft will look like, there you're going to see all the progress the team has made over the last nine months or so.

The results for ’17 I’ll go through them real quickly. Financial guidance, we exceeded revenue, EPS and cash for the full year. We gave that in the backdrop of very challenging environment in November of ’16, and we’re going to over deliver against all of those main financial commitments in 2017.

We I think maybe unless you guys know that in the company, we may be the only company that gave guidance, full year guidance, revenue earnings and cash flow in 2017. I don’t know if anyone else who did that and we did that and we actually delivered and exceeded those commitments.

The other one selling through Series 4. So one of the things we wanted to do as we set our priorities, four priorities, financial results, the other is sell through Series 4. We needed to move that product and we wanted to sell that through as quickly as possible so we could best position ourselves to focus on Series 6. We did that and we’ve over sold it and we have more demand than we can currently supply and we’ll talk to you today around how we’re going to try to address that.

The other thing that we delivered against was our cost per watt. We told you guys last year in November that we reduced the cost per watt by 9% and Tymen will talk through how we did against that. That product is still the lowest cost product in the marketplace, and I want to make sure that that’s clear. Series 4 is the lowest cost per watt based on publicly released information Series 4 is the lowest cost product in the market today.

Now there’s lot of people that made commitments and they’ve made noise or indications of where they would go with their cost, we’re still lowest and most competitive cost per watt today. The other one is on Series 6 transition. So I look at the Series 6 transition from a couple of different ways; one is schedule, cost and performance. We’re on target on all three of those areas.

So we’ve made and we’ve exceeded our expectations from that standpoint, and teams going to spend more time today giving a little bit more color of where we are on Series 6 transition from that standpoint. The other thing we did around Series 6 is we made a decision to move instead of our third effectively. So we’re going to do Perrysburg KLM and then KLM again. We’re not doing Perrysburg KLM and Vietnam. So we made a decision to actually go to Vietnam instead of doing two terra factories in sequence in KLM. And what that means now is we have optionality around Series 4, and we’ll talk through more of that today in terms of how we’re using some of the optionality potentially to address that over supply situation we have with series four.

And then as it relates to market readiness, almost all aspects of how we’ve engaged with our customers, whether its developers, whether it’s EPC, whether it's the long-term owner of the assets, we had a very robust engaging voice of the customer and it's worked out to our benefit. We initially thought we would only be able to effectively launch Series 6, which is still the goal with our own self developed assets, but we wanted to start building the pipeline with third party shipments for Series 6. And right now, we have very good visibility for Series 6 into 2019 and 2020, and George will talk to you a little bit more about that.

Bottom line, we’re on commitments. We want to continue to create that theme and we want to make sure you guys hold us accountable from that standpoint when I look back at 2017, we delivered against our commitments.

This slide I use a lot I want to bring in perspective, and I think it's served us well so we have a disciplined approach between growth, liquidity and profitability, all focused on how do we create shareholder value. Series 6 is going to give us a differentiated product and a position of strength, which we now can evaluate how we want to engage the market and how we think about the capacity expansion. But it still has to be driven by growth and growth that is fundamental and sustainable and economic on its own basis.

So what I want to do now is to spend some time just talking through the growth a little bit and what we're seeing. So we start off and if you look at the last decade, I mean it's been impressive but it's the tail of two halfs. If you look at it from 2008 to 2012, in a cumulative basis there was about 100 gigawatts installed. The other line that's represented here is yellow line that represents the LCOE. And this is an LCOE on an unsubsidized basis. And what you can see for the first five years or so this graph is the LCOE has come down significantly from around $342, about $100, so $240 reduction to the LCOE.

However, the first half of that profile LCOE was much higher, and most of what we saw demand was driven by policy. And you can also see it wasn't very well diversified, it was mainly Europe. The second half of decade as we seen the fall in the LCOE go to 100 and now on an unsubsidized basis below 50. You're now starting to see a pretty significant inflection point around demand in the second half.

In then installed gigawatts through 2012 was 100 gigawatts and now its 300 gigawatts, so it's more than double over the last four years. And I think there is reason to believe why it's going to continue increase from there. Why is that? So momentum is building, attractive economics. So as we started to see the LCOE become more competitive and now we're looking forward, it's even relative to other sources of generation it's in its most advantage position than it's ever been.

And we also started to see more of the tender process that we're in evolve to more tenders versus tariffs. So it's economics competing solar on solar. But in some cases, it's actually all resource generation RFP that we're competing against. And solar has actually been able to get to a point where it can be competitive from that standpoint as well, so attractive economics.

The environmental aspect of it, as you read through the numbers 6.5 million people. That's not going away, in some cases it's only getting more, especially in some of the emerging countries. So it's becoming more and more of a challenge and how can we provide clean affordable energy. The economics are getting there the environmental needs are still there.

Retirements, we're seeing more and more coal retirements, 38 gigawatts of coal retired in 2016, that's not going to stop that's only going to continue. The other thing that's happening is corporate demand. We're seeing more and more demand from a corporate perspective and actually in some cases, it's actually somewhat facilitated through people like you, investors in companies. If you saw what just happened with Shale recently, Shale’s investor base as part of the proxy actually initially requested a commitment to reduce their CO2 footprint.

And initially they declined to a proposal that was not approved, but they came out after that and they've made a commitment now that they're going to reduce their CO2 commitment by 50% between now and 2050. So corporate demand is there and it's not only at the corporate level but they're driving it down into the supply chain. In some cases, we're seeing on some of our customers that we're doing a lot of C&I with. They're pushing it down into their supply chain. So their suppliers have to have a renewable program as well in order to qualify in order to supply the likes of an ample, as an example.

The other one the government, it's still happening. You also probably saw recently EU is now making a commitment to 35% renewables by 2030, so they've increased it. And if you look it across the European Union with countries like Germany and France, they are way below 35%. So it’s happening at the city level, it’s happening at the government -- all government levels, including European Union for example.

The other is consumers. It's actually -- when asked, consumers are going to tell you that their preference will be renewables over fossils. I mean, reliability is there, assuming economics are there, that would be their preference. The backdrop of this momentum, the other thing I would highlight is that if you look at for all new generation capacity, in 2016, solar outpaced every other form of generation in 2016 for all new capacity and it will do it again in 2017.

The other thing I find interesting, if you look at it from an accumulative basis, installed basis, solar is going to pass nuclear in 2017. On a global accumulative basis there’ll be more solar installed than there is nuclear, and they’ve done it in a very short period of time. So the momentum is building.

When you think about current and what’s driving the catalyst highlighted, those are all ones that I think resonate very well, so I won’t spend a lot of time on this. The one I want to talk a little bit more on is around the emerging, and I’ll hit on the first one with a brief side and then Raffi will talk to you in a little bit more detail, but more flexible and controllable solar. The other one is hitting -- that’s starting to emerge is more around electrification in both transportation and heating. We got slides on both of these and I’ll walk you through them. But I think this point here is an interesting point. Birth of a new era, solar PV capacity growth will be higher than any other renewable between now and 2022 for the next five years.

So let’s talk through flexible and controllable solar. The first that there is three phases, so I’ll walk you through and Raffi will go through this in a little bit. The first one is solar 1.0, which is basically LNG only contracts and that’s how the contracts were created. And actually there were penalties that if you didn’t deliver minimum output, because the requirement was -- and an RPS as you need to maximize the output for that investment and the investments because the LCOE was so high, you wanted to make sure that you’re making those types of investments you’re getting output of that asset.

What’s evolving though is more dispatchable. And there is two phases of this; one is, most people think about dispatchable and they think about it from a standpoint of solar; you can use -- and maybe see some time as a dirty world of curtailment; but if you think of it as strategic curtailment, you have the ability to effectively create spinning reserves; you can create other ancillary services through controlling output; and you can do that through power point controls and smart inverters; and you can make it more of a dispatchable resource and create another source of value creation, through word called curtailment, but using it strategically and effectively, you get capacity. So now you can get to a point you have energy plus capacity contracts.

The other one is we all know is eventually get into solar storage, right. And the way I look this between 1.0, 2.0 and 3.0. 1.0 can get you somewhere depending on the market 15% to 20% of penetration, 2.0 can get you up to 40% penetration and 3.0 can get you up to 80% penetration. So we have a long way still to go even in 1.0, the vast majority of the markets are nowhere near 20% penetration, but just using 2.0 to get you to closer to 40% and then ultimately getting then to an 80% type of profile the capability exist.

Okay. So let’s talk through real quickly on electrification. This is a white paper that was issued by SoCal Edison, some of you may have saw it. And it was interesting white paper. If you look at it, what they’re trying to portray here is what is the requirements under California’s commitment around reduction to Green House gas between 2030 and then ultimately to 2050. So the first goal is 40% reduction. What this shows you though is horizon between 1990 and 2020 effectively relatively flat.

Now, in the backdrop against that is there has been, if you think about it from the electric sector, the electric sector today represents a little bit less than 20% of the emissions in California. It was about 25%. So there has been about 24% to 25% reduction on a percentage basis. But if you look at the profile over the last 20 years, it's relatively flat. The reason being 80 plus percent of the emissions are not from the electric sector. They come from other sectors. Transportation is 40%.

So as they put forth their white paper and their view around how we achieve the long-term objectives for reducing Green House gas emissions in California has to be more than just the electric sector. And transportation is going to be half to a big piece of that. Their comment though is that large CL solar renewable likely the most significant affordable means of achieving this. This white paper as it was written will identify between now and 2030, another 30 gigawatts of renewables in California. That’s more than double what they have today.

It also would say would indicate there is probably around 10 gigwatts of storage required. And this is just one state. But if we’re going to get serious around achieving the goals and objectives that have been put forth, it will have to be more than just the electric sector, is the key point that they’re trying to make through their paper.

Now what’s happening around, I think, personally transportation is more likely than not to be there before the heating side of the equation. And if you look at what’s happening with EVs and this is the chart that shows it from 2011 forward in terms of the number of models that were actually available. If you look at in 2011, consumers had very little choice. If you look at what’s out there now, there’s an abundance of choices. And you’re also seeing electric buses some of you saw the announcement with Tesla on the electric semi. So it’s not just -- it started off initially smaller cars, but now it's actually into SUVs, potentially buses or is in buses and potentially into semi as well.

So the impetus behind all this is there’s a political component of it; there is the environmental component; these are number of countries that have made commitments that they’re going to eliminate internal combustion engines of whatever horizon there maybe. The EU has also made a commitment of 30% reduction of auto CO2s by 2030. And if you look at the world’s population between India, China and Europe, north of 40% of the world’s population is sitting in these regions. So there is tremendous impetus there.

Now, what’s happening then is automakers are lining with that as well, they see it and they’re moving. Nobody wants to be left behind. The numbers that have made commitments to 100% EVs or some high percentage of EVs over a horizon that will align very closely to the commitments that are being made around reductions at green house gas emissions.

You may have saw today Ford made an announcement that they’re going to introduce 25 new vehicles in China between now and 2025. 15 of those 25 are going to be EVs. So in my mind, fundaments are there and then the consumers behind it, because the other part of the equation is its becoming more economical. And when you look at it, not only just on the acquisition but the maintenance lifecycle cost, the durability is becoming more economical and therefore you’re getting more of an early adoption happening from the consumer side of the equation.

Growth, okay, so that last slide too, the other point on that last slide was there is the potential for load growth. So we’ve seen growth in PV over the years but there really is a backup of flat to declining load growth for the vast majority of the markets. So I think we all should be able to get comfortable that the market and the industry will grow. And I don't think there should be any real doubt about the growth that sits behind PV.

Question I think we have to ask ourselves is that in investible sector? And I think you guys should all ask that question, whether you're on the buy side or the sale side. Is this an investible sector? Let me give you my views and thoughts around what is the problem statement that maybe is creating that question. The unmet need of this industry, as I generally referred to is lack of differentiation.

There is very little differentiation. So what you do in that type of environment? To create a competitive advantage, you look to scale. The view is I can't differentiate myself and my technology, but I can differentiate myself on scale. What that has resulted in then is a tremendous amount of capacity expansion, highly levered balance sheets in order to fund that growth in subpart of economics and in oversupply market.

So what do you do in that situation? The only view you can compete on if you see the backdrop of an industry and a market that's going to continue to grow, the only thing that you can compete on is I guess pace. So then you come to the somewhat virtuous cycle that in order to grow, in order to pay economies of scale, lack of differentiation, I have to compete on the ASPs and it further stresses your business model. And what that ends up resulting in is a traditional solar company. As you get economies of scale, which get an attractive returns.

So let's use that same backdrop and let's think about First Solar from that perspective. First thing I would say is that we have a differentiated technology. So I can -- the market ASP whatever the market ASP is, I can capture a premiums to market ASP, because of the energy value. But more importantly, as we move to Series 6, I've even traded a more disruptive position from a cost standpoint. So we're significantly advantaged on the cost and we're significantly advantaged on the value side of capturing the energy and capturing the premium in the market from an ASP standpoint.

We couple that then with a very competitive CapEx per watt, lowest in the industry, gives you an attractive ROIC. So you got that competitive differentiated technology that gives you a higher margin entitlement and a more attractive ROIC profile.

On top of that, our manufacturing and supply chain is different. It's continuous manufacturing supply chain. And then it helps us from many different ways, one from a quality operating system and understanding your input, your initial input to your final product. We have complete control over that. We understand that. So we can understand and we can make sure that we can produce highly repeatable reliable product.

The other thing that we have is effectively and vertically integrate it. We manage 9% of the supply chain from the raw material that comes in. So what that does it eliminates the risk profile of being -- of seeing the disproportionate shift of a profit pool within the value chain. So what’s happening today with crystalline silica? There is somewhat of a constraint on the poly side. Poly prices are high. Downstream we had no ability to influence it, but to react to it and still sell through. You’ve made the commitments to the capacity, you’ve got a sell through and the only way you can sell through is around ASPs and you are going to see margin pressure. We’re not at risk of that type of margin compression.

The other thing it’s better for visibility to cost. So our ability to project forward and understand our cost profile, we’re much better positioned to do that versus speculating. The other point is it’s very obvious it’s the balance sheet. We can find our ongoing expansion and capacity through operating cash flows. We do not have to lever up the balance sheet. We don’t have those types of constraints. The other is the optionality of having the liquidity and the strength of our balance sheet gives us tremendous amount of optionality, and where we can make investments that could further enhances our business model.

The last point I want to mention is just around sustainability advantage. And it’s becoming more and more important and I just want to highlight it. But as the chart says, we’re 6 times lower on carbon footprint and 4 times faster on energy payback. So we have a sustainability advantage. We also use less water so our water footprint is lower and the air pollutants are much lower with our technology. And this is important because it’s starting to influence buying decisions. We’re seeing it even in -- and I think there'll be a day where there'll be truly be a differentiation between clean and cleaner solar. We’ve seen some of that in France.

So some of the decisions around procurement in France and the French tenders is around you CO2 footprint. We’re also seeing it play out very heavily in C&I, the commercial and industrial utility scales C&I. Our customers want to understand our sustainability approach. I told -- I referenced it in one of the prior slides that we’re seeing a tremendous amount of new C&I customers making commitment to 100% renewable. They also want to understand what is our strategy, what is our sustainability strategy, what is the implication that our CO2 footprint from our manufacturing process. We can differentiate ourselves from that standpoint.

What you’re seeing in some cases where the crystalline silica guys are going on the poly side in particular and the production of poly is they’re moving to regions in China where they can find low cost energy. While some of those regions are generating energy through coal. So they’re actually making their CO2 footprint worse all with a view of trying to get to the lowest cost profile they can get to. So we believe that there will be an additional advantage as we move forward and a distinction between clean and cleaner solar, and we’re in a very good position to capture that.

Point being is that First Solar's points of differentiation create a more compelling investment thesis. We can capture scale and we can deliver attractive returns. So we’ve got a disciplined business model focused on growth, liquidity and profitability and we have significant points of differentiation.

Let’s talk about scale. There is two comparisons for scale. So if our primary competitors are going to pursue scale, how do we think about that from First Solar standpoint and how well are we positioned from that standpoint? So this an indicative analysis, so just take it from that standpoint, it's generally directionally -- correct. If we start off at 6 gigawatts of capacity and if you look at the expense per watt on the OpEx side, when you look at your variable cost and cost of goods sold, it’s mostly variable, you don’t have lot of fixed cost. So that your opportunity for scale against your fixed cost structure largely is going to sit within your OpEx profile.

So if you break it out, they have the traditional components like we do in terms of SG&A and R&D. But two other components I want to make sure that I highlight that you understand is one is freight and warranty. Freight and warranty is not reflected in the cost of goods sold, it's reflected in their OpEx, which means they have a much higher variable component. And that’s about a penny and half or so. So about penny and half is freight and warranty. So as they grow the topline, that’s going to grow right with it.

The other component that we factored in here is their debt service cost or their interest expense. We don’t have that, they do, it generates close to a penny. And we believe it's going to be more variable in nature from the various reasons in order to add capital, they’re going to have to lever the balance sheet, higher the debt low, higher the interest experience plus I think you’re going to evolve into a world where you’ll start to see rising interest rates. And once you start to see that, you’re going to see increased pressure against their OpEx cost profile.

So we profile it on $0.07 a watt. About 50% in aggregate when you look at it is variable. If they grow to 6 to 9 gigawatts, they get about a penny of value leverage against that. And again, you take the variable. So if you look at the $0.07, about $0.035 or so is variable, take the other portion, which we would say is fixed, 20% or so of that is variable selling expenses and the like, so I think it's from six -- seven down to six.

Now let’s look at First Solar from that lens; 3 gigawatts, $0.10 a watt. So you’ll notice we only have two shades of color in our stacks, traditional SG&A and R&D, up $0.10 a watt. The vast majority of what’s in our OpEx cost structure is fixed. The only variable component that we have is incremental selling expense. The great thing about R&D and investment that Rafi and his team is making and the success we’re having there, whether we’re producing 3 gigwatts or 6 gigawatts or 9 gigawatts, that R&D investment isn’t going to change.

So when we go from 3 to 6, you’re going to see about $0.04 watt leverage from scale. So if we can get to the same cost on a cents per watt basis at six gigawatts there our primary competitors would get to at 9 gigawatts. That’s just to be a parity. And we need to be focused on all elements of our cost structure but even that being disadvantage on the volume side, we can get the parity. If we get to the same level as on with 9 gigwatts, we’d capture about a penny and half of further value; so it’ll be about penny and half lower so we have high synergy yield, lowest cost per watt, greatest value to scale.

So that’s the backdrop from those slides from a competitive standpoint. Hopefully, it gives you a better view of how to think through First Solar as an investment thesis relative to what else is out in the marketplace today. The other one I want to highlight just because we continue to get asked this question and I want to -- it's one of those things I’ve learned is communicate, communicate, communicate, right. Let’s make sure that we’re transparent and consistent and over communicating this results.

So how do we think about growth between modules and systems; so I’ll start-off with the module piece; it is the key source of our competitive advantage; it’s a differentiated unique technology that has the energy wheel and a cost entitlement; that in and of itself will stand on its own. It also creates significant value capture from scaling as we drive volume up and it's going to be easy to scale modules than it’ll be systems. It's going to be less capital intensive, and the procurement cycle is much shorter with modules than it will be on full development systems.

So it's going to be -- you'll start to see us move more into a module profile. And I also talk through you a little bit on that in the financials and you'll see that it's compelling value proposition and a compelling financial profile as we make that transition.

From the systems standpoint, there’ll be need still be in systems and we will do systems where we have unique competitive advantages, where we can be differentiating, where we can capture value. And not every market is the same. The way we do development; and India is dramatically different than the way we development in California; the way you do development in Japan is dramatically different than the way you do development in the Middle East; and we have to -- we can't just stay a blanked approach we're going to develop everywhere; we'll develop where it make sense and we can get compelling returns so that’s first and foremost.

The other point that I'll say is the reason we want to be in development as well as with an EPC is it allows us to optimize the value chain; it allows us to be influencer; it allows us to drive cost out. At one time, we went down a path to trying to have our own structure, our own tracker. We thought about our own inverters. Now some of that was resonated from a standpoint we had a different form factors in crystalline silica and therefore we have to create unique offers.

As we transition to Series 6, that's no longer required and we can leverage the innovation in the supply chain and we can be the value stream optimizer to drive cost down, so it's important from that perspective. But it will not be, as we said as a target, it will be around a gigawatt or so as we look at over the next few years. And I don’t want that to be completely prescripted and we're not going to go ever go above that or go slightly below that, that's the objective. And if we can find opportunities where we can capture more development business in the right markets where we have a unique differentiated value proposition and we can capture return on capital that make sense, we'll do that. But as you think through it, you'll see the transition and I also talk more about this in the financial side that help you understand how we'll see the transition and how the profile will shift.

The key message is from my standpoint and you’ll hear and we'll talk -- we'll wrap up the slide as well, but you’re going to hear more about this today. The things I want to make sure that you take away from this standpoint is solar demand has reached an inflection point it's going to continue to grow. Series 6 is a technology differentiator and it's disrupted and it's going to best position us to take advantage of the growth that is going to be in the market over the next several years.

Strong customer demand, you saw that with our bookings last quarter. George will give some information through -- since our last earnings call, we booked reasonable amount of business since then much you see that. I'll let him talk to you in the details; we're going to increase capacity; we're going to continue to scale our fixed cost; we'll align to the customer demand. Again, the capacity plan will align to the underlying available demand that's in the marketplace.

And the very last point is financial strengths underpinned by points of differentiation and a disciplined business model when it continue to emphasize that. So we'll come back and you'll more about this through the day. We'll wrap up this slide as well.

Again, thank you all for coming. And with that, I am going to pass it over to Raffi.

Raffi Garabedian

Thanks Mark. Hey, everybody. Thank you for coming out to Perrysburg. Glad that you could all make it. I'm going to talk to you today about our core technology, how we’ve adapted it to take full advantage with the Series 6 product and how we’re doing in terms of translating that core technology advantage into a production platform that delivers the best economics in the solar industry.

Series 6 is the star of the show today but before I talk about that, I am actually going to touch on a point that Mark bought up earlier, which let’s see -- here we go. We try to do system integration in markets, so ultimately it has to do with growth. This is the evolving story of our systems business. It’s the story of PV going main-stream and becoming an expanding resource on power-grids.

All right, raise your hands, who has seen the duck chart before? Everybody knows what it is, right. That’s a lot of hands. So you all know where the duck is in this chart. The duck is this line here, which is called net load. Net load is the difference between the demand, the total load and the renewables, because renewables are not considered part of generation. Why are they not considered part of generation, is because they utility or the system operator does not control them.

The duck chart is always plotted around May, so this is a spring day. This is a unique situation in California where demand is low, energy demand, power demand is low, there’s not much air conditioning running in California in May, and solar generation is extremely high, extremely robust. So you get this imbalance of supply and demand. And that pushes down on other generators that are called, so called must run generators, things like hydro and imports that are contracted that aren’t flexible. And so you get this bad word called curtailment. Curtailment is energy that’s wasted. Energy that’s generated that is not being utilized, and it affects economics.

Well, let’s look at a high load day. So this is real data from the California ISO, this year in August. This is a day where a typical day in this time of year where the solar resource is still strong but air conditioning is running like crazy in California; so you have a lot of load; you have a lot of demand for energy. And the generation isn’t -- the solar generation isn’t sufficient to supply it. So you have a lot of thermal resources being racked up and brought online. Now these are extensive resources, right. This is the most extensive kind of energy to produce its flexible thermal.

So again, I am going to ask you to raise your hands. Who thinks there is no room for more solar in August? There is a lot of room for more solar in August. The problem here isn’t too much solar. The duck chart is not a story of too much solar. The duck chart is a story of solar not being properly controlled to meet the needs and requirements of the system operator.

So as Mark said, this is what we call solar 1.0. This is the traditional way of thinking about solar as a resource on grid. It’s driven by factors like the RPS in California, the demand energy we put on the grid from renewable resources. Load and solar are greatly mismatched and the net load is equal to the total load minus solar. And you see in certain days the duck.

Now, we’re at a point in some markets, and California is one of them, where advanced plant controls and intentional curtailment, are becoming a real tool in our toolkit. We call this solar 2.0. So when you have a lot of solar relative to net load, you get the duck. But if you target curtailment of solar resources, if you intentionally on certain days for example that spring day, you turn down your solar generator, you create a much improved net load that requires less heroics on the part of the system operator. And as Mark mentioned, it provides new value streams for the owner of the solar asset. So the solar asset owner can provide other functionality that’s required for robust grid to operate.

And we can do all of this well ahead of the availability of low cost storage but that day is coming when storage is low cost enough that we can fully integrate it into our plans and have firm generating capacity that goes head-to-head on all features and capabilities relative to thermal generators. In fact, we’re building plants like this in the near future. We’re developing them today. In this scenario, some of the solar generation is stored for use at peak hours and you have a very nicely engineered net load curve. In fact, in Solar 3.0, the term net load will go away, because net load is really artificial, it's an artifact of generators being viewed as a negative load.

We recently published a study. This was a study cooperatively done between us, the California independent system operator and the national renewable energy lab in Golden, Colorado. We took an existing large scale solar power plant and we exercised it through our control systems and our network operating centre to demonstrate features like frequency control, voltage control, ramp rate control, automatic generation. In fact, our performance on the AGC test was superior to that of the best fast ramp gas turbines.

This was an eye opener for the Cal ISO, nothing new from our perspective and their new technology here, just utilizing the technology that’s already built into the solar power plant in a way that wasn’t conceived in the original contractual terms of that plant being developed. So we think with these kinds of innovations, there is a lot more room for solar to grow in grids like California and actually all around the world.

Widespread adoption of utility scale solar is First Solar’s goal, that’s our ultimate goal. Cad tel technology the module technology, as Mark mentioned, is the foundation that allows us to achieve that goal. And I’m going to talk to you a bit about that now. So why do we love Cad tel technology? I’ve said many times before, we love Cad tel because it has a perfectly matched bandgap to the solar spectrum. Bandgap is a -- it's a measure of the effectiveness of a material to absorb sunlight. And in the case of Cad tel, it's actually an ideal material system for making solar modules.

We also love Cad tel because it’s a direct semiconductor. What does that mean? That means a very, very thin layer of Cad tel can fully absorb the sunlight. When you look at one of our modules, its pitch black; that means all the lights being absorbed in the material. The material that’s doing that work is only three microns in thickness, and that’s about 30 thickness of my hair, about a 50th of the thickness of a silicon wafer, which is what our competitors use to absorb sunlight, so a lot less material intensive. What does that mean, that means low cost, that means low environmental footprint.

Finally, we love Cad tel, because it's very, very easily deposited. We use a proprietary technology, called vapor transport deposition. You're going to see the heart and soul of our manufacturing operation. Those of you who are here and going on the tour, it's called the BTD coder. This is the machine that puts down the cadmium telluride onto glass as a polycrystalline material in very, very high throughput, extremely controlled manner.

Why is that important to you guys, because we have the lowest cost to produce in the entire solar industry because we're fundamentally different than everybody else; Mark mentioned this in terms of our supply chain; it's true in terms of our technology; the entire remainder of the solar industry effectively is hits their wagon to crystalline silicon; they’re undifferentiated one from the other; they're competing on the margin; we are not competing on the margin because we have fundamentally differentiated technology advantage.

Well, we're not the only ones who love Cad tel, our customers, we think also love our modules. That's because we deliver the highest conversion efficiency of any commercial thin film module technology. We have, as Mark mentioned, the superior energy yield that means for every watt you buy as a customer, you get more kilowatt hours out that means a lower LCOE for you as the developer or for the end customer of that energy.

And we're very, very proud of our world leading reliability and bankability program. So we think we have the most reliable module technology on the planet and we're very proud that incredibly conservative utility customers, the likes of the Southern Company, NRG and Enbridge, also agreed and they're proud to use our module technology in their power plants.

So now let's talk about how we translate our core technology into Series 6, which is going to be the most economically compelling and innovative product in the solar market. The idea of a very large, really big, scaled up thin film module is as old as First Solar. What you're looking at here on the left is a scaled drawing of the Series 4 module and on the right, that's what Series 6 looks like in comparison. We've always known the bigger is better in this regard; it drives down cost; it improves balance of systems; lot of benefits to going larger.

But we've been very, very firmly rooted in our Series 4 form factor for many, many years. Fundamentally because of our equipment set. The equipment was designed around the Series 4 glass size, and that disallowed us to scale up. Now, you all know and Mark mentioned around 18 months ago, we were facing a very, very challenging market environment. But we were also armed with a decade of technology and manufacturing expertise and experience. And we took a breath. We decided to take a pause and to make this conversion, which again we've been talking about for decades.

Having taking that step, we’re incredibly excited about this product. It's going to compete with crystalline silicon in performance. It's going to offer very significant system level cost advantages, benefits and it's much less expensive to produce than Series 4, which Mark already said is the cheapest module to make in the world already. No one has been able to do a thin film module like this before, not until now. Series 6 is the realization of a very, very long held vision at First Solar.

How do you do something like this? This is a really big project. Our approach to managing this kind of transformative project, it’s really very simple. No detail is too small for us to worry about. No risk is too small for us to worry about mitigating, one way or another. We sweat the details that’s core to our culture at First Solar, particularly in technology and manufacturing, and we’ll talk to you about details on the manufacturing side soon.

We considered absolutely every aspect of this product incredibly carefully from the core technology; as they said, how it scales into manufacturing to the throughput and the capacity of the lines; the capability of that equipment; our ability to maintain uniform; consistent production through these tools; reliability of the product; we’ve we have got a year and a half of reliability work that leverages everything we already know about Series 4 into Series 6.

Cost, we’re incredibly cost driven, both in the design of our module and in the manufacturing platform, and you, the First Solar, customer value. So we’ve always talked about energy yield, delivering customer value. Series 6 is a unique opportunity and we’ve taken the opportunity to deliver value in the balance of system and how the module integrates into the plant. And I’ll talk to you a bit about some of those factors.

So what you’re looking at here is GTL Research’s view of 2019 total system cost. These are largely directionally correct from our point of view as well. Here in the blue is the module cost and down here are all of the balance of system and other related system costs. The design of the Series 6 module, not only its size but also the design of the frame and other elements of the module, expect about 20% of this pie, right. These are things like the electrical balance of system, the wiring, the DC wiring, the structure, the labor installation velocity of getting the modules up onto that structure and wired and connected.

So these are all factors that we’ve taken a very, very careful look at. We’ve studied deeply and we’ve optimized the Series 6 design to go and deliver the lowest possible costs in all of these areas, which ultimately delivers greater value, not only to our own EPC and project development activities but also to our third-party customers.

So there are a lot of details here. What am I talking about, when I talk about these kinds of optimizations. Well, let's talk about size, for example, right. That module looks pretty big. The size is very, very deliberately chosen. We chose the size and the weight of the module to optimize human factors in the field, so this leads directly to installation velocity. We’ve made sure that the people doing the work are not overly fatigued handling this module day-in and day-out, even in desert environments where it’s extremely hot.

The size also relates directly to the equipment set, right. Bigger is better, but there is a point at which bigger is no longer better. Why? Because not only does your labor get tired out in the field but also your equipment capability gets compromised. You can only handle so big a piece of glass before your process capability is reduced. So that’s been a very, very intense area of study for us and we are quite certain we’ve got it quite right.

Mounting; so this module is designed to mount directly to the torque tube of a conventional fiber; not just for solar tracker, but all the ecosystem of trackers that are out there; so this is a centre map design without any additional brackets of hardware. In addition, we’ve brought on board a very, very innovative bottom mount that reduces the number of components, fasteners used in the field and greatly increases the installation velocity. This is for fixed hold structures and certain other trackers that are available in the marketplace.

We have an innovative dual junction box, dual cord play, on this module. So what you see there in the top right picture is how the wiring between modules happens. This again increases installation velocity, reduces handling and parts in the field. And finally, the design of the frame, which in and itself is quite innovative, allows for direct stacking of the modules without any packaging. This eliminates a lot of waste in the field, recycling of cardboard and those kinds of things. It also optimizes our shipping cost.

So you can see the choice of the structure of the module, the size of the module, the way it's put together it impacts so many factors that go into system design, this is how we’ve bought it through. We’ve tried to optimize the outcome, soup to nuts to deliver the lowest possible system cost and deliver the highest value for us and our single customers.

Speaking of structures and electrical BOS, we have adopted since last year very, very deliberately an ecosystem strategy rather than building our own components, we’ve worked with a global palette of suppliers, partners in structures in electrical balance assistance, inverters, these are all folks that we not only have talked to you about Series 6 but we’ve actually gone to the extent of co-testing, co-validating and in many cases co-engineering and optimizing solutions; so that the net product, us plus the structure plus the electrical components, actually delivers the best value to EPCs and system developers.

Finally, we’re at the validation phase; so we’ve done a lot of design work; we’ve verified the design with our partners; we’ve tested it in the lab; we’ve tested it in the field and what you’re about to see here is a head-to-head field trial video of Series 6 against a conventional 72 cell crystalline silicon module, state of the art silicon module. What you’ll see I think will demonstrate pretty impressive installation of velocity benefits, which goes directly to bottom line to the cost of building a system.

All right. So what you're seeing here is something we're pretty proud of. Solar modules are viewed largely as a commodity viewed as identical parts. EPCs compete one against the other regularly. We're creating value here through the design of this module. And it's just one example installation velocity, where through very thoughtful process and engagement with our ecosystem partners, we've been able to do far better than the rest of the module industry. And we think that's going to deliver value again, not only for First Solar but also for our customers.

Okay. So now, I'm going to talk briefly about Series 6 manufacturing technology, and how we develop that manufacturing technology. The proof is in the pudding. Those of you who are here, I hope you'll go on and tour the manufacturing floor. You'll get to see what this really looks like. So I'm not going to deliver the point, but I want to give you a flavor for what's led us to what you're going to see out there in the manufacturing floor.

About 18 months ago, as you know that we started on this journey, we took a very, very diligent approach just like you did in the module design. We took a very diligent approach to the design of the factory and the equipment set. This started with simulations, laboratory trials and test of elements of the manufacturing platform. You'll recognize that we’re not changing the core semiconductor technology. This is still the same basic cell architecture that we use in the Series 6 modules but we've had to scale up all the equipment all of the tools out on the floor brand new. And scaling up those tools is a risk. So how did we mitigate risk? As I said, we started out with detailed finite element models of the process capability, which inform the design and specification of the tools? The equipment that you see out on the floor, almost none of it is standard equipment. It's designed by us in collaboration with our equipment suppliers to deliver a desired process outcome.

Now, over the last year or so, we've also been utilizing the Series 4 production lines, along with some offline tools to validate Series 6 processes. So where the processes are slightly different we've been able to take the Series 4 lines, simulate the Series 6 processes on those lines and then take those Series 4 size modules, test them in the laboratory and also test them in the field. What you're looking at here are pictures of our extreme climate field test sites. So we take all of our new technologies, any change we make to the module and we put them out in the field in a hot aired climate, in the hot humid climate and in a tempered climate here in Ohio. I don’t know why they call it tempered. Anyway, here we are.

Over the last few months, the Series 6 equipment has been starting to come up and online. So the installation time and I will show you some pictures and some timelines of how long it’s taken to install the equipment, but over the last couple of months, my team has been able to start working on those tools. And again, we’ve gone through a very deliberate process of de-risking. Each time a new tool comes up on the Series 6 line, we run glass through it at the full Series 6 module size, then we take that big piece of glass and we cut it into a Series 4 size and we run it through the Series 4 line using that Series 6 process outcome.

Why do we do that? We do that to validate that the Series 6 tools are entirely fully capable to match, to exactly match the process that we’re already very familiar within production on Series 4. So that matching process has given us a great deal of confidence that the designs we built into our Series 6 toolset are fully capable and production worthy.

So finally here we are at the home stretch. We're getting ready for our first production platform ramp here in Perrysburg. And we’ve already started producing full-sized Series 6 modules on this production line. Tymen is going to talk a little bit more about that when he comes up. So I will leave that for him to discuss. But more importantly than having made a module or two is that the uniformities and the mechanical yields look amazing, they look excellent. So we’re incredibly pleased with the capability of the equipment we have out there and we’re fully confident this is going to ramp up beautifully.

This kind of progress over a period of about a year is really astounding. It’s the biggest project I’ve personally been involved in and it wouldn’t be possible without the people you see here on the screen, right. There are some of the folks here in Perrysburg, Ohio who have made all of this happen. And it would be wrong of me not to show them the highest degree of gratitude and thanks for the hard work that they do.

One example of the strength of our team is a gentlemen by the name of R.C. Powell who originally invented the vapor transport deposition process and tool that we currently use and still use today to deposit our cad tel. R.C. invented that 25 years ago and he still works for us. In fact, he is one of the architects of the Series 6 process and equipment set. That’s the kind of depth and strength this company has in thin-film solar. It’s also why no one else has been able to copy what we do. So if sounds too good to be true, we’re the only differentiated solar company out there with the unique technology that delivers higher value. This is why. This is why it’s true, because of these people.

So what’s next? The launch of Series 6 is just the beginning of a very long journey for us. The equipment set we have out there on the floor is going to pay dividends for many years to come. As we continue to improve our product, as we always have done in the past, we’re going to do that process again with Series 6. Some of you might have noticed if you follow the company that we haven’t made a new record research cell announcement in quite a while in a little over a year. That’s not a mistake, that’s intentional. So we’ve taken -- and I said this last year as well, we’ve taken a 100% of our R&D resources and focused them entirely on Series 6.

That process will come to a wind down around the middle of next year, beginning to middle of next year. And it we’ll redeploy our R&D resources back onto driving efficiency. Now, a 22% research cell, which is our current world record we said in 2017 that enables modular efficiency up to around 20% if you get it perfect. So it's not that we’re counting on new science and new innovation to drive our module roadmap.

Having said that, we do believe that cad tel has a long way to go, 25% research cell efficiency we believe is in our mid-term grasp. And ultimately in the very long-term, we don’t see why cad tel can’t be crystalline silicon in terms of its ultimate efficiency potential, all the way up to 28%. Here are some of the partners we work with in our basic core science R&D mission.

So I told you we’re refocusing on R&D, on basic R&D and bringing new capabilities to our Series 6 platform. How do we do that? I mentioned that the toolset we have out there on the floor is brand new. Well, we took the opportunity to design in a lot of bells and whistles, a lot of capabilities that aren’t needed for our launch. Why did we do that, because we wanted to enable our future roadmap, not knowing exactly what we need. Let me give an example. The number of [deficit] zones in coder it's higher than what we’re going to initially utilize.

Let me give you another example. The temperature range at some of our heat treating furnaces is actually much wider than what we’re going to initially utilize. We’re not sure which knobs we’re going to want to turn in the future, but we’ve built those capabilities into our equipment sets, so that we can ramp very quickly in efficiency once we stabilize the line, have it up and fully operating utilize and then we introduce new process variance. This goes from the coder, to heat treatment equipment, to laser scribes, all the way to our new finishing line.

Now on efficiency, in the past, we’ve shown percent power conversion as the primary performance metric for our modules. So a percentage efficiency and that’s how we’ve asked you to focus. This made a lot of sense when comparing the small Series 4 module to a large crystalline silicon module. It’s a normalized metric that tells you per unit area of how much power you can have.

Now, as we convert to Series 6, we’re taking the opportunity to actually switch to the more conventional metric of watts per module. Why are we doing this it's because that’s what our customer is thinking; that’s how our competitors sell; and so we’re going to do that as well. So here you see the same roadmap for Series 4, the historic roadmap as well as 2018 and mid-term numbers for Series 4 in terms of loss per module.

Now, here you see the transition to Series 6. So Series 6 will launch with a 430 roughly watt nameplate; that’s after the initial ramp and stabilization to the production line; and then in the mid-term, we intent to get Series 6 up to around 460 watts. We’ve also shown here in the build green dots, which are in energy equivalent nameplate. Remember, I said we have an energy yield advantage that means you get more kilowatt hours per watt that you buy. An easy way to visualize that is to convert that back into nameplate watts, so that you can make a fair comparison to crystalline silicon, considering real world operating conditions.

And we also took the opportunity here to show you the historic crystalline silicon nameplate watts per module as a reference point for your easy reference.

I'm almost done. In closing this section, we're expecting an on-time launch and ramp of the Series 6 technology. It's been an amazing year and half for me, for many of us in this room and most of us in this building. But we're on the home stretch. We're going to be delivering substantial cost reduction for our module manufacturing fleet, as well as capital efficiency that Mark mentioned which results in higher ROI. And significantly improved balance and system cost for our own development and for our third party customers. And we're proudly maintaining our world class reliability programs and delivering -- continuing to deliver superior energy yields relative to our competitors.

So with that, I'm going to pass it off to Tymen and he's going to tell you how we're going to sale this thing.

Tymen deJong

Thanks, Raffi. Also, I want to add my thanks to everybody travelling up to temperate Ohio; hopefully, you get out today before it's not so temperate tomorrow. Three topics I'm going hit rather quickly. Again, I am going to give you a new capacity roadmap. I'm going to talk about where we're at on each of our factories on Series 6. There is a lot going on and then some indication of our cost and our cost roadmap. And then I'll -- Raffi and I'll have little fun with.

So let's jump into it and let's talk about capacity. So first I want to ground you on what we gave in November ‘16 guidance. At that time, we said we would ramp down Series 4 as fast as possible and we would convert our existing Series 4 factories to Series 6, that's what we're doing here in Perrysburg, we've got a lot more on Perrysburg. So we ramp up and then we do a fast ramp as fast as we could. On Series 6, we'd have a dip down in '18, followed by a very strong '19 there. That would give us about 4 gigawatts of total production in 2020. And we're looking at this three year '18 through '20 horizon and that's about 9.6 gigawatts of total Series 4 and Series 6 capacity.

At the same time, we said we'd evaluate demand on Series 4 and the economics around Series 4 pricing and cost. We have a lot of flexibility since we're converting factories. And if we needed to and it was right thing to do, we'd extend Series 4 and we've reiterated that a few times.

So today I'm going to rollout that new roadmap. I'm going to start with the same starting point Series 4 that was ramping down. We have committed to extending Series 4 pretty substantially. So we're going to and I'll go through more detail on this, but we're going to extend both of the factories that we're running Series 4 in Malaysia. Perrysburg it's ramped down, we're not going to do that obviously but we'll extend both of our Malaysia factories.

One of the factors that have extending was to make sure that we didn't impact Series 6. I think we hit the value on Series 6 in Raffi's section. So we're not going to extend Series 4 by cutting into Series 6. So this is our new Series 6 ramp here. When you layer it in, we end up ending 5.7 gigawatts of capacity in 2020 versus the 4 gigawatts that we gave out a year ago. And that three year total jumps about 43% to over 13.7 gigawatts here. So you can see the breakout of Series 4 and Series 6. So this new roadmap adds about little bit more than 4 gigawatts of additional capacity during this timeframe.

Okay, so pretty substantial change in the roadmap; pretty big jump in capacity; everybody is probably wondering, wow, how you are going to do that; how do you get this Series 6 volume; so let me go walk you through step-by-step pretty briefly. So first, we've got our oldest Malaysia factory. It's going to keep running through this horizon, and I’ve got it marked out in path 2020. So right now we’ve got it currently scheduled to run into 2021, very flexible on that based on the Series 4 demand. And I’ll show you some more Series 4 costs. It as Mark said, very competitive product right now. So we’ll keep that running.

We will expand our second -- there’s two factories in Malaysia running Series 4 right now, we’ll extend the second one as well. It was scheduled to go down in January 2018. Right now, we’re talking about middle of 2019. So we’ll extend that about 18 months. So that gives you additional Series 4. It will go down for conversion at some point in time like I said middle of ’19, but just like the top and we’ll eventually go down.

And then I switch to Series 6. So I gave you my Series 4 volume, now I switch to Series 6. You’re going to see a lot more in Perrysburg as our first factory on schedule coming up. And then our first conversion factory in Malaysia well underway right now, that used to be running nine months ago, running Series 4, but it’s well underway to a conversion to our first really large scale what we call terra factory started out at a gigawatt, went to 1.1 gigawatts, it’s now -- capacity is now 1.2 gigawatts.

So as we get the equipment in; we learn more about it; we understand what the availability, the throughput, the yield, capabilities are; we’d be on the ratchet up our throughput. So our nameplate is now 1.2 gigawatts 1,200 megawatts for these terra factories, these large scale factories.

And then right behind that 95 days later factory in Vietnam. This is a very exciting one for me because this is in a building that we built in 2011, got approved in 2010, built in 2011 and never commissioned. It was for Series 3, everybody knows what happened back in 2011, but it shows that we have some great foresight into putting some capacities for building in ahead of time just in case we need them. So we’re moving very fast on this and I’ll show you a picture.

And then just right behind that new for today, big announcement is we’ve committed to a second factory in Vietnam and that is already under construction, and I’ll show you a picture of that. I found that same site when we did our 2011 plan. We’ve got enough land for up to three factories there and we’re always going to build two there, so we’re just executing that plant. We’re just executing a few years later than we originally had anticipated. A couple other things; these large three terra factories; they’re all copy exact. So very fortunate we converted our largest Malaysia factory first and then the two Vietnam factories were build copy exact to that one previously. So this is going to speed up the whole process and de-risk it as well.

So a lot to go through there, a lot of going on there. Let me walk you through the series -- I forgot this one, don’t forget our conversion factories. Once we’re done with these build and we do have this one scheduled, we start circling back and doing the conversions of the older Malaysian factories. So right now, we do have middle of 20 placeholder there and funding for that to bring that older factory up to Series 6.

Now, let me show how we’re doing on each one of these factories. So you will see a lot more about Perrysburg but the vast majority 97 plus percent of the equipment installed in our first module has been completed. And as Raffi said, we made a lot of modules now that they are using to work through the process; the real key point on the dates here we will be shifting in just a few months production shipments or in Q2, going extremely well.

Now you’re going out on a tour. The same photo that Mark showed here; you’re going out in the tour and its awesome; you’re going to walk through there, and then go wow, that’s pretty neat; you’re going to miss the herculean effort that the team went through to make this happen, and I do mean herculean. So if this was a year ago roughly today Series 4, 10,000 modules a day this factor was running a year ago, on Series 4; you’ll see it's completely different; so I want to ground here and we have a camera out there; we took pictures everyday and we put a quick time lapse together; we pick 12 months and put it down to 30 seconds.

We stopped production right at the end of December. We took about eight weeks to pull out all the equipments, £4 million of equipment in out of the factory to get it down to bare-bones. The cad tel coder that Raffi was talking about is bread and butter IP showed up in July, it's in top left hand corner there. And since July, not many months ago, 138 tools were placed on the floor. We have five more to go there. And November 25th, we achieved full line capability. So we’re using a combination of production tools and our alpha tools, but we reached full capability on just, count the days, a week and half ago. So when you go through there, this is what you’re going, but please remember what occurred.

And then jumping forward to Malaysia, this is the first conversion factory and it’s well underway here; 50% of the front end line that is installed; tools are arriving virtually every day; this is just a monstrous factory. And it will start up early Q3, so like I said about 95 days if we hit this -- we might be a day or two off the schedule but 95 days from when we started this factory here. And you can see it’ll be a pretty fast ramp.

And then this is the Vietnam factory, Vietnam one. We had to commission that and we had all these factories when we convert them or in this case, we hadn’t finished, we have to update it for Series 6 and the size of equipment electrical load and so forth. It's ready to go, it’s just waiting for tool arrival. First tool the coder is on the water right now. So this thing is going to get real active. We’re using the time, I should say Vietnam, it's -- we treated it as brownfield because we own the building there, but it’s more like a greenfield from a manufacturing start-up. So we don’t have a large workforce there, a very small workforce, it’s just little bit outside of Ho Chi Minh City there.

We’re using the time right now to hire and we’re hiring like crazy. Vietnam is a great location. And we chose it earlier partly because our main glass supplier is just an hour away, and glasses our predominant material item so it’s great for cost and logistics. And then really proud to introduce the second factory. No, it’s not the one that’s already built in the back, I wish it was, that’s Vietnam one that’s the first factory and the second factory will fill on top of these 12,000 pilings that are going on; they’re done now; steel is going to start I believe next week time from foundation. So we’re running modules again its copy exact it goes pretty well with say 16 months there. So Q2 timeframe of 2019 will have our fourth Series 6 factory.

So that’s kind of my around-the-world tour of how the factory startups are doing. CapEx, cost per watt key cost metric, always enjoyable part of the Analyst Day here. We’re not, and we said this before, we’re not going to give exact numbers. You’re going to have to do some work to figure out exactly where we’re at. But Mark said and I’m glad he did and I think Raffi reiterated it here, our cad tel both cad tel Series 4 and even more or so cad tel Series 6 when it’s fully ramped, is by far the lowest cost technology, lowest cost module based again on public information out there. So we’re very proud of that we’re going to continue that trend.

So let me start with CapEx. We want to ramp -- I showed you the big ramp that we have. I am going to take you back to Series 4. And I think this was actually from my Analyst Day a year and a half ago, $0.66 of watt for Series 4 capital, pretty extensive to add 6 gigawatt of Series 4; one of the main drivers we’re going to Series 6. The bold line here is what I told you we estimated a greenfield would be; again back in 2016, total CapEx building, not land but building at equipment; and you could tell by the title, I am going to be happy with this.

We’re beating our expectations pretty significantly, right. And the same is the case for a brownfield conversion, right; so all this expansion that I am talking about is going to come in at a significantly lower CapEx than we had originally planned; higher throughput, yes, competitive equipment, supply chain, lot of work on Raffi’s team to get this done at a minimum here, so.

Moving on to the module, and I am going to do this in percentages of reference number here; so I am going to start with 2016 that’s a 100% cost. I think this was -- think of this as fully loaded, full year Series 4 only cost. This is our actual 2016 cost. We’re going to keep working on cost reductions and these are the four big buckets that we’ll focus on. The form factor and we -- both the form factor and efficiency I think were covered pretty well in Raffi’s section here; form factor also drives the higher throughput and lower CapEx, which is depreciation. So it's just a huge impact out there and then we’re going to extend the efficiency roadmap.

But we also get manufacturing cost reductions through much higher productivity with Series 6; both higher productivity and then the integrated supply chain and the scale we’re going through at 6 gigawatts, gave us a very competitive pricing in all of our BOM items. So those are continuing down. And then line run rate throughput.

It was one of the fantastic things on Series 4, and it wasn’t here in the beginning but Series 4 started out at 1,000 modules per line per day. We finished that. We’re over 2,600 modules per line per day, that’s throughput. On Series 6, we already went from 1.1 gigawatts to 1.2 gigawatts on the factory that has tremendous impact on cost. So we’ll continue that path, probably won’t have the magnitude of Series 4, because we’re starting so much higher, but we’ll continue that drive. All of that, added together that’s approximately 40% of cost reduction from our 2016 number and those are pretty solid roadmaps behind everyone one them.

If I switch to full system just as important and Mark hit it and we’re doing modules, but we’re also doing systems, as well as third-party that wants the advantage that Raffi pulled out for our systems. System part is really important. I am going to reference again 2016, the stack out balancing system and module cost on top, and then we’re going to work our way down. So obviously, the module is a big driver and we saw that there’s 40% reduction in module cost, but also that’s impact on BoS, a Series 6 impact on BoS.

We used to talk about form factor penalty with Series 4 where it’s really a tough topic here. And now we have form factor advantage, not just because there is more obviously because that’s our competitors. So that’s a big one. And then efficiency impact on BoS, so Raffi talked about wattage. We’re going to wattage, higher wattage per area then we have less structure, less connectors and so on. And then the EPC cost reduction and that’s both continuous improvement and construction methods, as well as using that ecosystem.

So we have a number of tracker suppliers, number of inverter suppliers that work together that you can work with, that’s drives competitive component pricing; so all of that is working together to bring down our system cost. System cost will come down by over 40% here over this next two years.

Now, I’ll point out some of this has already been achieved. And I am referencing 2016. So some of that’s already been achieved, especially in the EPC cost reduction and as we run away from own tracker to the system tracker then we’ve seen some of the benefit of that. But takeaway on both module and on system, as you should see steady cost improvement year-over-year over the next few years. And we’ll talk about beyond 2020 as we get closer, so a very good picture on cost.

We’re going to extend Series 4. We’re going to just quit talking out cost we’re going to extend Series 4. So here is one of the reasons that we’re able to extend Series 4. Mark mentioned it in his opening when we gave guidance previously at November 2016, we said hey we think we’d take cost on Series 4 down about 9% year-over-year and then it would flatten out and we’ll end the life of it ‘18. We're not doing more efficiency programs, we're done. In reality, we were able to take it down about 14% and we’re able to put together a good cost roadmap that again takes another step down before it flattens out, before we get to end of life. So about 30% reduction from that number that we gave back in 2016. So that has allowed us, along with a very healthy market, allowed us to continue to run Series 4 very profitably.

And with that, I think that’s my many metrics. Now, we’re going to do something a little bit fun, so Raffi come up here. I mentioned that we did do -- hit our first Series 6 module. And a couple of -- and tomorrow afternoon, Raffi and I are losing our hair, literally losing our hair. I don’t have that much, but we’re getting our heads shaved. And here’s the reason why. Yes, he does. I’ve been keeping it short here but let me give you some background. About a year ago and Mark talked about it, everything looked a lot different and we set our corporate bonus metrics and these are cash bonus metrics that every employee in the company partakes in. And one of the metrics was delivering a module by December 1, 2017, right. We didn’t have anything at that time. We have told you, around 10,000 modules over there of Series 4 in this factory, and we have the deliver it out of this factory.

Six months ago, we’re looking at it and it was very challenging here; we didn’t even have our coder yet; the fact it was completely empty and so as often I said what we can do to incentivize; so we put on the line and said, hey we’ll shave our heads, I don’t know how long we have to go for on this, it will happen tomorrow afternoon. But I don’t know if it was money or was the idea of humiliating, Raffi and I, but the team went crazy on this one. They’ve been busting their ass and they’re working every day weekend, holidays on Thanksgiving Day, Jigish and team, they had more volunteers than we could take, on Thanksgiving Day. So I’m going to say they want to humiliate us and they don’t care about the money, but it was probably the money. So let me introduce Series 6.

Raffi Garabedian

So these are the same guys that you just saw on the video. Closer to me here is Jigish Trivedi, he is the Senior VP of module development. He basically developed this model for us. And far from me is Mike Koralewski, he is our SVP of Global Operations. He runs manufacturing at First Solar.

Tymen deJong

He does all the hard work for me. So thank you guys, all good job. That’s the first Series 6 module.

Raffi Garabedian

So we’ll be outside during the break, you guys can walk around it, take a close look. This is a working prototype after the production tools here in Perrysburg, many more of these will be coming off the line soon.

Tymen deJong

Many, many millions more starting very shortly, thank you guys.

Raffi Garabedian

I think if we made the best of our 500 watt module, Mark would have shaved his head. That’s not a possibility. Welcome again, thank you so much. I’m responsible for the sales organization at First Solar. And as you can tell, I’m very proud of our accomplishments, what we’ve done so far, the team makes it easy for us with an amazing technology a differentiated technology. A year ago when we talked to you guys April 2016 and you heard from Mark also last year’s announcement here at Perrysburg, the market was in a different place and we had to make some changes. The sales organization did the same thing. We reorganized and started looking at our go to market strategy a lot differently and we’ve approached it historically.

And by that I don’t mean we’ve changed where we go where we sell, we’re still selling across the world, but we’re approaching it differently. We’re focused and we’ve prioritized the market we have realigned our resources in the right geographical places. Mark mentioned it a bit, we do -- we sell modules across the whole world; we ship to China; we ship to Brazil; we ship to Middle East; we shipped across the whole world. And we’ll continue to do so as we move forward.

Where we’re doing development is basically some of the different approach that we’ve taken so far. And we’re focused on few regions where we believe it’s an healthy approach and the returns are healthy for us from a development perspective. We’ll take it, we’ll sell it. So on the system side of things, we continue enable what we call a deeper customer intimacy and this is a term that the sales team has adopted and the new leadership has pushed for us and trying to get closer to our customers, understanding the resource planning, understanding what are their true cost of ownership and build a differentiation not only from a technology perspective but the way we engage, we approach and we work and build relationship with our customers. And continue to develop across Japan, Australia, India and some elements, and each development approaches different, even between these countries.

And on EPC side of things, we do EPC in U.S. We perform our EPC in U.S. for those development assets that we got to development, okay. Around the world, we enabled other EPCs on to our technology. That’s the approach that we’ve taken. And we will continue to do so, advice and enable our partners. As I mentioned on the module side, we’ll continue to scale the business, global reach via partnerships, I will mention couple of them. And because of that allow us to utilize the same OpEx to reach a bigger top-line revenue.

So, let me start with the U.S. And until few years back, the U.S. was driven mainly by the west and the like, predominantly California. And it was driven by -- the utilities scale market was driven by policies, RPS, PURPA and North Carolina. And lot of the procurements with transactions. As we move forward -- and that size by the way was 20 gigawatts from a U.S. perspective. As we move forward, we’re seeing a tremendous appetite for solar around the world, around the U.S and around the world.

Mark talked a little bit about the growth trends and some of the drivers there. But these light green states will drive most of the demand as we move forward. A lot of these numbers that we’re flashing out there are odd numbers. And what we’re seeing from engagements with these different utilities working with their IRBs, working legacy RFPs, still some of the RPSs out there. So we believe as we move forward, the growth is going to be strong. But you might ask yourself what’s the driver here? The driver has changed, has shifted. Obviously, attractive economics; it’s no longer RPS; it’s no longer driven by these states; very attractive economics; no commodity price risk as we move forward; it’s rapidly deployable; the return on investment is huge.

And the engagement by our customers are turning from these transactional ways of just responding to options to a very strategic approach. And what any by strategic approach is a lot of these also are turning into what we call the UOG, owning their assets as we move forward. And this is the big differentiation for us as we build these relationships.

And we believe, while historically we drove about 20 gigawatts in the next three years 20 gigawatt more approximately will be driven than from a U.S. perspective. And from our perspective, we're very well positioned from a development across all of these states. Strategically, very well positioned across all these states to go out there and deliver -- Mark mentioned, Alex will mention, what we believe we’ll do is a 1 gigawatt per year of our own development.

Can we do more? Of course, we can do more. But what we’re choosing 1 gigawatt as a balance. Tymen showed you our overall capacity. I think 1 gigawatt is a good balance for development out of 6-7 gigawatt of capacity to still give us the technical differentiation to commercial rollout. And also at the same time maintain the relationship and the balance with our customers, our partners, that are developers themselves and making sure that we turn that capacity to help them also go out there and win.

So we can do more, we probably will do 1.2, 1.5, 800 or 1 gigawatt that's the metrics. Alex will talk about it. But we'll support our own capabilities and engage in those strategic allow us engage in more of a strategic discussions and transactions with our customers.

And so let's discuss a little bit what are the utilities or summarize a bit what are they looking for from a partner perspective. And I'm going to put a comparison here. They're looking for a full spectrum of assets development and services. As we shown you here, we've constructed over 7.5 gigawatts of capabilities and we manage 7.6 in operations and maintenance. And that's an important factor for us, because we take that operations and maintenance learned from it and feed it back into the technology and also into our communication and partnership with our customers.

Quality and reputation is very big as we transition into UOGs. And there is no better company positioned to do this and deliver this than First Solar. We've talked a little bit about controls with our grid reliability and also our SLAs our Availability Service Level Agreement on O&M of 99.7% availability. You’d like to sleep at night when you're spending hundreds and hundreds of millions of dollars on these assets, proven performance and track record. Obviously, we've already shipped 10 gigawatts of modules sold in U.S. only. And we have future bookings of 7.5 gigawatts, globally, so you can see the scale of how fast we’re moving.

And not to mention the strong balance sheet, Alex will demonstrate that, so I'll leave that for him. But $2.4 billion in cash doesn't hurt at all. As a matter of fact I was allowed by one of our partners that we just closed to just take a little quote for them. And that's Tampa Electric Company down in Tampa, Florida. And really the reason we won the deal is because Tampa wanted an asset ownership approach, which allowed a clear discussion and a clear focus around total cost of ownership, making sure that we deliver quality, technology a strong reputation and commitment around the schedule.

The balance sheet allows us also and our capabilities across the company, allows us to make sure we hit those schedule, we hit the commitments to these customers. And we look forward to continuing our relationship and hopefully for many, many years to come with Tempa Electric and we thank them for the business.

A big part of the demand in the U.S. and around the world is commercial and industrial. And if we look back at 2015, we had few companies that made commitments around 100% renewable. Those few companies out there kind of pioneered the way. But as we move forward, we’re seeing over a 110 companies that are committed 100% that made the 100% commitment of renewable.

The sum of all these companies is around 60 gigawatts, 60 gigawatts globally. Now, a lot of them are working from a U.S. perspective and moving on, but this will be worldwide phenomena. And this is just a small portion, small fraction of all these companies around the world, 60 gigawatts. And we believe we’re very well positioned to drive a lot of these assets out there and lot of these wins across. Let me tell you why.

So while corporate customers have very similar ways and they look at it similarly to utilities, there are few differentiations out there. For instance, C&I customers are generally less experienced in energy procurement. So they’re looking at a partner that has a strong array of services, domestically and globally. This is one important differentiation. So it’s an evolution with our customers out there. So how have we’ve been doing so far. As you can see, we built about 1 gigawatt of bookings with C&I customers, a great volume given to the initial start here. And we have about 800 in mid to late stage opportunities and then you can see the early stage over 2.5 gigawatts.

And this is a combination of systems and modules. Again, the approach has been go out there and build it or help build it for them if they appeal, they need a one stop shop. But we’re not -- we don’t stop and working with our customers who are also approaching these C&I segment and sell them our differentiated modules. So it’s been an amazing couple of years but really augmented the whole momentum with a great team that we focus on the segment and the market.

This is one of the quotes from a Fortune 100 that we’ve worked with. We will make an announcement in the near future we’ll be able to relate to who exactly I’m showing you here. But to just give you a feel of what they’re looking for and why First Solar is differentiated when working with this segment of customers.

Well, the U.S. is doing -- we’re doing well in the U.S. I’ll touch a little bit on the international markets. And as I showed you in my first slide, we’re selling globally. Productivity is high when it comes to the sales team because we’ve focused. These are the four markets; and I mentioned we sold to China; we sold for the Middle East; we sold to Brazil, Latin America in general; but our focus on these four markets, those four markets we’re doing, some of them are doing development; some of them we’re partnering.

So our approach has been different based on the geography and the dynamics of that market, and how mature they are moving forward. You can see I am not going to repeat the numbers of booked megawatts in each of these regions. You will have the slides but ‘17 has been a huge differentiation for us. And as much as everyone thought we focused only on the U.S., we continued to focus on the rest of the world and continue to be very balanced in our approach, both on selling and developing across the world.

Australia, the team has done an amazing job in building and enabling the market. Now, with the new government coming and supporting solar, we’ve done an amazing job in addressing that market, build customer intimacy and partners around it. And not only from a development but also enable it from an EPC perspective and the result speaks for themselves.

India, India is a huge market and we’re never going to ignore it. And our competitiveness allows us to go into the India market, and we see a lot of the S4 potentially moving forward a lot of S6 also getting into the India market. A different development also approach in India we will be very -- we’ll scrutinize the way we approach the development as we move forward but we’re open to looking at that.

Japan, with the feed and tariff in Japan, we’ve been very successful in building a huge portfolio that I believe is one of the best in the market. And a lot to say there for cadmium telluride in Japan, so we’re doing an amazing job. The team has done a fantastic job there and continue to see the success.

And in Europe, particularly focused on the French tenders; we’ll be able to talk a lot about the French tenders as we move forward; French and also in Turkey, has been some of the two markets we sold into and to Netherlands; we sold into Germany; sold into England, but try to highlight couple of the markets there. And again, build partners like the solar partnership that we announced to address the rest of the region, the geography is big. So we feel this is the best way to approach it.

Series 6, the team has talked tremendously about the Series 6 from a technical perspective. What has the customer done, the customer has been very excited about it. Not because of that one module but because of the cooperation that we’ve gotten. The team has built an amazing ecosystem. Raffi showed you the video. This is a combination of many, many days and hours of work, meetings, getting feedback from the ecosystem, getting feedback from the customer on what this module needs to look like.

And I believe we struck a beautiful balance on what this module needs to be. And I say it to you but the customers are saying it to us also. And it was proven an SPI. We had 18 displays of the S4 and S6. First Solar did not have a booth, we didn’t need a booth. We had 18 of our partners basically proud of displaying and comparing our module, the way to put the module on different structures. And the feedback has been fantastic there.

We’ve built many demos in many labs across the world for our customers to see, so has localized our approach. And that feedback has been great. But the feedback is one thing. Talk is cheap, right, when it comes to our business. So, before I get you to the bookings, while I am up here, I think we’ve made two announcements, two huge wins for us. One of them with a partner called Origis around the multi-year partnership, around S6 predominantly deploying in the U.S. So I invite you to read that announcement.

And then the other one is with D. E. Shaw Renewable and D. E. Shaw has been a partner of ours. We’ve deployed few assets for -- or they bought few assets from us, and we’ve been partnering with them on other developments that they have. And this is exactly actually from the announcement that we’ve made. And Brian Martin is the CEO. So we’re very proud of about these two announcements. This is a small sample of what you will see as we move forward. Just to give you a feel of what the customers are saying.

But getting to bookings and what’s the bookings like on S6 and this is across the next few years but we’re already seeing a tremendous take. Series 6 booked so far about 2.4 gigawatts. We, by the end of ’17, will get to about 3.4 to 3.5. So by the end of this year, we’ll have 3.5 of S6 booked as the team are producing this. And moving forward over 2018, we have signed documents that I feel very comfortable to book up little bit over, total over 5 gigawatts. And this is just a snapshot of where we are today.

We continue -- the team continues to work and make sure that we drive the technology, drive the acceptance and make sure that we continue the bookings as we move forward. So customers have spoken, not only with displaying and giving us feedback on the module, but they spoke with their wallet. Thank you very much for being here.

Stephen Haymore

At this point, we’re going to take a 15 minute break. So those in the room, I invite you to come out into the reception area where there is a lunch available box where you can bring back to your desk. The restaurant is down this hallway and we’ll be getting-in in 15 minutes.

Alex Bradley

Okay, good afternoon everyone. I’m going to cover three things today. Firstly, I am going to do a very quick recap of 2017 and the strategic shifts that we’ve made to bring us where we are today. I’m going to talk about 2018 and the business approach we have, going forward. And then I’ll give guidance for 2018.

Over the past year, as we’ve embarked on the strategic shift to Series 6 that you’ve heard a lot about today, Mark and I’ve spend a lot of time talking to investors, analysts customers, partners and we’ve seen a change in the tone of questions that we’ve been asked over that year. It’s moved from the viability of Series 6 to the scheduled Series 6. So from, can you do it to when can you do it, and it’s moved from concerns around our balance sheet and cash flow to questions around how we can more quickly deploy more capital into the business.

Our belief in our ability to manage an extremely aggressive schedule and budget has not changed. We have the best cad tel technology team in the world, and we continue to meet or beat all the milestones that we put out. And it’s nice to see that belief start to be echoed by customers that were ultimately in the markets. But for all that, we remain in a transition period. When we first announced this transition back a year ago, we looked forward to about two years of financial transition.

2017 has far exceeded those initial expectations. 2018 looks like to do so as well, but it does remain financially as well as operationally a transition year. So for that reason, today whilst I will only give you guidance for 2018, we will also try and give longer term indications around the business mix, gross margins and OpEx, enable you to look further forward and do a future valuation of the company.

So starting with what we did over the last year. On the module side, you've heard a lot today we've round down our Series 4 module; although, the ability to continue to decrease cost despite not investing in that technology has allowed us to continue profitably running that capacity longer than previously expected; we have discontinued of Series 5 products; we have discontinued our Silicon TetraSun products, and we've also discontinued our module plus offering.

Tied to the module plus is the structures business, so we no longer internally develop and produce fixed tilt or tracker structures. And we've seen a shift away from the benefits of integrating our own tracker with our module to a broader ecosystem where today there is limited demand and limited value from us producing our own internal structures. We have right-sized our EPC capabilities. We will maintain EPC capabilities to support all of our sales development business in the U.S., as well as provide limited third-party EPC for strategic customers. And we've exit our European O&M business.

On the sales side, you've heard George talk just now. We have pulled back from being in a direct model in certain markets, which we can serve to an indirect model. We've also engaged in partnerships in various parts of the world. And on the development side, we’ve pulled back from markets so we don't feel we have a long-term strategic advantage. And I want to be very clear because I think this is time it's been understood, we are in no way exiting the development or EPC businesses.

So in core markets where we feel we have a differentiated long-term sustainable advantage, and in this case around development, North America, Japan, Australia, India. We are very much in the development game, it is core to our strategy as is the EPC business in the U.S. Elsewhere in the world we have pulled back from developments. And critically, all of that has enabled us to reduce OpEx significantly. So I'll talk a little bit more about OpEx later in the deck, but we brought OpEx down by about 25% from ‘16 into 2017.

So moving over to 2018 and the outlook. This is a variant of the slide that Mark showed you earlier around our business model. And rather than focus solely on growth, as we've seen the significant portion of the solar industry do, we look through growth, profitability and liquidity and make sure we balance across all three. And this is tie to our technology. So our differentiated cad tel technology enables growth. That growth through that technology even enables profitability, which again leads to liquidity, and comes back towards growth again. So you have a virtuous cycle where the differentiated technology that we have enables a differentiated business model.

And that business model may look intuitive and somewhat standard but is not in the solar industry. For that reason, we'll make sure we’re clear rather than focusing solely on growth that we’ve seen across a lot of this industry, we do look to balance all three of these and maintain a balance between them.

So starting with the growth piece. If you look at the bookings trend over recent years, 2013, '14 and '15, we maintained a book-to-bill ratio above 1.0. And this is at a time where at times we had a slightly disadvantaged technology. In 2016, we feel that dipped a little lower largely because of the timing of the IPC extension and the impact that have on bookings. So what’s really interesting on the chart here is if you look at what’s happened in 2017 and the significant acceleration we’ve seen in bookings, a part of that is due to external factors. So we have an impact from supply demand imbalance, mostly in China this year. We’ve obviously seen an impact from 201 trade case.

But fundamentally, what is enabling us to be so successful booking even in that environment is the technology that we have today. So a new fundamentally advantaged Series 6 technology is driving the bookings that we’ve made -- we’ve been able to do in 2017. And this leaves us very well positioned as we go forward and look to add new capacity as you heard today. So this is historic. If we look at what the future looks like, the chart here is a condensed version of what Tymen showed you earlier. So it increased our capacity in the 2018 to 2020 timeframe by little over 4 gigawatt up to 13.8 gigawatts.

When you look there against our contracted volume, we today have about 7.5 gigawatts of contracted volume to deliver in that same 2018 to 2020 timeframe. The total by here is 7.7 includes about 200 megawatts, which will be delivered in 2017.

Additional to that, we have a mid to late stage pipeline of about 5.6 gigawatts. And as George mentioned, we’re very conservative around what we class as a bookings. So if you break that down little further, we have another roughly gigawatts that we expect to see book in 2017. And beyond that, we have about 2 gigawatts where we have signed contracts but we don’t count those as bookings yet for various CPs and that’s delivering in ’18 and beyond.

So when you combine those two, you’re seeing 7.5 gigawatts, roughly another 3 -- a little over 10 gigawatts of either contracted or soon to be contracted capacity against that 13.8 gigawatts of production into 2018 to 2020 timeframe. So again as we look to the future, not only historically a successful book-to-bill ratio but a very good position between our contracted pipeline and our future pipeline as we move forward into ‘18, ‘19 and ‘20.

If we break that down a little, let’s look at the business mix behind those bookings. So this chart shows you the module production in each year across the entire fleet, again in ‘18, ’19 and ’20. As George mentioned, we look to maintain approximately a gigawatt of year of development business. That can go up and down slightly depending on the average we’ll see that. Now in 2018, you’re going to see about 0.9 gigawatts of development business, slightly lower than the long-term average based on optimizing our portfolio around Series 6.

And if you look through that portfolio, you can see the current contracted portfolio about 1.8 gigawatt DC. And for reference if you go back to last year at the guidance call of the year ago in the same post ’18 timeframe, we had about 1.3. So that’s grown about 0.5 gigawatt in that timeframe. The top right table shows you the contracted portfolio for 2018, we’ve recognized a portion of California Flats already, a portion of the India project is in our 2017 guidance. The remainder you will see revenue recognize in sales in 2018.

We have to maintain a healthy pipeline beyond that, so you can see the bottom table shows you assets beyond 2018 today and we also have an additional 1.8 gigawatts of mid to late stage development pipeline, you can see on left hand side there. So very well positioned and we continue to build that development pipeline for 2019 to be on CODs.

So then back to the chart I showed you, starting with our module about a gigawatt a year of development. In the U.S., if we develop it we also construct it. So that gigawatt a year development provides a baseline for our EPC business. On top of that, we also add select third-party EPC and that’s 30 megawatts or so you can see here in 2018.

Beyond that, we then have opportunities to convert the rest of that module sales into either EPC and/or O&M opportunities. Now in ’18, especially you can see that the acceleration of bookings that we have contracted times, module bookings, which in the future we will come back to and look to sell additional EPC and/or O&M services on top, and that would be incremental O&M and EPC bookings before you take in the module in those cases. So again, we’re very pleased with the business mix here, about 1 gigawatt a year development, a little bit of incremental EPC where it is strategic remainder of module sales as we grow capacity. That’s how we think about the business mix.

If we move forward from growth to profitability, so looking at -- starting with the module, how we think about the gross margin entitlements. If you start with our competitors, if you look last 12 months, our competitor reporting around 12% gross margin. Now, we include, as Mark said at the beginning, shipping warranty in our numbers that does not reflect in our competitive numbers, they see in OpEx versus the COGS line. So if you pro forma to view how we would look at gross margin, you can see gross margins for our competitors closer to around an 8% level. From there on, we have a cost per watt advantage. So as you heard earlier, despite being an end of life technology for us, our Series 4 is still we believe the most cost advantage module in the world.

We also have energy yield attributes that Raffi talked to you about: spectral response, temperature coefficient, additional energy, further capacity installed. And today, we have a balancer system disadvantage. So the form factor of our Series 4 product today is a negative versus our competitors. What that leads you to is on our Series 4 product a gross margin we believe in the 15% to 20% range.

Stepping forward from there on to Series 6, we get rid of that balance system penalty. The form factor no longer have a negative relative to competition. We also have an additional cost per watt advantage through the Series 6 technology. And that leads us to a Series 6 gross margin entitlement above 20%, and this is for a Series 6 fully ramped large scale manufacturing site, and I will talk a little bit later around certain ramp penalties associated with bringing up Series 6, so you have to factor in to ‘18 and beyond. The fully ramped large scale volume manufacturing Series 6 entitlement over 20% gross margin.

Moving on then to the entire business, so how do we think about everything outside the module; so I’m going to stack up the business here in pieces; so starting with the module we just walked through, Series 4 in that 15% to 20% range; Series 6 above; and then for those assets where we do development, we see today in our contracted portfolio a return on the development capital owned; so truly the incremental development capital only in our contracted portfolio of about 50% gross margins. For incremental development, we target a return of over 20% on that development capital.

For those assets where we do EPC, for the EPC, we see a 5% to 10% gross margin again on the EPC capital; so not the module, not the development, but the true balancer system EPC spend; and we see about 5% to 10% gross margin on that piece.

Now, the developments I mentioned provides the backbone of our EPC business and that is strategic to us; so although, this is a relatively low gross margin business, it is a risk litigant for us in our self developed portfolio; it also provides avenues to new sales; for instances as UOG becomes more prevalent in the market, the buyers look to someone who can provide an entire system; again, the EPC that becomes a strategic asset to us where we do third party EPC on a limited basis, we can leverage that fixed cost base that we have on EPC; and therefore, we may see returns towards the higher end of that gross margin range on incremental third party EPC.

And then finally on the O&M side, we see a contracted O&M margin today of somewhere above 30% and this is a function of the legacy contracts we have and tends to reflect a higher risk profile, longer contract tenure than the new market we’re seeing today. From new assets in the O&M space, we see anywhere between about 10% and 30% gross margin range. And again, the wide range there is reflective of varying risk profiles and varying contract tenures in the new business that we contract. But that means for us today is as we look forward into 2018, we see an opportunity here for a consolidated gross margin of over 20%.

So moving beyond the gross margin down to OpEx. We have made 2017 a focus on reducing core OpEx, so excluding restructuring costs and startup cost, we have brought our core OpEx down from running run rates of approximately $400 million down to little under $300 million from 2016 into 2017. And what you can see there is despite the reduction in capacity between those two years, we therefore manage to keep our OpEx per watt flat across the two years.

As we go forward into 2018, we need to maintain that OpEx discipline, leverage that fixed cost base and then we can grow then our capacity our sales without growing OpEx. So you can see the corresponding reduction here in OpEx per watt. So despite capacity increasing over 25% between ’17 and ’18, you’re seeing a corresponding increase in OpEx is just under 5%. And as Mark talked about all being out to leverage that fixed OpEx base, the majority of our OpEx is fixed cost means that we can incrementally improve operating margins as we go forward. This gives you the view into ’18 and this methodology will apply beyond. And so you can take this as you’re modeling out the business and think about this approach through ’19 and beyond as well.

So that takes us through growth, this takes us through profitability and moving on to liquidity. So the final here shows you how we think through liquidity from top to bottom in terms of priority. Now, working capital we continue to manage carefully and we will optimize our payables and receivables but we all at times optimize those for increased longer term value. So you may find times where we look to extend receivables and payment terms to increase value. We will make shorten our payable terms and pay earlier to optimize costs. So we look at this on a holistic basis. But in general, we will optimize our working capital on the receivables and payable side over the year.

At the same time, we also see reductions in inventory, especially on the module side as we have sold through our existing inventory over 2017. So from the top of the waterfall, the most important for us running the business, day-to-day working capital continue will optimize those as we move forward.

From a capacity expansion and CapEx perspective, this will be the biggest use of our cash in the next few years. So as we’ve talked about today we had a Series 6 profile getting to a capacity of 5.4 gigawatts by the end of 2020, and that’s the announced capacity we’ve given today. To get to that number, we’ll be funding approximately $1.4 billion of CapEx across '17 to '20. So if you look at these numbers between '17 and '18, we'll spend approximately $1.1 billion that leaves the remainder of approximately $300 million of CapEx we spent in 2019 and '20, solely associated with our Series 6 capacity. There is incremental CapEx to sustain the business relatively small but that's the delta you will see in the '17 guidance between the number here in total CapEx and same way in the '18 guidance that we'll show in a second.

So the biggest use of our cash over the next few years funding the Series 6 capacity expansion. From the other side in terms of the freeing up cash we have seen a significant reduction in the capital intensity of the development business. There are three main reasons for this. One is as project costs come down, you need less dollars to enable the same megawatts. So as project costs come down, we can see a less capital intensive use of our balance sheet to enable still that 1 gigawatt plus of development a year.

The second is that we have internationally, especially started using non-recourse project level debt against the development of that business. And this is really a function of matching risk around currency and risk around tax efficiency. So using that that means that on a net basis again we bring the equity we put into the development business down. And thirdly, we're selling our assets earlier.

So we've talked about this a few times on earnings calls before. The key for us is recycling our working capital. Historically, we held our assets later through the cycle as we had an advantage doing that in terms of value and we're holding assets for 8.3 business.

Today, we are seeing a convergence in the rates of return required by investments -- investors for assets both at NTP and assets for the COD. We're also hearing a preference of buying assets earlier to enable investors to structure the capital structures they see fit. So that's the third reason we've been selling assets earlier. But combined between those three, intensity of the business, non-recourse, project leverage internationally and earlier sales, we brought down the capital intensity of the systems business significantly.

And then going back to my chart so working capital, funding capacity, freeing up capital through the systems business. The two other key pieces as we look through liquidity really relate to M&A and then potential capital return. On the M&A side, the biggest piece of 2018 on the disposition side is 8.3. Now, as that process is ongoing, I am unable to give you more information about that sales process today. But obviously, that is the biggest piece as we look to free up capital.

On the flip side, we remain in the M&A markets on the acquisition side in a couple of places; firstly, on the technology side. So we are very comfortable deploying capital if we can find technology acquisitions or other things that are accretive to our core platform. One of those is a company called Enki that you will see we acquired this in our finacials and you can read about in the Qs and the Ks, associated with reflective coating. But similar accretive technology acquisitions, we’re still very comfortable making.

The other areas in the development business. So historically, we have spent significant money on development assets individually and development pipelines. And that's an area where we're still very comfortable deploying capital. We still very active in that market and we'd look to deploy more capital there if we can the right assets and returns.

So moving pass to M&A, we then get to capital return. Now, if you look to the capital intensity of the business in 2018 and the CapEx profile we've shown, we don't see -- we don't expect to return capital in 2018. So when I work through this waterfall, we will look to find ways to use our capital accretively throughout this waterfall. If we cannot do so and if we find ourselves in what we believe to be an excess capital position at any point, we'll continue to evaluate it. And if we cannot find accretive uses for that money with an appropriate ROIC, we would look to return capital.

Given where we stand today and the CapEx forecast we have in this transition, I don’t expect us to return capital in 2018. So moving through there where does that bring us to in terms of a liquidity position, the chart shown here is the chart we showed you at our last Analyst Day about 18 months ago. What’s happened since then -- this is last part of my graph, okay, I will build this up. What we’ve seen since then is three companies out of this. So we’ve seen Trina that’s one private, we’ve seen Yingli default and we’ve seen SunEdison go bankrupt. So that’s one of the key shifts.

In that time, we have added significant cash to our balance sheet. The majority of our competitors continue to add debt load. So there’s been very little ability for them to access the equity market and there’s list of competitors as the U.S. listed companies. At the same time, if you look at the capacity additions announced amongst this group of competitors, we’re seeing about 14 gigawatts of capacity announcements across that field. The majority of that has had to be funded through debt. And you can see that reflected in the current position by bringing us forward to today in terms of debt load. So we’ve added about $1.6 billion of debt across this group of companies over that time period.

The big company that’s missing here is a new entrant to the market is LONGi. Many of you’ll be familiar with them. They are not U.S. listed that’s why we haven’t shown them here but you’re seeing them announce similar capacity expansions. They have had some access to the equity markets. If you look at the financial profile today, it is unlikely they will be able to fund their announced capacity to operating cash flow.

So we expect to see them beginning continue to tap the debt markets. This is a cycle we have seen repeated over and over. If you go back a several years, we could have other names on this chart; they grow overtime; they get into financial distress and fall off. So we will continue to see this cycle across other companies. Whilst they are still selling at pricing and cost levels, which should not enable to have enough liquidity to fund capacity expansions through operating cash flow.

And as Mark talked earlier in terms of additional expenses, so you go down gross margins and OpEx, there is a significant interest burden associated with having this level of debt and distress the balance sheet, something that we do not bear. And again, when we look to expand capacity, we can do that through our operating cash flow and through cash on hand.

So that walks you through the main business, through growth, through profitability, liquidity. That’s how we think about ‘18 as we go into it and the approach we take to look beyond ‘18 as well. So then moving into guidance; what does that mean for 2018 itself; and a little bit of context before I go into the numbers. We have two large external influences today on our guidance. The first is tax reform. Now, after the senate pass the bill over the weekend, I think tax reform is significantly more likely than it was a week ago; however, there’s still lot of uncertainly in that bill. The guidance we give you today is reflective of today’s tax law. It does not take into account a potential tax reform.

On the trade case side, there is again uncertainly around the 201 trade case. I would say that given our contracted position going to ’18, we see relatively limited change associated with whatever the outcome is around the 201 trade case.

On an 8.2 basis, that sale is ongoing as I mentioned, I am unable to provide any further updates on that today. From a restructuring perspective, we expect minimal restructuring expenses in 2018 under $10 million and for that reason, we will not be providing non-GAAP guidance, we will only provide GAAP guidance but it will reflect up to $10 million of restructuring expense.

And then finally on the accounting side, we are looking to change our segment reporting. If you look at our segment reporting today, the components segment that we have reflect the module sales and it reflects the revenue and gross margins from the system sales allocated back. What we will be showing you in the future is a module segment before flat revenue and gross margins from modular only sales and any component -- a system segment, which will reflect development EPC, O&M any power generating assets that will include the revenue and gross margins from modules sold under those development EPS business. So a change in the segment reporting, you’ll see that coming in the K at the end of this year 2017 and reflected, going forward.

In terms of key assumptions behind the guidance; so production will produce about 2.9 gigawatts this year; one gigwatts of Series 6 the remainder Series 4; volumes sold, approximately the same number. From a revenue perspective and again this is under the new segment reporting you will see, approximately one quarter of the revenue coming out of the new modular business, three quarters coming out of the systems business.

On the development sales side, we’ll recognize revenue from second phase of our California Flats project, as well as selling and recognizing revenue on the Rosamond and Willow Springs assets in the U.S. And then internationally, we will sell and recognize revenue on assets in Japan, India and Australia; and crucially on the Series 6 capacity expansion. So we will see cost this year of approximately $170 million, reflected through both COGS and OpEx associated with expansion of our Series 6 production.

So we’ll see about $60 million of ramp cost in our COGS number that’s effectively associated with under utilization and you will see about $110 million of start-up costs at the OpEx line, again associated with the start-up of our Series 6 production.

Taken as a whole what that means in terms of guidance; so for 2018 we are guiding to net sales of $2.4 billion to $2.5 billion; a gross margin of 22% to 23%; operating expenses $400 million to $410 million; and operating income of a $110 million to $170 million. And again, as I mentioned before, the ramp up costs and start up costs are in both that gross margin and operating expense number. You see what’s the pro forma for both those. You’d see roughly $170 million additional operating incomes, so roughly double the high-end of that operating income range.

This is the earnings per share of $1.25 to a $1.75; year-end net cash balance of $1.6 billion to $1.8 billion. If you look at the cash balance where we were going into this transition, so the end of 2016, we ended that year approximately $1.8 billion of net cash. So this will say we will be in through two years of transition, spends over $1.1 billion of CapEx and ended with a comparable balance sheet position.

We have operating cash flow of $100 million to $200 million that is relatively low this year for a couple of reasons. Why as we have a small amount of module sales that were booked with prepayments or partial prepayments and deposits in 2017. So you’ll see the revenue recognize for those in 2018, but a portion of the cash is already flown through operating cash flow in ’17.

The other larger piece of this is that as we sell assets internationally, we had non-recourse debt. The number that you see flow through the operating cash flow line is net of that new and recourse debt. So when we sell it, the debt is transferred to the buyer; you’ll see a reduction of the debt in our balance sheet but you won’t see that flow through the financing cash flow line; you’ll see that flow through operating cash flow line on a net basis. If you look at those two together, there is about $300 million of impact there. So the $100 million to $200 million is what you’ll flow through the operating cash line that is about $300 million of other cash that you would otherwise have seen, both for the accounting treatment. And finally on a CapEx basis $650 million to $750 million of CapEx; the majority of which is associated with Series 6; and shipments of 2.7 to 2.8 gigawatts.

So that's our guidance for 2018. As I mentioned at the beginning, we're not giving guidance beyond that, but we do want to make sure as well as providing you with the business mix and the gross margin mix, we can help you understand the ramp cost associated with Series 6.

So we've talked a little bit about CapEx. These are numbers I showed you earlier; about $1.4 billion of CapEx over this full year period; but critically little further significant ramp and start up costs associated with Series 6. So we saw start up of about $50 million this year; we are guiding to $170 million in 2018; and then you will see about $50 million combined through ramp and start up in 2019 and 2020; this is associated with that 5.4 gigawatt of Series 6 capacity by year-end 2020. So as you can see, these costs peak in 2018 and then they decline significantly but are still present in 2019 and 2020.

And so to wrap that up couple of points to leave you with make sure you're aware of. On the outlook side, a differentiated technology drives a differentiated business model; key to understand that is not just our technology, which is different but our approach to business is different as well. We've had very strong bookings and that has been enabled by capacity expansion, the two go hand-in-hand. So not only have we expand the capacity, had strong bookings to meet the demand side as well as the supply side.

From a business mix perspective, we are look to have about a gigawatt a year of development business, some incremental EPC business, O&M business and then a significant expansion on module sales as we grow capacity. And on the OpEx side, we brought OpEx down by about 25% into 2017; maintaining that OpEx discipline, we'll see relatively small OpEx growth as the majority of our base is fixed as we grow capacity and that will help us leverage that OpEx base and see significant incremental operating margins as we grow the business.

And then specific to guidance, so margin guidance at the midpoint of EPS is $1.50; significant start-up and ramp expense about $170 million in that number; and then a very strong balance sheet as I mentioned before we’ve managed to transition through two years of Series 6 by the end of '18, we forecast to be in a similar position from a net cash perspective to where we were when we entered the year at the beginning of 2017.

And with that, I think we're done. And we're going to have everyone come up and do Q&A.

Question-and-Answer Session

A - Stephen Haymore

As we have everyone come up here, just a couple directions on the Q&A. So I'll be walk around the room with the microphone here. We have about 20 minutes. We'd ask that you keep your questions to just one to allow others an opportunity to ask their questions. And also, please state your name and your firm as we begin. So I think we're just about there. Why don't we go ahead -- is there anyone who'd like to begin with a question. So we've got few in the back here, we'll start back here.

We also have Paul Kaleta, our General Counsel up here and Chris Bueter, our Executive VP of HR. Those lights are bright.

Unidentified Analyst

With your Series 6 products, I check suggest that the Series 6 may drive a $0.01 to $0.02 watt premium in terms of ASP versus the competition, which may very well be multi and mono PERC, given the higher wattage. How you seen that in your bookings and can you talk through the rational as to why the customers have agreed to the modest split, potentially meaningful premium?

Mark Widmar

I’ll let George handle a piece of this, but we’re not going to be able to give you exact ASPs. If the question, in general is, are we getting paid for the energy value that we’re creating we’re getting paid for that. So relative to crystalline silicon mono PERC, you obviously got an higher efficiency, so the delta around that is going to be different than it would be with multi. But the value is being captured for the energy that we’re providing to the customers and there’s no doubt about that. But we’re also trying to capture the full stream effects, even around as we referenced as well that we’re moving almost what we have balancer system advantage relative to crystalline silicon.

So we’re trying to capture all components of that. The installation velocity and other things that we highlighted today, all become part of the math from that standpoint. But it is an educational process with the customers, no doubt about that. And there is some customers that we have a lot of experience with that understand the performance of the technology, especially in hot humid climate and we’ll be in a much better position to capture full entitlement with that customer.

Other customers that we maybe just engaging with us is we are ramping up now to 6 gigawatts of production and we’re booking the volumes that you’re seeing and George highlighted. There are new customers that we’re engage with. So there is somewhat of an educational process that takes time in some cases in order to capture that full entitlement. And if we can’t get the customer to pay for the value that we’re providing them then we always have the options to look elsewhere. In a robust demand market right now, we have other way -- other paths that we can go with sell through and make sure we can capture most of that entitlement. But George?

Georges Antoun

I mean, you covered it beautifully. The only thing I would add to it is on a deal-by-deal basis, you got to figure out what you’re competing against, right. You got a full 40 watt modules versus what, so it all shifts, it all changes on the deal-by-deal but everything Mark said covered it very well. And that’s really how we wrap it, we are getting the value.

Christian Ruiz

Christian Ruiz on TD Magazines. Thanks for taking my question. How far into the future is First Solar sold out in modules?

Mark Widmar

We have good visibility let’s just put it that way. As we get into ‘19 and even into ’20. And the horizon, as you move further out as you would expect, there’s still some amount of available capacity but not a lot. In some discrete quarters depending on the loading that happens in a particular year, we could be reasonably firm in those particular quarters from that standpoint. But we feel very comfortable with where we are right now.

Colin Rusch

Colin Rusch from Oppenheimer & Company. Just as it pertains to 2018 guidance, you talked about you identified about 600 megawatts of projects on the slide, and then guided to little bit closer to 900 megawatts. Given some uncertainty around the tax equity market in the short timeline, could you talk a little bit about where those extra megawatts are going to be coming from and your confidence of all and being able to execute on that.

Mark Widmar

Yes, so a couple of different things the mixing AC and DC a little bit. So when we talk about our gigawatt a year, we’re talking on DC basis. The chart we showed on the top right of that previous slide is on AC basis, so to take those two into account. But if you look on a DC basis, we have book today little under 0.8 gigawatts at that 0.9 that we expect. The remainder is coming from one opportunity where we’re fairly far along the way, so have pretty good visibility to do that.

So when I look at 2018, I'm pretty confident in the 0.9 gigawatts of DC of development business. Talking a little bit about the tax equity position, I think there is clearly some uncertainty today and I'm sure it will come up in a question around the B provisions that have been introduced in tax reform. So in short, I don’t see that being a concern for our 2018 bookings. So as a piece of that where being able to monetize those project efficiently could have some challenges associated with the B provision.

Given the tax reform bills still has to go through reconciliations doing the house and center, we see two very different provisions around there. And then still have to comply with senates reconciliation -- senate budget reconciliation rules. I think we’re still cautiously optimistic that there will be an outcome, which allowed there to be enough tax equity in market to support our business. I don’t believe it is the intention of congress to restrict investment in renewable energy and other infrastructure, such as lower income housing.

However, it's clearly a challenge we’ve been working with our representatives on the hill, we continue to follow it closely, still variance there given what's happening. But I'm cautiously optimistic today we’ll get to a breakthrough position where there will be enough tax equity in the market in the U.S. in 2018 to further the demand that we see.

Georges Antoun

Yes, the one I think I'll just add to that too is a portion of that volume and 2018 is actually utility on generation. So in that situation there is no dependency on tax equity, so we won’t have any impact around that. And we think we’re going to see more utility owned generation as we move forward. A lot of the volume that George highlighted and we’re seeing from utilities, a lot of cases they want to find ways to rate base that and own those assets with somewhat normalizes potentially impact that we could see with availability of tax equity.

Brian Lee

Brian Lee, Goldman Sachs. Alex, for the 2018 gross margin guidance, can you help reconcile the 22% to 23% range for your margin walk on a previous slide showed 15% for Series 4, 20% plus per Sseries 6, that’s without the ramp penalty that you’re incurring in 2018. So just wondering is this higher margin projects flowing through? Is it a function of pricing strengths, just any bridge you can help for the 2018 outlook?

Alex Bradley

I would say in the areas where we gave ranges, you can assume that in the nearer term, we’re going to be towards the higher end of the range. So overtime, you obviously expect to see ASPs come down so we’ll probably at the higher end of those ranges in '18 versus if we go a little bit further out, we might see lower end. The big drive in '18 is really on the system side and the development side. So on that chart, I showed you a development margin on the development capital piece of about 50%. Some of those projects have legacy contracts and given the strength we’re seeing in the financial markets today and the demand, there is significant margin above this. So the gap you’re probably seeing trying to reconcile is through the development business.

Georges Antoun

Yes, one other thing just along those lines as well is that you have to remember that all of the development assets for next year, at least project assets, are going to be constructed with series six. So we talked about that before. The strategy was to accrete value to our development pipeline by using Series 6. We bid those projects with an assumption of Series 4. So we would had a higher cost per module, we've had balance the system delta. So that's changing the overall profitability profile of the development assets that we have in 2018, as well as we've done a very good job, call it, the value stream optimization of helping drive down more cost in the EPC value chain than we had initially anticipated.

And the value accretion that we've got from Series 6 as well as the ability continue to drive down and further cost track across and the likes, that will carry forward too to the rest of our development pipeline as well. So don't think of it done, disproportionately that it's only an impact in '18. You'll see that same value impact as we construct the balance of our portfolio in '19 and '20 with our Series 6 product.

John Segrich

John Segrich from Luminus, just two things, one on the cost per watt metrics that you gave the reduction of 30% for the Series 4 and 40% I guess from 4 to 6. Just want to make sure that's fully loaded with depreciation and it's just not a cash number?

Alex Bradley

Yes, that's correct.

John Segrich

And then secondly, you've talked about Series 4 being the cheapest module I guess on the planet comparing it to the Chinese. So maybe help us understand what the reference point of that is? You've seen people like LONGi took about $0.27, $0.28 production cost today. Are you going with that number, or you made adjustments to those numbers just so that we can apples-to-apples, what your statement is?

Mark Widmar

Well, I guess, the first thing when we do the apples-to-apples is you got to take in consideration freight and warranty, right. So I don't know if any of our Chinese competitors who include freight and warranty in their cost-of-goods sold. So you can either do one way. So you can pull freight and warranty out of our number or you could add it into their number your call make that call on your own but when you do that, our numbers are by far competitive relative to the numbers that are being reported.

And even when numbers start to get into the 20 range that you reference and if you include freight and warranty and then you're up to 28, 29, 30 whatever the numbers. When you look at our product in terms of its competitive cost profile, it's advantaged to even that type of products that's been referenced in the market right now.

Vishal Shah

Vishal Shah from Deutsche Bank, wanted to follow up on the 2018 guidance assumptions around especially the market environment. What kind of pricing environment do you anticipate in next year, especially considering the fact that, there is some uncertainty around both the tax reform and the trade case? And then secondly, how long will it take for you to add additional capacity? It looks like you’ve already contracted 10 gigawatts out of the 13.8. And there could be a rush in the U.S., especially ahead of the ITC exploration in '21-'22 timeframe, so there could be additional capacity potential. So what timeframe do you think it takes for you to add more capacity and when do you -- I mean how do you make decisions on that? Thank you.

Raffi Garabedian

I'll take the first piece and maybe Tymen talk through the capacity piece. So we're not going to give ASPs given good views on gross margin. I think what I would say is that when we look at '18 guidance specifically, I don't believe there is a significant impact from tax reform nor from the 201 trade case largely because the contracted position we're in. So we have some contracts with down payments which are not conditioned and that is non-cancellable based on either trade case or any other criteria.

So when we look through '18 and vast majority of that here is contracted on the module sale side. On the system side, piece of it is already sold. We're in negotiations to sale some those other systems. And a portion of that is outside the U.S. as well, so not really impacted by either of those two. So when it comes to '18, I'm pretty confident that where we stand. And I’ll let Tymen talk through the capacity.

Tymen deJong

Yes, on my capacity graph, I tried to highlight the Series 4 conversion that we’re going through and the flexibility that we have remaining with the one factor that we’re still planning to run and incurred about mid ‘19. So that we talk about flexibility and optionality on that, so that might be a place. In terms of Series 6 expansion, beyond what we’re doing right now, we’re pretty locked where we’re at. We’re building four factories currently. We’ve got a fifth one with a conversion coming. And we always build our capacity ramp basically to be a too limited. So with our -- and Raffi mentioned this, these are not off the shelf tools. So we work closely with our suppliers so we’re -- no, there’s not a lot of pull in on the Series 6 beyond what we’ve done this time.

Raffi Garabedian

From the trade case perspective, from a sales approach and the company strategy has been always to be fair about the approach. We didn’t take the choice of holding back and wait for the trade case. We have always dealt with it from a fundamental business, making sure these projects will go through because there’s been assumptions in those projects, right. So we think we’ve captured fair ASPs. Like Alex said, there’s some obligations behind them that we feel no matter how things go, we’re solid for ‘18 and some of the contracts in ’19 and so on and so forth.

So I just wanted to make sure you understand. We dealt with it fairly. It’s very important for me as my customers are represented in these type of things, right. Could we have perhaps maximize a penny here and there, may be I don’t know. We’ll see what happens with the case.

Mark Widmar

The only other thing I want to add too is that we are -- when you look at the available capacity that we still have left that hasn’t been contracted, we are reserving that to some extent for our own development assets to some extent. So if you saw the pipeline that George referenced around C&I, and we’ve got a pipeline opportunities that we’re mid to late stage or maybe we can sign, we are making sure that we at least have volume available to support that volume.

So the other thing we’re doing is a little bit in terms of dry powder as it relates to that. The rest of it is for engaging with the market proactively, and to George’s point, treating our customers fairly and then getting a good fair balanced price for the risk return profile. So it’s a process that’s been ongoing for the last six to eight months and I think generally we’ve handled it pretty well.

Paul Coster

Paul Coster at JP Morgan. Maybe just two part question, first off, how do you price the future contracted revenues with your clients? And are there any contingencies take or pay elements to those contracts that we should understand? And then the second really sort of going back to your point about investability, Mark, it feels like through differentiation, you’re going to transition from being a priced taker to a price maker, given the fact that you have this differentiated product. And in doing so, will you price around this gross margin structure or what is the intended methodology there? Thank you.

Mark Widmar

Do you want to take the first one…

Raffi Garabedian

Hopefully, I understand the first -- on the question, you mentioned projects but I think you meant just basically what we’re selling at. And I feel we’re selling at a price that is -- what the market is, where the market is with some of our value-added or differentiation that we impose with regards to where competitor is. So I feel good about where we are down on the road. We try to work back with our partners on where we are from where they are from a project perspective.

I think in one of the presentation, graphics presentation, you look at the module parts in the old pie chart across the whole system and what's the installed cost. So we tried to work with the customers on, here is what the S6 can bring for you, here is the savings, here is what you need the total installed cost to be in order to satisfy your PPA or your contract, and then work with them closely on where that price needs to be at the end of the day. So we derive the ASP that way, and it fluctuates based on areas and..

Mark Widmar

As it relates the contracts, so Paul I guess parts of your question around contracts. These are enforceable obligations between both parties. There are really no provisions that would make pricing per se variable in nature. Are there some where we may have penny or two? They may say that to the extent the trade goes through, there is maybe penny one way to the extent maybe it doesn’t any of the other way, but very small bands. These are not wide bands that have a contingent pricing based on the outcome of that contract -- based on the outcome of that trade.

And we wanted to make sure that’s how we price, we didn’t want that uncertainty, because we just showed you the commitment and what we made in terms of capacity commitment. And we needed to make sure those for firm off-take agreements with our customers in order to make the decision that we’re now making to continue to run Series 4 longer, made the decision to put Vietnam -- the first Vietnam factory in front of the KLM 3, 4 transitions that we were going to do and then also making the commitment to do the expansion in Vietnam.

And so under the background to all that, I needed to have firm enforceable agreements with all of my customers that had pricing uncertainty, and not having the uncertainty relative to where our trade case can come out. As it relates to are we price taker or price maker and how we think about differentiation and invest -- are in differentiation as it becomes to why we believe we’re truly investible. We still will start off with whatever that market clearing price is for crystalline silicon, it is what it is. It’s the marker that’s out there that our customers have.

Then we show them all of differentiation and value creation that they can get with First Solar, and we try to move them in that direction and capture where we believe this entitlement, not just only around the energy value but understanding the bankability and strength of the balance sheet, the value of the warrantee and commitment to stand behind our product for its anticipated 25 or plus year life, and that means a lot. For example, when we’re going into the C&I space.

I mean one of the things around the C&I is reputational risk. They don’t want to be worried about anything other than they’ve got a great power plant that’s going to generate the energy as anticipated and managing the total lifecycle cost. So we can come in with that full capability strong balance sheet, now, we’re going to be a reliable company for the long term and that helps differentiate us in that regard. So there is always a marker that we start with but then we add our elements of differentiation and capture more value.

Unidentified Analyst

I just want to follow up on Vishal’s question. As far as building out new capacity, could you just talk about what -- this is coming from my Ivory Tower here after you announced all this new capacity. But is it selling contracts forward of modules to get you to that threshold before you put still in the ground of moving forward? And how do we think about? I guess, 2020 is coming pretty quickly so as we look out to 2022, how do we think about you get into additional capacity if you have all these advantages? And then how do you -- my original question is how do you think about storage as far as your business goes? Is it something that you partnered with? Or is it something that you guys develop as a E&C provider with a technology provider as a partner?

Mark Widmar

So I'll take a portion of the first piece and let Tymen talk more about capacity and then Raffi can talk through the storage. We've always -- I tried to even highlight it on the very first side in terms of our decision around ramping down Series 4 and transitioning into Series 6, it was market led. We knew we needed to transition. We knew we need to get to a position of strength. We made that decision based off of signals we were getting from the market.

As it relates to demand, it's the same. We do not want to have this as much as we can take credit for the fact we put a plant in Vietnam way ahead of its time. The reality is we didn't have good indication of market, indicators or signals around viability of demand. So what we want to make sure we do now is we do truly e have our pulse on that market and understanding that profile and having Series 6 as a position of strength how we best leverage it.

So it's not going to be that we have to have a solid order book in order to make the commitment. We didn't really have a solid complete order book when we made the commitment to put the second plant in Vietnam. We just knew that the indications from what we were seeing and how we were positioned in the marketplace, especially with transition to 6 and so it's the right thing to do. So Tymen why don’t you reference just in terms of what is the art of the possible around capacity.

Tymen deJong

So we always are looking beyond what we currently have. And so, we have options going forward we would go next for the next factory. We need about 18 months to put up a greenfield there, so we do a lot of preplanning ready-to-go in case. And what if-ing and I talked about on the flexibility on the Series 4 but we won't be doubling -- we won't be able to double up in the current timeframe. But you could see something come up in the '21 timeframe quite easily, both from equipment availability as well as what we've got in our scenarios. And then about a factory every year roughly year after that you could do.

Raffi Garabedian

So on storage, as we discussed earlier today, storage is incredible enabler for the better integration of solar into grids, particularly developed grids. So we're a big believer and we're working very hard developing integration technology so we can adopt storage and put it in our plans and provide better product to our customers that works better on grids. But in terms of storage as an adjacency, yes, it's an incredible adjacency for us; it enables market expansion; it enables us to serve our customers better.

The question is what would incent us to jump into that tray. There is an awful lot of investment going into battery technology today all around the world and the clear front runners is lithium-ion battery technology. I don't think we have any aspiration to go head-to-head up against the big guns in that business. Having said that, the requirements for utility scale storage are rather different than the requirements that are driving the overall broader lithium-ion battery industry and so we're watchful. We're looking very, very carefully for effectively what might be considered the cad tel storage, right. So a technology that might be better suited to our application than the mainstream technology. We haven't found such a thing yet but we're keeping our eyes open and if we do see it, we could take such a decision.

Tymen deJong

But we do believe, correct me Raffi, is that the more storage deployed the better it is for PV from an overall industry perspective. So we're very engaged on the integration side of it. So we're there.

Mark Widmar

Yes, I think it also helps just on the thought leadership side. So as we're getting more and more questions, we need to be very smart around and we need to think about how -- what the optimal integration is, what’s the right solution. As we are starting to talk with utilities, especially as they’re moving towards utility own generation, for example, one of the first things are asking about is how do I integrate storage at some point in time, how do we design the plan of the future today to ensure that it can integrate that optimally when I want to make that decision.

And so we needed to be very informed around that. We need to provide thought leadership. We need to -- I look at us have the offer and think about the sourcing around the offer at least initially until we can find if there is the cad tel, the story is out there that would make more sense for our application. But we need to have that capability. It creates the customer intimacy that we are talking about. It gets us to the table sooner.

The nice thing about what we’re seeing right now is that the cost of storage, because of the leverage against EVs and lithium-ion batteries is just declining -- the cost curve is way ahead of anyone’s expectations in terms of where it’s going, which just means it's another enabler that’s going to help us drive more PV.

Stephen Haymore

Okay. That actually is the last question we have time for today. So that concludes our Q&A session. And we’re going to now move on to Mark’s concluding remarks.

Mark Widmar

Okay, thank you. First off, again I would like to thank everyone for showing up. I didn’t realize there’s that much excitement to come to Perrysburg in the first part of December in a 30 mile hour wind. But we all made it and that’s great, I appreciate that. We were worried a little bit last night, whether or not everyone would get in and we just doing the webcast with nobody in the audience. So it’s very excited to have everybody here. Hopefully, you got a lot of great information. We’ll still be around to receive and when we get back in the office, if there’s follow up questions and the like, please feel free to reach out to us, we’ll do our best to address everyone’s questions.

We get a chance to see I think a really amazing work that has been done by this team when you go out and do the plant tour. When you think about one of my first slides, we had an empty shop floor right. The reality is that we didn’t even have this spec, the final spec for the first tool until like February. So we’re clearing out that shop floor before we even finalize all the specs. And then the first tool shows up in January and July and just think about that timeline from July to where we are now when you guys go out there and see the shop floor, I think you’ll be really impressive of what we’ve been able to do.

I don’t have my clicker. You got it? There you go. So solar demand has reached an inflection point we talked about that in my comments. I hope you guys all see that, understand it. George talked about it as well in terms of from utility standpoint. The C&I demand he referenced as well. The number of C&Is, customers that are going 100% renewable, the total volume that he referenced that’s C&I. And again, it’s a sweet spot for us. It’s a place that we played very well in.

We were even getting some C&I customers that are sole-sourcing on our technology just the module. So what they’ve made a decision on, they said look we understand you may not have all the development sites close to where we want the capacity, because I am putting the new data center in particular area. That’s fine. We still want your module we still want your technology. So all the things that I’ve referenced around bankability, viability and long-term relationships, we’re starting to see C&I customers pull their modules through.

I was in another meeting with a C&I customer and the first thing he start talking about is reputational risks and how important it is for them. And they said the same thing. Even though they’re not going to make it a mandate to any of the developers that they work with to use our technology, they’re highly encouraging those developers, to split -- to sole source and spec into our technology. So I think it's going to be a really sweet spot for us that we’ll see last for a number of years through six technology difference. Okay.

I sort of referenced those costs, high synergy, no CapEx it's the best ROIC it's in the industry today. We’re going to continue to leverage that that a point differentiation and point of strength that we need for this company will continue to leverage it from that standpoint. The other thing I hope you all took in when they brought the module in, we said we last told everyone in our last earnings call is that we would not expect to have that first completed module until the end of this year or the beginning of next year. And we’re sitting here being in December and it's already here.

We're continuing to be ahead of schedule. We’re continuing to outperform any of our expectations. That goes back to the confidence and the credibility and the commitments we make on our ability to stand behind them. The other thing that was highlighted around Series 6, so I want to make sure that you all got not only that we pulled Vietnam forward, we added another Vietnam plant. This wasn’t anticipated. So our CapEx next year and our ramp and our start up, part of the reason it's high as it is that we’ve got another plant in the mix that we didn't anticipate.

So there is probably about $100 million of incremental CapEx, something like that than what we originally had envisioned, because we’re moving forward with that and to get more capacity sooner and to leverage the full strength and capabilities around Series 6. Strong customer demand, I mean you saw the numbers, you saw the bookings where we are right now. To sell through that far forward, how customers -- none of our customers are going to have the advantage that you all are going to have the advantage on and actually go out, none of them seen that panel, nobody has seen the equipment.

What they have seen is some really good work by folks on our team, some nice PowerPoint presentations, a lot of great engagement with IEs and others. So they can stand behind. But there is also just a strong belief and commitment to first solar and what we were able to do. And so the demand is there and be able to sell that far forward, not only here in the U.S. but globally. We all are going to continue to certify and pass to get as much capacity out as soon as we can -- there are near term constrains, suppliers in one tool vendors really being the major one. And we’ve got to find a way to breakthrough that, if we can’t, we will make sure we get more capacity sooner.

Increased capacity, we basically told you guys we’re adding 4 gigawatts over '18, '19 and '20 from what we had a last represented in terms of the volume over that period of time. We’re adding 4 gigawatts. We’re going to continue to sell through -- continue to run Series 4 through 2020. And just so we have clarity around that Series 4 volume, it is contracted. That Series 4 volume so when we talk about available supply, it's not Series 4. Series 4 is contracted to that horizon. Okay, like this is that great level of confidence continuing to run that production, because it is fully contract.

In terms of OpEx and scaling, we talked a lot about that. Hopefully you guys understand and how we can manage our cost structures. And the other component of value creation and depreciation relative to our [technical difficulty] highlighted. I mean, it may have seemed odd that I said -- started off the discussion is, is solar an investible sector in the industry. You're probably all saying, well, why did you're getting, now you're trying to tell me the question is, is it investible. I do think there’s some serious issues and challenges within this industry that as an investors has to be well understood. And what we try to do is highlight why there is points differentiation and why our business model is different that should give you a compelling investment thesis. That can drive economies of scale and still drive attractive returns through differentiation.

That's it for today, at least for now. Now, you guys get to go out and play the sandbox that we all have the advantage of going on and play in as well. Hopefully you enjoy it. I'll let Steve, he’ll take it from here. Thank you very much.

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