Generally, other than solar thermal, we have been less than impressed with the “businesses” in the solar (pv/thin film) segment. The products are expensive, the business models opportunistic, and the conversation revolves around which technology is best while other harvest methods leave the segment in the dust. It looks like a bubble, smells like a bubble, and ultimately will be proven to be a bubble.

As with every bubble, there are likely to be a few winners and many losers over the long term. Despite our distaste for the segment, it will over the long-term prosper we believe which means that identifying those likely winners to emerge from the down-cycle of the bubble when it pops is important. While at the Renewable Energy Finance Forum in New York last summer, we believed that we identified one of those companies, First Solar. Lately, the company has been on a tear: currently trading at 10x their January, 2007 IPO price, 3rd quarter revenue tripled Y/Y, and 3rd quarter earnings are up 10.7x Y/Y. The company’s market capitalization now stands at $14.5B and the shares trade at a P/E ratio of 216 trailing twelve months. It’s clear the market has discovered First Solar.

That’s all great information, First Solar is clearly benefiting from stellar performance and also the meta market conditions, why is it a long-term winner? Mike Ahern, the CEO for First Solar won us over with his clarity of vision, simple plan, and aligning the fundamental metrics of execution with compensation. Notice, we said nothing about technology – it is adequate to achieve their aims and future breakthroughs can be applied to the business First Solar is building. The vision is clear: Profitably make commercial concerns energy independent using First Solar products. The market is clear, target commercial entities with access to solar resource where a payback is possible. The execution plan revolves around reducing the price of First Solar’s products by increasing volume and refining the process with specific improvement targets over time. Hint: They’ve already reduced their cost of manufacturing 3x.

Shifting a bit to technology only to highlight a business process, First Solar uses 2’x4′ glass panels coated with a thin chemical film (cadmium-telluride or CdTe) to create their product. They’ve invented a continuous process that enables a single panel to be produced in a 2 hour window as it traverses the manufacturing process. They fully understand the throughput and are continuously monitoring and refining the manufacturing process. In order to produce more product, they start new lines and/or establish new facilities (like Germany and an upcoming Asian location.)

Back to business, Ahern stated that the company executives and staff have goals and are compensated on three key metrics: revenue growth rate, product cost reduction rate, and product volume. The goals and the company’s execution against them to date coupled with pursuing a focused market strategy lead us to believe that First Solar is likely to be a winner in the long-term (though perhaps not at this market capitalization) and will be in a position to lead a consolidation in the solar space when the bubble bursts.

Disclosure: The author maintains a long position in First Solar shares.

This is the third entry in a series on Rebuilding America, what I would like to hear candidates address in the 2008 election. An overview entry was posted a couple of weeks ago and a contextual entry on Core Values was posted last week. This entry will focus on one core issue, concluding the war in Iraq. It is best digested after reading the overview and core values entries.

Yesterday was Veteran’s Day, a time to honor the people who agree to protect our freedom with their blood. They give freely of themselves to protect the greater society, even those who represent ideas they abhor. We owe these citizens respect and honor for their sacrifice. More to the point, we owe these citizens special responsibility to only ask them to serve and sacrifice in special instances where their knowledge, skills, and abilities are required. The use of force is a necessary tool facilitating the intercourse between nations. But it is a costly tool in a number of dimensions and thus must be wielded soberly and selectively. The explicit compact we as a society make with our citizen soldiers revolves around judicious application of force such that it protects and defends our society from imminent threat and that we make the decision to commit their lives when other reasonable measures have been exhausted.

First, a positive example when the compact was honored and the system worked. In 1990 Saddam Hussein led Iraq unilaterally occupied Kuwait. The reasons for Iraq’s actions are not important, the fact is, the Iraqi State chose to exercise force and occupied a neighbor. The community of nations in the region, and the world came together strongly and demanded that the Iraqi State vacate Kuwait. Months of diplomacy, sanctions, and pressure were applied to no avail. When the non-force options were clearly ineffective, the community of nations resolved to use force to rectify the situation all the while maintaining diplomatic pressure. The application of force was advertised well in advance, the demands were clear, and it was the community of nations making the demand, not a single country. In 1991 a multi-lateral force destroyed the Iraqi military capability and liberated Kuwait returning the nation to pre-occupation government.

In this instance, there was a clear, factual cause of action. There was a clear non-force related series of responses from the world community. And finally, there was a common resolve among the international community that force was the only viable alternative. The application of the force was swift, efficient, and effective. Kuwait did not require prolonged occupation by the liberating forces, though significant rebuilding was required. America played a leading role in liberating Kuwait and also in mortally crippling Iraq’s ability to act as an aggressor. America honored its contract with those special citizens who agreed to serve in our military when we chose to the application of force in this specific mission with clear objectives; it was a proud moment in our history.

Fast forward 12 years to 2003. America is still reeling from the shock of the terrorist attacks in 2001 and has rushed to action in Afghanistan. The country is swiftly conquered and occupied. The fundamentalist Islamic terrorist apparatus is banished from the country and flees into Pakistan. Osama bin Laden escapes and continues to send messages to the media about inciting violence toward America and American interests. Obviously, care and attention should be paid to capturing and/or killing these people to prevent further bloodshed even if that means violating Pakistan’s borders to accomplish this mission. Is that where our leadership chooses to exercise force? No, we obviously should go attack Iraq. The reasons for entering Iraq were false. Our leadership knew these reasons were false at the time of communication. Our leadership resorted to use force under false pretenses with no specific mission or clear objectives. In short, we violated the compact with our citizen soldiers by asking them to enter a “no win” situation.

Still, the situation could have turned out OK if the leadership had chosen to withdraw from Iraq after the elections and the adoption of a constitution in June, 2004. Victory could have been declared and assistance could have been provided to the fledgling Iraqi government. Instead, we chose a path of occupation vs. liberation further violating the compact with our citizen soldiers. The terrorist factions, not dealt with in Afghanistan, now see this as an opportunity to bring the point home that America is not behaving consistently with its words. We say we wish to liberate, yet with our actions, we’re showing that we intend to occupy. This is a toxic environment where Iraqis are forced to side with terrorists (some might call them freedom fighters) or occupiers – neither of which provides Iraqis with a stable and secure government. The longer this is playing out, the more segmented the country becomes with regions and ethnic groups opting out of the process and the whole situation is degrading into a civil war of attrition.

Meanwhile, back home, even the most patriotic of Americans has an uneasy feeling that they’ve seen this movie before in the form of Vietnam. Instead of jungles and rice paddies the backdrop is sand, wind, and heat. The public is becoming increasingly uneasy that we’re on the wrong course and dissatisfaction manifests itself in crushing mid-term election losses for the incumbents with promises of change in the present policy. Unfortunately, the losses did not deliver super-majorities to the House and Senate meaning Presidential vetos are still effective in blocking the will of the people from being carried out.

This is the backdrop in which the Presidential candidates find themselves. What are the options for concluding the war in Iraq? The present Administration is on-record stating that a Korea-like model is most likely. That “police action” nominally concluded in 1953 and in 2007 the US still maintains some 50,000 active combat troops in the region. That’s clearly one option, but is it realistic? Is that the least bad option? What are other models for concluding the conflict. The other end of the scale is complete withdraw immediately leaving Iraq to sort this mess out itself. Is that the least bad option? What about asking Iraq’s neighbors to form a support network to help the fledgling government make it through the early days? What about replacing combat troops with a police presence? Fighting terrorism is more akin to fighting the mob than it is some monolithic enemy – what if we’re going about this the wrong way?

What we need to see from the candidate is a concrete plan to bring the conflict to a conclusion that is consistent with and honors the compact we have with our citizen soldiers. We need to see options and we need to select the least bad option and get on with it. With all due respect to the current Administration, the current course is simply wasting citizen’s lives and copious amounts of money to no good end. We need a fresh perspective.

Personally, I believe that if there really is an elected Iraqi government and constitution, we need to give it a chance to work and fail/succeed. We should be providing support for the Iraqis to build the type of country they wish to have (not what we might wish they’d want) and become subservient to that government. We should provide training and police support for some time period and help to rid the nation of foreign nationals. Overt military action and occupation of the country by our forces should now end (and should have ended more than 3 years ago.) I believe this course of action is consistent with our compact with citizen soldiers, honors the spirit of liberation by allowing the liberated to self-determine their future, and fulfills our responsibility for support in allowing that process to transpire.

But, I’m willing to listen to other options and why they might be good. So, candidates, say something. Anything. I’m listening.

Last week Ormat announced a solid quarter with revenues $79.5M, up 2% Y/Y and earnings of $15.8M up 13% Y/Y. Details of the earnings announcement are available in this press release. Dita Bronicki reaffirmed guidance for the year and the quarter and the stock has responded well in the market place. For the year, Ormat is on track to deliver $280M in revenue and around $55M in earnings for 2007.

The equipment business continued to be “lumpy” showing a decrease of 15.8% Y/Y – while the recovered heat product wins seem to be coming in, increased competition in the geothermal heat conversion business could be starting to have an impact. Also, a number of developers we have contact with are not inclined to select Ormat equipment for their projects due to the competitive relationship (some have used the word “predatory”) Ormat has fostered with developers. This bears watching closely, though the electricity segment continues its growth generally as predicted.

A secondary offering of 3.3M shares raised $155M in this quarter, though it is not reflected in the results. This money will be used to further advance the development of new power plants. Also, it is rumored, though not reported that the company may have realized positive results from one of its drilling and exploration programs in Nevada.

At current market cap, $1.89B, Ormat is trading just north of 34 times 2007 earnings.

Notice, the Illinois player was in the air, the ball was in the air. This led to 7 points, the difference in the game. I’m not saying that Illinois wouldn’t have scored another touchdown, but this was a blown call that did affect the outcome of the game. The refs certainly didn’t contribute to the 3 interceptions tossed up by OSU or the run defense being shredded (ok, maybe a little with the absolute mugging of the defensive line, but show me a game where this hasn’t happened this year.)

This was allegedly the same officiating crew that blew the big calls in the Penn St/Purdue game the week before and was punished. It makes you wonder if key figures didn’t stand to gain financially from a poorly officiated game ala the NBA refs. That’s it, I’m not going to talk or think about it again.

Film sucks for politicians these days…much of this is old news, but it is still stunning to view.

It’s always best to see what the characters say in their own words, they’re far more effective than what anyone else could say. Sad. Sad. Sad.