After a year of nothing but bad news, First Solar (NAS: FSLR) is starting off 2012 on the right foot. The stock has benefited from increased demand in Germany and projections that China's solar market may be even larger than the 3 GW originally expected. But on the strategic front, the company is taking steps to increase efficiency and close the gap setting it apart from more efficient silicon-based module manufacturers.

Record setting effort
The National Renewable Energy Lab confirmed that a CdTe module made on production equipment in Ohio recently reached 14.4% total area efficiency. This compares with the company's expectation of 12.7% efficient modules in the fourth quarter and is a huge step closer to the efficiency of standard modules.

First Solar is still far behind industry leader SunPower (NAS: SPWR) , which has modules that are more than 20% efficient, but it still holds a wide lead in cost per watt.

I've said that First Solar is falling behind strategically because as module prices fall, the company's lower-efficiency modules lead to higher balance-of-system costs and a dwindling competitive advantage. Chinese firms like LDK Solar (NYS: LDK) , JA Solar (NAS: JASO) , and Renesola (NYS: SOL) , which are desperately trying to unload modules, are now selling at close to $1 per watt, and with higher efficiency than First Solar, they have an advantage unless First Solar can quickly increase efficiency.

Roadmap going forward
It will be a while until First Solar brings a module near 14.4% efficiency into full-scale production. The company's module efficiency roadmap doesn't reach that level until at least 2014. By then, silicon-based modules will likely also be more efficient, so it's unknown whether First Solar is really catching up or just staying in the game with this new record.

For now, I see this as a slightly positive sight, but if shares continue to bounce higher, I might take the opportunity to move my money into a company with more efficient modules.

Interested in reading more about First Solar? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

At the time this article was published Fool contributor Travis Hoium owns shares of First Solar, SunPower, and has sold puts in SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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