UPDATE 1-First Solar sees lower costs from Malaysian plant

(Adds background on output, costs, comment on tellurium)

NEW YORK, Feb 20 (Reuters) - Thin-film solar maker First Solar (FSLR.O) expects its new plant in Malaysia to cut production costs by about 20 cents per watt when it comes on line later this year.

"As we're moving to Malaysia, I think our models imply a 20 cent cost-per-watt reduction," Jens Meyerhoff, First Solar chief financial officer, told a Piper Jaffray investment conference.

First Solar has said its production costs in the fourth quarter fell to $1.12 per watt, down from $1.29 at the beginning of 2007.

The company currently has production plants in Ohio and Germany.

"We have not really benefited from any low-cost manufacturing (but) with Malaysia coming up, we expect to take advantage of (that)," Meyerhoff said.

The company expects the first production lines in Malaysia to come on line later this year, with the remaining three fully operational by the end of 2009, bringing First Solar's output capacity to 1 gigawatt per year.

Profit margins, however, will shrink in the first half of 2008 as the company increases spending to start up its Malaysian production.

First Solar has been the darling of the solar sector, and its shares posted an eight-fold increase in 2007.

The shares have suffered in 2008, shedding about one-third of their value, before recovering last week when the company posted better-than-expected fourth-quarter earnings.

The company's reliance on cadmium telluride rather than silicon for its solar cells has helped protect it from rising costs that have hurt other solar equipment makers.

Meyerhoff dismissed concerns by some analysts who have questioned whether the world's supplies of tellurium, one of the planet's rarest elements, would be ample enough to feed First Solar's new production.

"Tellurium availability has not impacted us. As we're building out this capacity, we're assessing supply chain readiness ... we feel comfortable with the supply," he said. (Reporting by Matt Daily, editing by Gerald E. McCormick and Maureen Bavdek)