First Solar Comes Out With a Thud

Solar's devastating quarter has begun and First Solar (Nasdaq: FSLR  ) kicked it off with a thud. But really, what were we expecting? Demand in Europe came to a screeching halt in the second quarter, sales prices declined, and competition became fiercer than ever.

Net sales were $533 million in the second quarter and earnings per share were just $0.70 as pressure hit everyone in the industry. Management did predict that earnings per share for the year would be $9.00 to $9.50 as system sales and overall demand began to pick up. Here are some of the other highlights for the quarter:

  • Cost per watt is stuck at $0.75 overall, but in Malaysia core costs per watt are just $0.69.
  • Standard balance-of-system costs are down to $0.99 from $1.40 two years ago. As these costs fall, it will help drive First Solar toward grid parity.
  • Systems pipeline of 450 MW in 2011 with ability to increase to 500 MW.
  • India is expected to be greater than 200 MW in 2011. This is extremely fast growth from a country that was hardly on the solar map a few years ago.

With system sales such a big part of companies such as First Solar and SunPower (Nasdaq: SPWRA  ) , it's tough to compare quarters, but there isn't a lot to be smiling about here. If First Solar is having margins squeezed to 36.5% from 48.3% a year ago despite a strong systems pipeline, Chinese manufacturers will feel it even more. Trina Solar (NYSE: TSL  ) , JA Solar (Nasdaq: JASO  ) , and Yingli Green Energy (NYSE: YGE  ) can't adjust panels to project development and will have to lower prices to keep inventory from piling up.

Foolish bottom line
First Solar's management anticipates conditions will improve throughout 2011 and is planning to sell some very large systems developments. As earnings season moves on, I'll be keeping an eye on just what companies are expecting for the rest of the year and how much they've adjusted to the new conditions. In uncertain times for the industry, First Solar is still one of the best bets out there.

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

Fool contributor Travis Hoium owns shares of First Solar, SunPower, and has sold put option in SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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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