First Solar Loses a Few Fans

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Three months ago, the big news out of First Solar (Nasdaq: FSLR) was that the company, in defense of its prized German turf, would introduce a rebate program in the country. Did these rebates make a big impact on third-quarter results?

The answer to that is a resounding "maybe." As with SunPower (Nasdaq: SPWRA) and its high-performance panels, demand for First Solar's thin-film wares was unquestionably strong in the quarter, with the company shipping every module it produced. Management noted that "the rebate program combined with the market dynamics is facilitating throughput." What are these dynamics? One is that the third quarter is a strong seasonal demand period in Germany. On top of this, there are concerns that the country's newly elected government with slash its generous solar subsidy program. That's arguably pulling demand into 2009.

As for the quarterly numbers, First Solar suffered from a glaring miss on the top line. $58 million in revenue couldn't be booked on a project in Canada because Enbridge (NYSE: ENB) didn't acquire the 20-megawatt project (part of the OptiSolar pipeline) until October 2nd. This is a matter of timing only, which suggests that yesterday's sell-off was an overreaction. Still, this event does highlight how First Solar's results have gotten lumpier and less predictable as the company has moved more heavily into the project management business. Coming from the aerospace world, First Solar's new CEO should be used to taking some lumps.

Looking beyond revenue, the German rebate brought gross margins down a few pegs, to 50.9% (down from 56.7% last quarter). As I said last time out, "the solar shop has a good bit of leeway in this little price war" thanks to profitability that's tracking well ahead of the firm's long-term goal. That remains the case. If anyone sold the stock yesterday on account of margin declines, they need to revisit the firm's analyst day presentation.

While far from being a snorting bull on solar stocks, I'm still surprised to see top shops being dealt with so savagely in this otherwise feel-good earnings season. I'm curious to see how Mr. Market will treat the results of Trina Solar (NYSE: TSL), Yingli Green Energy (NYSE: YGE), and Suntech Power (NYSE: STP) when that trio of leading Chinese solar outfits rolls out their respective results.