Image source: Getty Images.

First Solar (NASDAQ:FSLR) continues to execute on its solar business and invest in technology that will keep it relevant for years to come. But the road ahead is still rocky -- 2017 is expected to be a slow year for demand, and equipment upgrades will weigh on results.

For Foolish investors, who keep an eye on the long term, this is still one of the best positioned companies in the solar industry. Here's what you need to know about Wednesday's second-quarter earnings release.

Chugging along

Revenue in the second quarter was $934 million, while GAAP net income was $13.4 million, or $0.13 per share. That includes restructuring charges of $86 million from shutting down TetraSun, which I'll cover below. Without those one-time charges, earnings would have been $0.87 per share.  

Because of accounting rules, the results also don't include $20 million in profit from the sale of the Kingbird project to 8point3 Energy Partners. That profit will be recognized over the course of the project's life, which will become the norm for these type of sales, even though the full cash sale occurred during the quarter.  

Solar industry results can be lumpy quarter to quarter, so one metric I think investors should watch is full-year guidance. First Solar management kept net sales expectations unchanged, but increased non-GAAP earnings guidance (excluding the TetraSun writedown) from a $4.10 to $4.50 range to a $4.20 to $4.50 range. That's a small bump, but it shows that the business is performing on the higher end of what management expected for the year. That's the good news. 

Image source: Getty Images.

Giving up on silicon technology

As I mentioned, the results included an $86 million write-down of TetraSun assets. This was a company First Solar acquired to move into the production of high-efficiency silicon based solar panels. However, First Solar's own technology improvements rendered that tech unnecessary, so the company moved away from the product.

Between them, TetraSun and other restructuring charges will cost the company $105 million to $120 million in 2016. But these moves are expected to save it between $60 million and $80 million annually, so they will actually help the bottom line long term.

The calm before the storm

It's not a surprise that 2016 is going well for First Solar, since it knew where it was going to sell or install most of its production coming into the year. SunPower (NASDAQ:SPWR) has told a similar story about the strength of its business this year, so it's predictable that profits will be strong. But 2017 will be another story.

The extension of the solar investment tax credit late in 2016 came so late that utilities didn't bid out many projects for 2017. On top of that, international markets that are currently bidding out projects are looking for installations in 2018 and beyond. The result is a demand gap in 2017 that won't be easy to bridge.

Whereas competitors like SunPower, which has exposure to residential, commercial, and utility-scale solar, can move into markets with shorter lead times, like rooftop solar, First Solar is nearly 100% exposed to the long-lead-time utility market. This means that dynamics that will hurt solar in 2017 will be especially painful for First Solar. 

The other challenge facing First Solar is its production shift from its Series 4 panels to the new Series 5, which has a more integrated and modular design that will allow First Solar to generate more value selling panels and components, rather than just the panels. But the changeover process will run through the rest of 2016 and through 2017. Once it's complete, sales per watt and margins will likely expand, but it'll be a slow, 18-month process, and in the meantime, margins will be relatively weak.

The long game versus the unknown

Investors looking for confidence or answers about what's going to happen in 2017 likely came away a little disappointed with the second quarter report. It's going to be a rough year for First Solar before the company can enjoy the improvements coming from Series 5 and the forecast growth of solar in 2018 and beyond. For investors who have their eyes on the decade-long picture for First Solar, I think the company is very well positioned. But that doesn't mean there won't be challenges along the way, so prepare for some volatility in operations until the company's investments in the future really start paying off.

Based on the 10% drop in shares after the earnings report, the next chapter in that long-term story isn't something the market is willing to wait for with First Solar. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.