The solar jitters are evident today after First Solar (Nasdaq: FSLR) announced quarterly earnings and Italy announced changes to its solar subsidies. After beating analyst's expectations again, First Solar stock is down 5% in trading today. I feel like we've seen this story before.

News from First Solar was mixed, but here are the highlights I took from the release.

Positives:

  • Net income for the quarter was higher than expected at $116.0 million or $1.33 per share. Analysts had expected earnings per share to be $1.16.
  • First Solar reiterated full year earnings guidance of $9.25 to $9.75 per share.
  • Conversion efficiency increased to 11.7%.
  • The company has the flexibility to move 150 megawatts of modules into project developments if sales are soft throughout the year.

Negatives:

  • Cost per watt didn't decline from last quarter -- but did stay constant at $0.75.
  • Gross margin fell 2.9% to 45.8% from last quarter, hurt by falling average sales price.
  • Visibility seems to be getting shorter in Italy and Germany.

The market appears to be reacting to uncertainty again -- but First Solar provides some of the most stable earnings in the industry.

One of the challenges with analyzing manufacturers like First Solar and SunPower (Nasdaq: SPWRA)(Nasdaq: SPWRB) -- which also have project development units -- is the uneven sale of power plants. For example, First Solar expects that only 15% of 2011 sales were made in the first quarter, but the fourth quarter will contain about 40% of sales. The trend is similar for operating income. This partially insulates the companies from drops in demand from places like Italy where manufacturers are having a challenging time selling panels.

Many competitors don't have the same visibility and we already saw LDK Solar (NYSE: LDK) guide lower than they expected internally. There's a likelihood competitors JA Solar (Nasdaq: JASO), Trina Solar (NYSE: TSL), and Yingli Green Energy (NYSE: YGE) will find similarly disappointing results as average sale prices decline.

Foolish bottom line
Decreasing sales prices aren't a surprise in solar, and this has already been priced into shares. But solar manufacturers are in a situation where falling costs are struggling to keep up with falling feed-in tariffs in Europe. Furthermore, new markets like the United States and India are yet to be a significant portion of the market. It will be a turbulent year as the industry eases its reliance on Germany and Italy.

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