In its first-quarter earnings release, Solarfun Power (NASDAQ:SOLF) took a classic bad news / good news approach.

The bad news isn't news at all if you've followed my coverage of solar earnings this season. SunPower (NASDAQ:SPWRA) (NASDAQ:SPWRB) started off the slumpfest, and Energy Conversion Devices (NASDAQ:ENER) showed no sign of green shoots. Solarfun told us what we already knew: There's both an inventory glut and "industry-wide module production overcapacity," prices are falling, and project financing is frozen.

To quantify the bad news a bit, Solarfun's average sales price (ASP) fell 17.5% sequentially to $2.78 per watt. Solar module shipments fell 25% sequentially to 35.7 megawatts. That's a touch better than guidance, but there were only a few days remaining in the quarter when that guidance was issued, so don't get too excited.

Oh, too late. You -- or whoever was buying yesterday -- bid up the stock by 27% in a steamy trading session.

I guess that brings us to the good news. There are a few bits, actually.

First, Solarfun's costs are dropping faster than its ASPs. This is quite different from what's occurring in the oil patch, where service costs are more slowly adjusting to cratered commodity prices. With this rapid cost structure adjustment, Solarfun's already reporting better gross margins than last quarter, and (gross) profitability is poised to plump up further. Management says that gross margins should "approach or reach low double digits for the full year."

Second, polysilicon prepayments have until recently been something of a working capital vortex for PV players like Trina Solar (NYSE:TSL) and JA Solar (NASDAQ:JASO). Solarfun had previously said it would need to commit about $70 million to supplier advances this year. Now that poly is suddenly cheap and abundant, suppliers have lost this leverage, and that $70 million figure will now either be "substantially adjusted or eliminated." That is simply huge.

Finally, in Solarfun's judgment, the first quarter should mark the low point in demand for the solar industry as a whole. The company expects its own shipment volumes to improve by at least 15% to 20% in the second quarter and is optimistic about demand returning in the back half of the year.

While other solar companies like First Solar (NASDAQ:FSLR) have spoken of prosperity returning at some undefined point in the future, I think investors are responding positively to Solarfun's more palpable improvements.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.