First Solar Gets No Love

Shares of First Solar Inc. (NASDAQ: FSLR) are down more than 8% in early trading today following a downgrade from Avian to Negative and a report that one of the components in the company’s solar panels is displaying reliability problems. The worst part of the news is that the problem with the panels’ junction boxes carry a 20-year warranty.

First Solar’s stock price declined so quickly that it triggered Nasdaq’s short-sale circuit breaker.

Other solar makers, particularly those based in China, are getting beaten up as well today, following a story in The New York Times detailing the difficulties facing the Chinese makers due to rapid manufacturing capacity increases. Prices for finished goods have tumbled by 75% in the past couple of years, to the point where negative gross margins are the rule among Chinese makers. One Chinese industry executive told the Times:

The problem lies in the eagerness of Chinese businesses to rush into any new industry that looks attractive and swamp it with investments. Chinese companies and their bankers are then far more reluctant than Western companies to admit defeat for investments that prove unprofitable.

Part of the problem for First Solar is that its thin-film technology was for a long time significantly cheaper than the silicon-based technologies used at competing firms. Now that the competition is selling for the same price (and willing to take the losses), First Solar’s cost advantage has evaporated.

Shares of First Solar are down 8.8% at $20.55 in a 52-week range of $11.43 to $67.72.

Chinese makers Suntech Power Holdings Co. Ltd. (NYSE: STP), LDK Solar Co. Ltd. (NYSE: LDK) and Trina Solar Ltd. (NYSE: TSL) are also being hammered today. Suntech shares are down 4.1% at $0.90 in a 52-week range of $0.71 to $4.40. LDK’s shares are down 3.6% at $1.05 in a 52-week range of $0.99 to $6.92 and Trina’s shares are down 2.9% at $4.66 in a 52-week range of $3.95 to $12.19.

Paul Ausick