All in all, it’s been a very rough year for American solar makers, and First Solar (FSLR) reflected that today when it lowered its 2011 sales forecast. Markets responded, with First Solar shares plunging some 20 percent in early trading.
FSLR Lower 2011 Sales
The Arizona-based First Solar slashed its 2011 sales predictions to $2.8 billion to $2.9 billion for an EPS of $5.75 to $6.00, down from previous predictions of $3 billion to $3.3 billion for an EPS of $6.50 to $7.50. The company also initiated guidance for 2012 that fell below analyst expectations. First Solar said it anticipated net sales in the range of $3.7 to $4.0 billion, including approximately $1.7 billion from the systems business. This would mean an EPS in the range of $3.75 to $4.25 and consolidated operating income is expected to be $425 to $450 million.
Analysts had been expecting 2012 projections of revenue of $4.1 billion with an EPS of $7.42. The lowered outlook and slashed 2011 forecast all led to First Solar’s already battered shares taking another dive. On the year, First Solar has now lost over 70 percent of its share value as part of an industry-wide slump. The company also announced that its Chief Technologist Markus Beck and other members of his Santa Clara, Calif.-based team would be stepping down as the company shifts its focus.
Lower Prices Cut into Profits
Today’s crash for First Solar similarly hurt stocks across the industry, with SunPower Corporation (SPWR) losing almost 11.5 percent. Chinese solar makers also dropped as Trina Solar Limited (TSL) was down over 9.25 percent, and JA Solar Holdings Co., Ltd. (JASO) dropping over 6.5 percent. The entire solar industry has suffered through a rough 2011 as increased competition from Chinese companies has driven down the price of silicon based solar panels and seriously cut into profits. The Claymore/MAC Global Solar Index (TAN), a solar ETF from Guggenheim Funds, is down over 60 percent year-to-date, and First Solar is just one of many struggling companies. SunPower is also down over 50 percent in 2011, Trina Solar has lost over 70 percent year-to-date, and JA Solar has lost 80 percent over the same period.
New Model for Sustainability in Solar
The primary reason cited for the revision to First Solar’s 2011 numbers were continued project delays related to weather and other factors, and Chairman and Interim CEO Mike Ahearn sees the company as being in a difficult transition to a sustainable business model for the future. In response to the issues of oversupply, the company intends to scale back manufacturing while targeting unsubsidized markets and towards building solar power plants for utilities. “Our diverse business model and robust project pipeline will help First Solar generate a significant amount of cash in 2012 while improving operational efficiencies, but we are recalibrating our business to focus on building and serving sustainable markets rather than pursuing subsidized markets,” said Ahearn. “By channeling our core strength in utility-scale PV systems to markets with immediate need for mass-scale renewable energy our goal is to earn substantially all of our new revenues from sustainable markets by the end of 2014.”
The new strategy appears to be one at least tacitly endorsed by Berkshire Hathaway’s (BRK.A) Warren Buffett, who recently purchased a massive solar plant in California from First Solar for $2 billion. Now, some analysts view the rock-bottom 2012 guidance as a chance for First Solar to rebound its share price by outperforming these expectations next year. Many voices have been anticipating a spate of bankruptcies in the solar industry similar to the very public failure of Solyndra despite its receiving over $500 million in loan guarantees. Ahearn’s stated goal is now to compete directly with conventional power providers, a move that could be geared towards looking forward to a next phase of profitability for the industry. “We don’t think our Chinese competitors [will be able] to get there profitably,” he said.