Arizona-based solar tech company First Solar (NAS: FSLR) used to be the darling of the industry. In the last year, shares traded as high as $175.45 as First Solar seemed to take the lead in a constantly evolving and potentially groundbreaking field. Now, only a year later, shares have plummeted by over 75% and the stock rests sadly at about $32 per share.
The question is: How much trouble is First Solar actually in?
The initial problems
Despite the global economic collapse of 2008 and the ensuing sovereign debt crisis in Europe, First Solar stood tall. A leading technical innovator and a company that boasted one of the cheapest thin-film semiconductors, it seemed like First Solar would be able to weather any storm.
However, as governments tried to rein in debt, foreign subsidies dried up and solar companies started to feel the impact. First Solar, for instance, derives about 45% of its revenue from Germany and about 15% from France, while Canadian Solar (NAS: CSIQ) derives about 42% of its revenue from Germany and another 17% from Spain. Uncertainty regarding the future of European subsidies obviously made investors nervous about future project potential, and certain stocks started to take a nosedive.
Things just got worse, and worse
And then things got more troublesome. The Chinese government began issuing cash grants, discounts, and other preferential treatment for domestic solar companies in order to maintain competitiveness. The three biggest Chinese companies by market cap -- Yingli Green Energy (NYS: YGE) , Suntech Power (NYS: STP) , and Trina Solar (NYS: TSL) -- no doubt benefited from this treatment. That aside, even Chinese cash inflows couldn't keep shaky investors from selling shares -- all three companies have also seen their shares crushed in the last year.
The problem is that there is an oversupply of manufacturers, which has been instigated by both U.S. and foreign encouragement as a way to promote clean energy. At the same time, demand has dried up, and pricing has become merciless because of intense competition. According to investment bank Jeffries, solar panels were going for $1.60 per watt on average a year ago, whereas today they stand between $0.90 and $1.05 per watt.
Undoubtedly, First Solar is starting to feel the heat. While revenue has stayed somewhat steady, gross margins have taken a huge hit, standing at about 55% in 2008 and now clocking in at 42%. Accordingly, net income has dropped and there doesn't necessarily seem to be an end in sight. To make things worse, in the latest earnings call, CEO and Chairman Mike Ahearn said the industry will suffer pricing pressures indefinitely, according to The Wall Street Journal.
Look elsewhere, my friend
I have to admit, I got caught up in the solar industry revolution. I purchased shares of First Solar, which I still own, at what I thought was a pretty reasonable price; now, I'm just staring at red ink. I don't know that the industry, or the company, for that matter, won't rebound -- but be ready to sit for the long haul. If you don't have patience, this company is not for you.
I was speaking yesterday to fellow Fool and Senior Tech Analyst Eric Bleeker about possible other revolutions in the market (ones that could be a bit more sustainable and not propped up by government subsidies would be nice!). He mentioned one company in particular that is poised to pop because of the massive and explosive growth in the mobile industry. This company has its hands in everything that makes mobile possible, from its components to increasingly important patented technology.
If you're interested in learning more about this company, feel free to download our brand-new, FREE special report "The Next Trillion Dollar Revolution." You can get access to it by clicking here, at absolutely no cost.
At the time thisarticle was published Jordan DiPietro owns shares of First Solar.The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.