Why First Solar's Shares Dropped Today

Why First Solar's Shares Dropped Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of First Solar dropped 14% today after reporting second-quarter earnings.

So what: Revenue dropped 46% to $519.8 million and net income was down 70% to $33.6 million, both well below Wall Street's expectations. To make matters worse, management lowered full-year revenue guidance $200 million to $3.6 billion-$3.8 billion, and cut earnings expectations by $0.50 to $3.50-$4.00.

Now what: First Solar is struggling to stay competitive with a thin-film product that has been passed by more efficient polysilicon-based products. Chinese manufacturers, in particular, are already producing panels at costs lower than First Solar can and the panels are more efficient, which is why First Solar's margins and sales are falling. The company is also missing out on the growing rooftop solar and Japanese markets because its product isn't cost-effective compared to more efficient competition. I think the company will eventually jettison its module business, but it doubled down on it recently by buying GE's thin-film IP this quarter, which I think prolongs the pain that's coming to the company.

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The article Why First Solar's Shares Dropped Today originally appeared on Fool.com.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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