First Solar Inc cut its 2011 sales and profit forecast for the second time in two months Wednesday and said next year's profits would fall below Wall Street's view, sending its shares tumbling more than 20 percent to their lowest level since 2007.
The company, long the darling of the solar industry, has suffered amid the dramatic drop in the price of solar panels this year that has nearly erased profit margins across the sector.
As its traditional markets in Europe decline as governments there reduce incentives, First Solar said it would seek to sharply cut solar's costs over the next three years as it moves to grow in new regions, such as Asia and the Middle East.
Interim Chief Executive Mike Ahearn told a conference call the company would run its factories at 80 percent of capacity next year and eliminate about 100 jobs as it accelerates its push to make large, utility-scale solar power plants profitable without the subsidies the industry currently relies on.
"I think you can take all these markets that are based on subsidies and picture that as a pool or a pond that is evaporating and drying up," he said.
Moving away from subsidized markets will position the company for decades of growth, he said, and allow it to outrun its Chinese rivals, such as Suntech Power Holdings, Yingli Green Energy Holding and Trina Solar, which have all grown rapidly in recent years.
Still, the company's new profit warning for 2011 — largely due to what it described as weather-related delays for three big projects — and weak forecast for 2012 caught market watchers by surprise.
"The reduced First Solar outlook is indicating a weaker-than-expected Q4 in the global (solar) market," DZ Bank analyst Sven Kuerten said. "In general we see negative read-across for our entire (solar) universe, but particularly for the German competitors SolarWorld and Q-Cells."
First Solar said it now expects 2011 net sales of $2.8 billion to $2.9 billion, down from its October forecast of $3.0 billion to $3.3 billion, and earnings per share for 2011 of $5.75 to $6.00, compared with a previous forecast of $6.50 to $7.50.
The company forecast 2012 earnings per share of $3.75 to $4.25 on net sales of $3.7 billion to $4.0 billion. Analysts' average forecast was $7.40 per share, though estimates varied widely, from about $5.00 to $10.00, according to Thomson Reuters I/B/E/S.
Avian Securities' analyst Mark Bachman said the forecast had dimmed his view of First Solar's shares, the 2012 outlook appeared to be conservative, since the company could receive income from projects it was not currently including in the forecast.
"These revenues and profits could easily be recognized in 2012," he said.
The new 2011 forecast does not include expected charges of about 85 cents per share that the company plans to record as part of its push to accelerate cost reductions and improve efficiency, it said.
Those charges include about 10 cents per share related to layoffs of about 100 employees, about 1.5 percent of its total workforce.
In October, First Solar ousted CEO Robert Gillette as the company struggled to cope with a glut of solar equipment on the global market that has pushed average prices for panels down by about 40 percent this year.
The Tempe, Arizona-based company is the lowest-cost producer of solar modules in the world, but the steep drop in the price of raw materials for its competitors has narrowed its price advantage.
Shares of solar companies across the globe have been battered this year, with most of the module manufacturers suffering share price declines of more than 60 percent.
The industry's reliance on government subsidies to make solar energy competitive with fossil fuels has made it a target for short sellers, who have bet that declining government incentives and the current oversupply of modules would drive down profits and push some companies out of business.
In Germany, shares of First Solar's smaller rival Solon fell nearly 60 percent after the solar maker filed for insolvency, raising fears that more companies there would follow suit.
First Solar's thin film modules use cadmium telluride rather than polysilicon to convert sunlight into electricity. The company has had success in building and selling its large-scale solar plants, including the Sarnia plant in Canada that is currently the world's largest, and it is building several that will be far larger.
Most recently, the company announced plans to sell its 550-megawatt Topaz plant to the utility arm of Warren Buffett's Berkshire Hathaway Inc under a deal that will be financed by the buyer rather than with government loan guarantees.
Shares of First Solar sank more than 20 percent in morning trading to reach $33.98. That brought the shares' decline so far this year to about 74 percent.