First Solar (NASDAQ:FSLR) is taking a beating today, its stock off almost 20% thanks to a lowered outlook for 2012, delays in its projects and expensive reorganization plans. That makes First Solar off an ugly 74% so far in 2011 and almost 90% from its 2008 peak.
First Solar isn’t alone, either. Many solar companies are getting hit hard this year — and are running the risk of going dark permanently.
Solar-panel manufacturers face growing questions of viability for a host of reasons, including:
Weak solar demand: Oil prices have once again ticked up to $100 per barrel, but it remains a very expensive task to install solar panels. Energy prices just aren’t high enough to make the switch worthwhile in the short term — besides, many consumers don’t have the extra money, and many businesses are more concerned with preserving capital and staying defensive than winning points for reducing carbon emissions. European nations were some of the biggest buyers of solar panels thanks to rich subsidies and government projects, but obviously debt concerns have squashed that spending.
Rock-bottom solar prices: The irony is that solar panels are more affordable than ever before thanks to low-cost producers in China who have not just moved prices lower, but have saturated the market with too much supply. The result is fire-sale prices on solar panels just to deal with the abundance of inventories.
The Solyndra debacle: The bankrupt company that received more than $500 million in funding from the federal government might be a political football in an election year, but it also is a warning bell for the entire solar industry. More oversight and the elimination of subsidies could squeeze the struggling industry even more.
All this has added up to an ugly outlook from First Solar, the largest U.S. solar cell company and one of the top manufacturers in the world. Earlier in 2011, FSLR reduced its revenue guidance to $3.6 billion to $3.7 billion for this fiscal year. In October, it cut its outlook again to $3 billion to $3.3 billion in total sales on the year. And today, sales projections were lowered yet again to $2.8 billion to $2.9 billion for the fiscal year.
That’s not a good sign.
The challenges at First Solar are shared industry-wide as sales dry up and profits evaporate. Just look at the flop of other solar stocks in both the U.S. and China, and you’ll see that FSLR is not alone in its troubles. The Guggenheim Solar (NYSE:TAN) exchange-traded fund is off 63% so far in 2011 thanks to the ugly performance of its components, which include:
- China’s LDK Solar (NYSE:LDK), off 5% today and 56% since January.
- America’s SunPower (NASDAQ:SPWR), down 9% today and off 55% year-to-date in 2011.
- China’s Suntech Power (NYSE:STP), off 5% today and down 71% in 2011.
So is the sun setting on solar permanently? Probably not. Some folks anticipated this selloff and have held it up as a buying opportunity near the bottom in solar stocks. It’s a risky business to call a bottom, but it’s worth noting that First Solar still is profitable even if LDK, SunPower and STP have trouble staying in the black. Consolidation probably will take place and separate the winners from the losers in this emerging industry — and the best solar companies could come roaring back in a year or two as competitors go under.
Of course, investors have to make sure they pick the winners and not the losers. First Solar could be on Easy Street if it can only stay afloat long enough to outlive its failing competitors … but there’s always the risk that First Solar could be a company that fails, too.
Jeff Reeves is the editor of InvestorPlace.com. Write him at firstname.lastname@example.org, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.