Solarfun Power Holdings (SOLF) fourth-quarter earnings release is providing evidence of the travails of the solar panel industry as demand declines, revenues drop and earnings disappear.

Solarfun is a China based integrator of silicon ingots and wafers used in the manufacturing of solar panels. The company is a leading global manufacturer of photovoltaic cells and modules.

Global demand for Solarfun products as well as for products of other firms engaged in the solar panel business has dropped significantly as a consequence of the economic recession. Existing inventories are high, resulting in a diminished value for unsold panels.

For Solarfun, the diminished value of the company’s inventory was a major contributor to the loss reported for the fourth quarter. Prices of finished and delivered products declined over 10%.

The company is projecting an additional drop in prices of 10% to 15% towards the end of 2009 while also reporting a first quarter sales projection of 35 megawatts and a full year sale of over 200 MW.

The ills afflicting Solarfun are being felt throughout the industry. While Solarfun shares have lost 87% of their peak value from the last 52 weeks, other firms have fared equally bad or worse.

At current prices, China Sunenergy (CSUN) has lost about 80% from its peak for the 52 week period, Canadian Solar (CSIQ) has surrendered over 90% LDK Solar (LDK) has dropped 87% and First Solar (FSLR) lost over 60%.

Solarfun Chief Executive Officer Harold Hoskens stated in the earnings release that “…the industry is in transition … to a demand driven environment” and that ” … currently demand is (dramatically) affected by the global economic situation.” Hoskens further observed that funding was tight in the fourth quarter and excess inventories are plaguing most of the global markets.

Solarfun has put its capital expenditure plans on hold “until the demand picture becomes more clear” said Hoskens.

In addition to the demand problems being faced by Solarfun, the company also has substantial debt issues which could affect the company’s viability. The company has relied heavily on the availability of short term borrowings from the Chinese banking system.

While the central bank has been accommodating to Solarfun’s needs, speculation is rampant that the bank is taking a look at the extent to which that accommodation can continue for Solarfun as well as others.

With the miseries piling up for the company, Solarfun has become a very speculative stock and investors need to proceed with caution.

This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.