Lost amid Thursday’s rout in First Solar, Inc. (NASDAQ:FSLR) was an announcement made earlier in the week that FLSR is abandoning the silicon module space.
First Solar stock rebounded nicely after a Wall Street downgrade sparked a 10% decline last Thursday. That’s partly because Friday was an up day for the market and partly because the selloff in Thursday’s session was overdone.
But it’s worth wondering if at least some of the upside was driven by FSLR admitting that its 2013 acquisition of TetraSun wasn’t necessary. At the time, it was intended as a hedge against FSLR’s thin-film technology, but efficiency improvements in the latter made that bet on a different technology unnecessary.
True, FSLR will take a charge of $90 million to $110 million this year because it essentially gave up on TetraSun’s solar panel technology, but the market won’t care. These are non-cash charges. Besides, the Street only cares about adjusted earnings, which strip out such items.
What’s more important is that First Solar continues to find ways to improve its proprietary thin film solar panels. It’s now able to focus all of its efforts into the technology that made the company relevant in the first place. That helps margins and suggests that FSLR’s proprietary tech could offer a long-term competitive advantage.
Don’t Sniff at FSLR’s Cost Savings
First Solar said the move could save the company anywhere from $8 million to $10 million in annual operating costs. No, that’s not a huge sum, but sluggish bookings and a slowdown in demand means any savings are going to become increasingly important to the bottom line.
Even the most bullish analysts have been forced to hit the pause button on First Solar stock. Thursday’s plunge happened because Deutsche Bank downgraded shares to “Hold” from “Buy” amid the headwinds cited above, as well as increased competition.
Faced with such shorter-term pressures, it’s wise for First Solar to double-down on what it does best.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
