First Solar: Knocked Off Course by an Acquisition

Would today’s sell-off of First Solar have happened if the company had managed to bring in the $58 million represented by its Sarnia, Ontario plant during the third quarter, which it just reported? Probably not, but such a small slip shows just how sensitive the market is right now.

First Solar is down over 15 percent in after-market trading as I’m writing, apparently due to just two factors: a drop in gross margins due to lower selling prices for its solar modules, and lower than expected revenue because of Sarnia.

The Sarnia project is one of several that First Solar picked up in its March acquisition of the assets of Optisolar, a competitor that is now non-operational. The Sarnia project has already been sold to Enbridge, but First Solar didn’t complete the sale in time to claim the revenue.

So, no big deal, First Solar’s profit still jumped 54 percent and it can report the Sarnia revenue in the fourth quarter. Except that right now everything is a big deal to solar investors, who are already jumpy from other signs of weakness in the industry. SunPower, for instance, cut its 2009 profit expectations last Friday, though not enough to satisfy analysts.

The looming concern is that all the solar companies will end up jostling for space in a market that won’t grow quickly enough. First Solar’s drop in gross margins from 56.1 percent to 50.1 percent demonstrates that exactly that is happening in the market; the company is having to sell its products for less because of intense competition.

Just don’t expect First Solar and its peers to stay down – or in any fixed position, for that matter. At least until the international community decides how it will respond to climate change – and how much of a place solar will have in the revamping of the energy mix – uncertainty is the name of the game.