There was also a report in energy industry trade publication
on Monday that First Solar's deal to sell its Topaz project to
had fallen apart. In September, when First Solar announced that the Topaz project would not receive a federal loan guarantee, the company said it was in negotiations with a buyer with a low cost of capital -- effectively implying that it would be able to find a buyer for the project for whom the lack of a federal loan guarantee would not be a hindrance. A higher cost of capital -- more expensive debt financing -- means that First Solar has to sell the project for less (if it can find a buyer) and that hits its bottom line directly over a period of years. Topaz represents 6% of First Solar revenue next year, according to Stifel.
Johnson stressed that his accounting read of Gillette's departure was pure speculation, but given the proximity of earnings and sudden departure of the CEO -- and the history of accounting issues noted by the SEC -- it was logical speculation that couldn't be avoided without an explanation for Gillette's departure from the company.
There had already been chatter within the industry at the time that Meyerhoff departed that Gillette had him removed, reportedly because of a disagreement, potentially over accounting practices, and even disparaging comments made by Meyerhoff about Gillette. Related to this, one against-the-grain read of Ahearn's insider selling in recent years is that he sold his insider shares heavily because he didn't have confidence in Gillette to run the solar company and increase share value, as opposed to "having no skin in the game." Though again, this was the type of speculation that was flying on Tuesday afternoon as a result of the lack of actual information from First Solar to explain the situation adequately.
The company can use as cover the fact that it is technically in an earnings quiet period, though as detailed previously on
, First Solar
picks and chooses
when it wants to talk to analysts on Wall Street, and not always based on a strict reading of market disclosure regulations.
Given that the company disclosed the news during market trading -- a rare event -- and in a tersely worded statement, and three hours later announced its earnings date for the third quarter, solar analysts speculated that this was no amicable split, and furthermore, that a disagreement over accounting practices, and Gillette potentially not being willing to sign off on financials, was as good a theory as any to go with.
In any event, and even without firm explanations for either Meyerhoff or Gillette's departure, Johnson said there is no positive way to spin the fact that First Solar's CEO is leaving shortly after its former CFO and head of the company's most important business left. In fact, if there was a disagreement between the two officials, which Johnson said he could not confirm, the fact that both are now gone only makes the departures more troubling.
Even without speculating on accounting issues or management in-fighting, the fundamentals in the solar sector and at First Solar remain weak, and a guide-down when the company does report earnings is expected by analysts, as the core module business is suffering and the Topaz project, included in current earnings models, has yet to be sold. Aside from the sales that First Solar already has in the large-scale project market, the open market module sales business is expected by several bearish analysts to be operating at a loss, possibly as soon as this quarter.
As the price of polysilicon has plummeted and continues to plummet -- the raw material of crystalline silicon solar panels that are First Solar's main rival and made by many Chinese solar companies -- the company, which has used a rebate program to keep customers, can't effectively compete in the open market. In fact, even before things turned extremely bad for the solar industry, First Solar implemented its rebate program scheduled for 2011 in the last quarter of 2010. The price free fall in polysilicon wasn't even a major issue at the time of that decision.
Contracts that First Solar had signed with open market module customers in 2006 are rolling off next year too, and have represented a sizable portion of First Solar sales. With crystalline silicon panels recently hitting a $1 per watt sales price -- an event once considered "unfathomable" for 2011 pricing -- and Chinese rivals offering higher efficiency than First Solar, Johnson of Axiom Capital said there is no reason why First Solar's slide from $150 to $55 would be the bottoming out point.
And in light of that, and without more information, Gillette could have simply joined the parade of First Solar executives who don't want to stay on a "sinking ship," or so one of the main short seller's theses goes.
First Solar shorts have always maintained that while the company is viewed as a technology and cost leader in a growing sector by the bulls, they are in fact becoming a high cost producer in an undifferentiated business with massive overcapacity, and insiders have been realizing this in increasing numbers.
-- Written by Eric Rosenbaum from New York.
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