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First Solar Capitulates, Sort Of

First Solar will have to focus on its project pipeline business and return on capital to investors, and not the go-go momentum past of solar, in which one fat quarter from Italy could prop up gross margins for the industry. Nothing new there, either, and of course, that's a self-serving argument too, which can make First Solar look better positioned than the Chinese solar industry. The First Solar project business has always been about being "better insulated" than the Chinese.

"I think this was definitely a clear-the-deck call, and I don't expect additional clear-the-deck calls, and they focused on the structural changes that will create a long-term sustainable business," said Paul Clegg, analyst at Mizuho Securities. "The only way to survive in solar is sustainable markets and pulling back from high-efficiency rooftop. But everyone also thought (interim CEO Mike) Ahearn would do something negative, and by negative I mean cautious. He has every incentive to set the bar low," said Clegg.

Ahearn, who recently stepped back into the role as interim CEO of First Solar, had a history when he was the company's first CEO of setting expectations very low and then smashing earnings estimates.

The First Solar guide was in fact so much lower than expectations that it suggests a major project could be pushed out to 2013 or beyond and that sets up the most fundamental question about First Solar: what is the value of the project business? If that's not the case, though, and the earnings not expected suddenly materialize, First Solar is once again setting itself up to impress the market.

And there's the rub for investors. First Solar could rally during 2012 if it is able to pull in earnings from major projects that it excluded from its current guidance, but that's not "sustainable earnings." It's earnings from a type of high-priced PPA (power purchase agreement with a utility) that even First Solar acknowledged is also going the way of the dinosaur.

"Next year will continue to be really tough for solar and for First Solar any positive data point around the cost structure or pipeline, if they can outperform on either, there is room for the stock to move because they set the bar low," Clegg said.

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