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First Solar Glad Not to Be Chinese Solar Company...We'll See

NEW YORK ( TheStreet) -- Here are a few words of caution for investors: It's never a good thing if the only optimism a CEO can muster requires looking out to his company's competitive positioning in 2015.

Here are a few more: It's even worse if the industry in which the company operates is a fast-changing one in which pricing and the supply/demand balance have been anything but rational or predictable.

That's the case with First Solar (FSLR - Get Report) after a conference call Wednesday to discuss its revised outlook, which sent its shares down another 20% to under $35.

First Solar more or less restated the strategic vision it has been chasing for a few years already. As subsidized European markets wane it is better insulated than other companies -- notably the Chinese crystalline silicon players -- because it has bought a large pipeline of utility-scale solar projects into which its modules can be slotted. First Solar may be dead in the rooftop solar market, but the rooftop solar market is on life support anyway, according to First Solar.

First Solar's strategic vision has it reducing costs per watt to the 50-to-54-cent mark by 2015 and adds that the Chinese crystalline silicon players would have to get to the 57-cent cost per watt mark to stay competitive. The implication is that the Chinese can't, but why can't they?

Wunderlich Securities analyst Theodore O'Neill wrote in a note, "In July 2009, FSLR management told analysts that even if traditional silicon makers could get to $1.00/watt (which management said was all but impossible), it would still have a competitively priced product. In today's presentation, FSLR said the new number is now $0.57/watt. What the Street is coming to realize is that it's a moving target."

This year, the Chinese solar industry pushed costs down to near the $1/watt level -- though not making much money in the process as average sales prices hover around $1 because it's a glutted market -- but the point is that the unprecedented decline in pricing which was "impossible to imagine" just a year ago, happened.

Indeed, think of how "well positioned" Solyndra was for the future if only module prices hadn't fallen by 43% in solar within half a year. The problem is, prices throughout the solar supply chain do, and may again, exceed the "best" assumptions about the level and pace of price decline.

First Solar said on Wednesday that its low-cost technology and captive U.S. pipeline will help it remain profitable in a "shrinking structurally oversupplied industry." The company also said that it could continue to play whack-a-mole in subsidized markets or find a different game to play.

This is somewhat misleading. It can't compete in the whack-a-mole subsidized markets against the Chinese: First Solar is capitulating in that arena, where it can only lose money. And it long ago said the other game to play was the large-scale project market, and now says it plans to derive all new sales from sustainable markets by the end of 2014, but what guarantees that the Chinese won't begin to increasingly play that game as well?

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