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First Solar Addresses the Past, Future Still a Mess

Stocks in this article: FSLR

NEW YORK ( TheStreet) -- The restructuring plan laid out by First Solar (FSLR - Get Report) on Tuesday addresses the market reality that CEO Michael Ahearn encountered last December when he retook control of the solar company. What it can't do is provide answers to the critical questions about First Solar's strategy to succeed in coming years.

In making the decision to lay off 2,000 First Solar workers -- 30% of the company's headcount -- and close down both its German operations and less efficient Malaysian manufacturing lines, First Solar merely provided one more reminder of where the solar industry left off at the end of 2011: In a situation defined by excessive capacity worldwide at a time of waning European subsidy markets.

"They are responding to 2011, not addressing what could still happen," said Maxim Group analyst Aaron Chew.

The pricing free-fall has picked up again in solar, and the two most important European markets -- Italy and Germany -- have signaled in solar subsidy scheme revisions that the biggest markets for solar will not exist for much longer. "Today's action can't address that," Chew said. So the First Solar restructuring plan cleans up the mess, but isn't the all-clear signal that a rally in shares might lead some to suggest is happening.

The best way to view this First Solar rally is one more bounce up from the $20 mark, which serves as the new support level for the stock. Last week, First Solar experienced a similar rally but it didn't last.

Analysts wrestling with what to do with First Solar shares now contend that there is really only one metric that counts: Cost per watt. If First Solar is to succeed in coming years, and in unsubsidized markets, the company will have to bring its cost per watt down to 60 cents or below. Maxim's Chew says a cost per watt of 55 cents will be required for First Solar to fend off the competition from Chinese solar companies that will exist, whether in the subsidized markets that First Solar is leaving behind, or the non-subsidized markets of the future.

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