First Solar Capitulates, Sort Of

(First Solar story updated for commentary from Ticonderoga Securities, Maxim Group)

NEW YORK ( TheStreet) -- First Solar ( FSLR) made it clear in its 2012 guidance call on Wednesday morning that the crisis in the solar industry is existential. That shouldn't have been news to anyone who follows the solar sector, and the 20% drop in First Solar shares to its lowest share price since its early days shouldn't be a surprise either -- in fact, with First Solar down to under $35 on Wednesday it was in range of a "target" that we recently set for the stock.

But what did First Solar really tell us Wednesday, when it guided to 2012 earnings so low that they even surprised noted First Solar bear Gordon Johnson?

There are important questions for investors trying to read between the lines of the First Solar commentary: Did the company just capitulate to reality, that it will never again be able to sell solar panels on the open market profitably? Will it become a project developer only, with a multiple of an industrial stock the best that it can ever again expect to command from the market?

Yes, and no. First Solar also set the earnings bar so low next year that it has set itself up for a huge beat as well. This could -- in classic First Solar fashion -- send shares back up after this bottoming-out, which probably is the "expectation reset" from which it won't fall much lower in the short-term.

First Solar isn't going to be operating in the rooftop market, the subsidized European market that made every company a fat cat over the past few years, likely ever again.

Subsidized markets are more or less over, with overcapacity so extreme in solar that any company reliant on subsidized solar is going the way of the dinosaur (if and when the Chinese government decides to call them on their cheap bank debt).

None of this should be news to anyone, either, but this call was First Solar's official capitulation to this reality. It's the difference between a classic First Solar investor presentation Powerpoint slide that we once mocked because it showed a more or less straight line up from subsidized markets to "transitional" markets and finally sustainable markets, to today admitting that the "transitional market" phase is just a "phase of desperation" for everyone.

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