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First Solar Beats on Revenue, Profit But Margins Slump

First Solar (s fslr) — the thin film solar leader and barometer for solar stocks — posted stronger than expected revenue and profit in the final quarter of 2009, defying some of the bearishness that had hounded the stock in recent months and suggesting that the company is navigating its way through a time of rising competition from more efficient solar modules. But weaker margins and unchanged guidance are giving some investors pause.

The company said that revenue in the three months ended December 26, 2009, totaled $641.3 million, up 48 percent from $433.7 million in the same period a year earlier. The revenue figure was also 33 percent higher than revenue in the third quarter of 2009. First Solar posted a net profit of $141.6 million, or $1.65 a share, compared with $1.61 a share a year earlier. Analysts on Wall Street had been looking for revenue of $581.4 million and a net profit of $1.52 a share.

For all of 2009, First Solar’s revenue was $2.07 billion, up 65 from 2009, while net profit was $640.1 million, or $7.53, up from $4.24 a year earlier.

Gross margin fell to 41.5 percent in the fourth quarter of 2009 from 53.9 percent a year earlier as the company offered rebates to
customers in Germany, its largest market, to keep prices of its modules competitive. Operating margin fell to 22.6 percent from 37.2

For the full year in 2010, First Solar said it forecast its revenue to come in between $2.7 billion and $2.9 billion, while net income would reach between $6.05 a share and $6.85 a share. The guidance was unchanged from that delivered by the company in December.

Since late October, when First Solar reported its last – and disappointing – quarterly earnings, the company’s stock price has slumped. After closing at $151.58 on Oct. 28, it reached as low as $109.33 this month, a 28 percent decline. But the stock was erratic
immediately following the earnings release, briefly rising as high as $128.90 and as low as $117.11. First Solar’s stock closed active
trading at $126.29, up 1.7 percent.

In a conference call with analysts, First Solar CEO Robert Gillette outlined positive and negative factors facing the company in 2010. Among the positives were an improvement in project financing and strength in the North American market, particularly with U.S. utilities.

Among the negatives were a decline in demand driven by changes in German feed-in tariffs. In fact, Gillette said that global supply will probably exceed demand in the second half of the year as silicon modules prices continue to decline.

Investors seemed inclined to focus on the negatives. First Solar has been managing the falling module prices well, cutting costs and
pushing up revenue so that it reached the guidance for 2009 it set over a year ago. But investors who once regarded the stock as the
safest in the solar sector, can’t shake their case of First Solar jitters.

Image courtesy of First Solar.

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