First Solar Reports Loss as Charges Equal 20% of Market Value

First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, reported a loss in the fourth quarter as panel prices declines and it took charges equal to almost 20 percent of its market value.

The company took a $393 million writedown of goodwill, and spent $60 million for restructuring expenses and $164 million for warranty payments to replace flawed equipment, Tempe, Arizona-based First Solar said yesterday in a statement.

First Solar introduced a manufacturing issue in 2008 that lasted for about a year and caused premature power loss in some panels, leading to warranty claims of $125.8 million in the fourth quarter, or more than half the total spent on the glitch to date. It also put aside $37.8 million to cover future claims.

“The bloom is off the rose,” said Mark Bachman, an analyst at Avian Securities LLC in Boston who has a “neutral” rating on the shares. “These charges about 10 times what they said they were going to be when they first reported the issue.”

The company reported a net loss of $413 million, or $4.74 a share, from net income of $155.9 million, or $1.80 a share, a year earlier, according to the statement. The company was expected to earn $1.02 a share, the average of 18 estimates compiled by Bloomberg. Sales rose to $660 million from $609.8 million.

Panel Failures

First Solar increased the amount it sets aside for warranty claims by 1 percent to reflect potentially higher failure rates in hot climates, Chief Financial Officer Mark Widmar said during a conference call with analysts. “As our geographic mix of sales has shifted to hot climates we increased our warranty accrual,” Widmar said.

First Solar’s pretax writedown of $393 million was mostly to account for the value of project developers it purchased. Excluding these expenses, the company’s profit was $1.26 a share.

First Solar reduced its 2012 forecast. It expects to report sales of $3.5 billion to $3.8 billion, compared with a December forecast of $3.7 billion to $4 billion.

Solar panel prices decreased 50 percent last year as a global glut increased competition and governments from Germany to the U.S. reduced incentives for renewable energy. In response, First Solar lowered its sales forecast, production and capital spending plans, and ousted its chief executive officer.

“The German plan to accelerate and deepen cuts suggests flat 2012 worldwide demand and continued pricing pressure,” Rob Stone, an analyst at Cowen & Co. in Boston, said in a note to clients. He reduced First Solar’s rating to “neutral” from “outperform” partly because of the incentive reductions planned by Germany, the largest solar market.

Declining Shares

The statement was released after the close of regular U.S. trading yesterday. First Solar rose less than 1 percent to $36.40 at the close in New York, giving it a market value of almost $3.15 billion. The shares have dropped 75 percent in the past year.

During the fourth quarter, Chairman and interim CEO Michael Ahearn sold its $2 billion Topaz solar plant to MidAmerican Energy Holdings Co., a unit of Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A)

He also closed a research project in Santa Clara, California, that was developing solar modules using copper- indium-gallium-selenide, or CIGS, technology and fired 100 workers.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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