Oct. 26 (Bloomberg) -- First Solar Inc. climbed after its chairman and founder took control of the company and announced plans to expand sales and limit capital spending to survive a global slump in demand and prices.
First Solar rose 6.6 percent to $46.11 in New York. The shares have fallen 65 percent this year.
Michael Ahearn, 54, was named interim chief executive officer of the world’s biggest thin-film solar company yesterday, firing CEO Rob Gillette. The company slashed sales and profit expectations for 2011 and said in a statement today that the board wanted a shift in strategy after Gillette almost doubled the Tempe, Arizona-based company’s production capacity.
“Ahearn allayed market fears that there was some sort of scandal,” said Alex Morris, an analyst at Raymond James & Associates Inc. in Houston who has a “market perform” rating on the shares. “The guidance cuts are pretty ugly but the shares got hammered yesterday on fears that there was something bigger going on.”
First Solar expects full-year profit of $6.50 to $7.50 a share, down from an Aug. 4 forecast of as much as $9.50. It said sales would be between $3 billion and $3.3 billion, compared with the earlier forecast of $3.6 billion to $3.7 billion.
“The board of directors believes First Solar needed a leadership change to navigate through the industry turmoil,” Ahearn said in the statement. First Solar will reduce 2012 capital spending plans and reallocate its budget to expand sales efforts in “markets worldwide that do not depend on today’s subsidy programs.”
First Solar’s annual production capacity was 1,228 megawatts at the end of 2009, shortly after Gillette was named CEO in October. The company expects to have 2,236 megawatts of capacity at the end of this year, according to a second-quarter company overview.
With demand and prices for solar panels falling, boosting production may have been the wrong strategy, said Paul Leming, an analyst at Ticonderoga Securities LLC in New York. “Rob Gillette made one overwhelmingly bad decision,” Leming said yesterday in an interview. “He made the decision early in his tenure to put the company on an aggressive capacity expansion.”
Gillette, 50, expected demand for solar panels to continue to grow, Leming said. That view is “blowing up in his and the board’s face right now.”
Competing Against Polysilicon
First Solar’s thin-film panels compete against products made from polysilicon, which is rapidly falling in price. The spot price fell 9.1 percent to $37.40 a kilogram in the week ended Oct. 24, and has dropped 19 percent since the start of the month, according to data compiled by Bloomberg New Energy Finance. That decline is also driving down the price of solar panels made with polysilicon cells.
The falling price of silicon makes First Solar an unlikely takeover target, said Theodore O’Neill, an analyst at Wunderlich Securities Inc. in New York. The company’s technology “is barely competitive with silicon solar cells,” he said in an e-mail. “They make super cheap, very inefficient solar panels. Everyone else makes cheap, very efficient solar panels.”
Jim Chanos, a short-seller who predicted the collapse of Enron Corp., said in May that First Solar is falling behind. The company has “first-generation technology, where we’ve already moved down to second,” he said at a conference.
Thin-film panels typically convert less of the energy in sunlight into electricity than polysilicon ones. First Solar’s average conversion efficiency was 11.7 percent in the second quarter. SunPower Corp.’s polysilicon panels are the world’s most efficient in commercial production, with a conversion rate of about 22 percent.
Gillette is the third high-level First Solar executive to leave this year. The company’s president of operations Bruce Sohn stepped down in April and wasn’t replaced. And last month Jens Meyerhoff, president of its utility systems unit, departed.
First Solar received government backing for three projects it’s developing that use its panels. It sold all of them after it got $3.1 billion in loan guarantees under the same U.S. Energy Department that supported the failed solar panel maker Solyndra LLC.
Its 290-megawatt Agua Caliente project in Arizona, which it sold to NRG Energy Inc., received a $967 million guarantee in August.
The company received two other guarantees Sept. 30, the day the program ended, for projects in California. Its 230-megawatt Antelope Valley Solar Ranch 1 project in Los Angeles County received a $646 million guarantee and was sold to Exelon Corp.
NextEra Inc. and General Electric Co. bought the 550-megawatt Desert Sunlight project in Riverside County after it received a $1.46 billion guarantee.
First Solar said Sept. 22 that its 550-megawatt Topaz Solar Farm in California wouldn’t get a $1.9 billion guarantee that had been conditionally approved because it couldn’t meet certain conditions by the Sept. 30 deadline. The company is seeking a buyer for Topaz.
The company’s pipeline of projects under development will be a “strong earnings buffer,” Sanjay Shrestha, an analyst at Lazard Capital Markets in New York, said yesterday in a research note.
“The industry sees First Solar’s project development as one of the most successful,” said Jenny Chase, solar analyst at Bloomberg New Energy Finance.
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