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First Solar Reaches Record Low as Analyst Questions Model

First Solar Inc., the world’s largest maker of thin-film solar panels, fell to an all-time low after a Maxim Group LLC analyst said its business model is unsustainable.

First Solar dropped 6.8 percent to $19.25 at the close in New York, the lowest since its November 2006 initial public offering.

The company’s thin-film solar panels convert less of the energy in sunlight into electricity and are typically less expensive than competing products made from polysilicon. First Solar’s pricing advantage “evaporated” as polysilicon costs fell 69 percent in the past year, Aaron Chew, an analyst with Maxim in New York, said today in a research note.

“We believe it has entirely lost its competitive edge,” Chew said.

“The bull case for First Solar now rests solely on hope, not reality,” and the company “needs a wholesale change in business model and valuation,” he said.

Shares of the Tempe, Arizona-based panel manufacturer gained 10 percent on April 17, the most since Jan. 27, after it announced plans to eliminate 30 percent of its workforce, close a factory in Germany and cut production at another plant in Malaysia.

“I think there’s some hope that the restructuring will help, but the simple fact is that $20 poly is here to stay,” Chew said today in a phone interview. “What has to happen is, they’re bailed out by a company like Total SA, or they figure out some miraculous way to bring down cost-per-watt even further.”

Polysilicon Prices

Polysilicon sells for $24.27 a kilogram now, down from $78.46 in April 2011. Prices reached $475 a kilogram in 2008. Chew said prices will probably stabilize below $20.

Cost savings associated with the restructuring will reduce First Solar’s manufacturing costs to 70 cents to 72 cents a watt this year, the company said. Next year, First Solar expects to produce its cadmium-telluride panels for 60 cents to 64 cents a watt. Competitors already can produce polysilicon panels for 65 cents a watt, Chew said.

“With its manufacturing edge lost and its capacity cut, we believe First Solar has begun its transition from manufacturing to project development,” Chew wrote in the note.

If the company were to announce such a change to its business model, “the stock would halve in a second,” Chew said in an interview. He cut his rating for First Solar to to sell from hold and reduced his 12-month price target to $9.

Alan Bernheimer, a First Solar spokesman, declined to comment today.

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