First Solar slides on concerns over product reliability

Fri Oct 5, 2012 2:03pm EDT

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(Reuters) - Shares of First Solar Inc (FSLR.O) fell sharply after a brokerage downgraded the stock, citing product quality issues that were later confirmed by the company.

The issue came to light when Avian Securities LLC said problems related to the junction box on some of First Solar's panels could potentially cause electrical shock or fire.

A spokesman for First Solar, the largest U.S. solar panel maker, confirmed the problem but said it would not have a significant impact on earnings.

Shares of the company, valued at about $1.96 billion as of Thursday, fell more than 11 percent to $19.68 on the Nasdaq on Friday.

"First Solar has determined there are approximately 232,000 modules in the field, manufactured between October 2008 and June 2009, which may over time develop a loose cord plate attachment," spokesman Ted Meyer said in an email.

"We know the serial numbers of the affected modules and are working proactively with the system owners to repair or replace the affected modules consistent with our warranty."

Avian Securities downgraded the stock to "negative" from "positive," and said it is downgrading the rating until it can assess the financial exposure due to the warranty claims.

"One of the greatest risks to investing in shares of First Solar is the real (or perceived) durability and reliability of its product," Avian analyst Mark Bachman wrote in a note.

First Solar took a charge of $164 million in the fourth quarter for warranty payments to replace equipment that caused power loss in certain panels.

Shares of other solar companies such as Trina Solar Ltd (TSL.N), Suntech Power Holdings Co Ltd STP.N and JA Solar Holdings Co Ltd (JASO.O) also fell on Friday.

Raymond James analysts wrote in a note that they were negative on all solar module makers because of a product glut.

"The industry's massive overcapacity continues with virtually no prospect for a near-term reversal - either via meaningful supply-side rationalization or a sudden jump in global demand," analysts Pavel Molchanov and Alex Morris wrote.

(Reporting by Sunayan Bhattacharjee in Bangalore and Nichola Groom in Los Angeles; Editing by Supriya Kurane)

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