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* Q1 EPS, revenue top Wall Street estimates
* 2011 EPS, sales outlook unchanged
* Stock down 8.4 percent (Adds details, comments from company conference call)
By Nichola Groom
LOS ANGELES, May 3 (Reuters) - First Solar Inc's (FSLR.O) first-quarter profits topped Wall Street expectations and the company stuck to its 2011 outlook, but it warned the solar market would face a tough second half of the year, sending its shares down more than 8 percent.
The world's most valuable solar company said much of its sales and earnings for the year would be pushed into the second half of 2011 due to delays in closing a U.S. Department of Energy loan guarantee for a large Arizona project and subsidy changes in top European markets that are hammering demand and sending panel prices down rapidly.
"That's a significant decline in the immediate term," Wedbush analyst Christine Hersey said, adding that investors had hoped for a bump in the company's 2011 earnings outlook, particularly after topping expectations in the first quarter.
"Tighter industry economics are expected in the second half of 2011, which we believe are largely reflected in our guidance," First Solar Chief Executive Rob Gillette said on a conference call with analysts.
To help offset the impact of incentive pullbacks -- particularly in No. 2 market Italy -- First Solar is expanding aggressively in the United States with some major projects set to break ground this year. The company is building a 290 MW photovoltaic solar power project in Arizona for NRG Energy Inc (NRG.N) and is in the process of securing permits for two 550 MW projects in California.
This year the company is planning 450 MW of projects in North America, mostly in the second half of the year, and has the ability to add another 150 MW, Gillette said.
The company is also expanding its presence in the market for commercial rooftop systems in Europe, as well as investing in small but growing markets such as India, Australia, the Middle East and China.
"Our diversification strategy will enable us to maintain flexibility," Gillette said.
Investors have punished the solar sector in recent weeks as Italian policymakers debated the scale and form of subsidy cuts that will take place this year, bringing the market for new projects to a standstill.
First Solar is among the main suppliers to Italy, with sales to that nation accounting for about 12 to 13 percent of its overall sales last year. [ID:nN0275107]
First Solar shares have slid about 23 percent since hitting a 52-week high in mid-February, and are down 57 percent from an all-time high reached in early 2008.
More than 18 percent of First Solar's outstanding stock was held in a short position as of April 15. Short interest is a gauge of the level of skepticism among investors.
The solar industry relies on government incentives to make electricity created by the sun competitive with sources such as coal and natural gas. Many governments, particularly in Europe, have implemented generous subsidies for solar power in recent years as they seek to reduce their reliance on fossil fuels and combat climate change.
Net income fell 33 percent to $116 million, or $1.33 per share, from $172.3 million, or $2 per share, a year ago. The company said the decline was due to lower selling prices and higher costs.
Wall Street analysts, on average, had been expecting earnings of $1.16 per share, according to Thomson Reuters I/B/E/S.
Sales were largely flat at $567 million, but beat Wall Street analysts' average estimate of $544.37 million.
"I thought the quarter was pretty solid. They had a nice revenue figure and nice performance on the gross margin line even with the pressure we're hearing on pricing," said John Hardy, analyst with Gleacher & Co in New York.
The Tempe, Arizona company reiterated its full-year earnings and sales forecasts, expecting a 2011 profit of $9.25 to $9.75 per share on sales of $3.7 billion to $3.8 billion.
First Solar is creating a pipeline of solar power projects around the world as a channel for its cadmium telluride panels, which are the cheapest in the industry.
First Solar shares were down 8.4 percent at $123.38 in extended trade after closing at $134.66 on the Nasdaq, down $2.87, or 2.1 percent on the day. (Additional reporting by Matt Daily and Edwin Chan; editing by Bernard Orr)