February 18, 2010 / 9:26 PM / 10 years ago

UPDATE 3-First Solar profit tops views, outlook disappoints

* Q4 EPS $1.65 tops Wall St view of $1.52

* Revenue jumps 48 pct to $641.3 million

* Shares slip 7 percent as outlook, margins disappoint (Recasts, adds analyst and CEO comments)

By Matt Daily and Poornima Gupta

NEW YORK/SAN FRANCISCO, Feb 18 (Reuters) - First Solar Inc (FSLR.O), the lowest-cost photovoltaic solar manufacturer, posted a higher-than-expected profit, but its shares fell 6 percent as its outlook disappointed and profit margins narrowed.

Investors were disappointed that the company, one of the world’s largest producers of the cells and modules that turn sunlight into electricity, reiterated its forecast for 2010 net sales of $2.7 billion to $2.9 billion and earnings per share of $6.05 to $6.85.

Its shares had rallied in the days ahead of the earnings announcement on hopes the company would give a rosy outlook for 2010 demand.

“There certainly were some positive expectations built in. Also, the gross margin results came in towards the low end of the previously guided range,” said John Hardy, analyst with Broadpoint AmTech.

Net income for the fourth-quarter slipped to $141.6 million, or $1.65 per share, from $153.3 million, or $1.79 per share, in the year-ago quarter. That beat the $1.52 per share expected by analysts on average, according to Thomson Reuters I/B/E/S.

Revenue rose 48 percent to $641.3 million, easily topping analysts’ forecast of $584 million, but gross margin for the fourth quarter fell to 41.5 percent from 50.9 percent in the third quarter.

GERMAN ANGST

Planned cuts to German solar subsidies have cast a gloom across the industry in recent weeks, with analysts and experts predicting that demand in the world’s largest market for the renewable power source could shrink sharply later this year.

Still, sales in Germany, which is also First Solar’s largest market, are likely to jump in the coming weeks as developers move to install new systems before the country’s subsidies are lowered.

First Solar expects about 50 percent of its production volume to go to Germany this year, with the deliveries front loaded into the first half of 2010.

It said the overall outlook for 2010 was positive but the picture in Germany was uncertain.

“The first half is very strong demand. Orders look very strong,” Chief Executive Rob Gillette told a conference call. “The second half, we’ll have to see.”

Gillette said the company expected demand in Germany to be flat this year at about three gigawatts but expects growth in Italy to accelerate in the second half, offsetting some of the drop-off in Germany

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Please see a graphic on Global solar power investment: link.reuters.com/typ98h

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First Solar uses cadmium telluride rather than polysilicon to make its thin film cells, and has the lowest production cost in the industry, although its cells are not as efficient as those made by rivals such at Suntech Power Holdings STP.N and SunPower Corp SPWRA.O.

It reduced its manufacturing costs by a penny to 84 cents per watt during the quarter.

The company is focusing on diversifying its European customer base by developing its business in North America and Asia, especially targeting China, he said.

First Solar’s pipeline includes 1.4 gigawatts for contracted North American systems, Gillett said.

“We believe that some of the challenges that may exist in Germany we have more than offset by the pipeline,” he said.

First Solar’s shares have struggled so far this year, dropping about 7 percent. Last year, the shares shed half their value.

Shares of the company, which gained 1.7 percent during the regular trading session on Nasdaq, fell 7 percent to $117.45 after the earnings report. (Reporting by Matt Daily; Editing by Gary Hill and Steve Orlofsky)

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