First Solar Shares Drop to Record Low, Can it Stop the Rapid Fall?

First Solar, Inc. (Nasdaq: FSLR), the world's largest maker of thin-film solar panels has seen its value fall to an all-time low today.  At 4:00 PM EST, the company's shares were down 6.78%, trading at $19.25 on the Nasdaq.

It has been a difficult day for U.S. stocks, but for First Solar, one of the day's biggest losers, its problems are much deeper than a singular day of poor trading.  Since January, the company has seen its shares drop 43% in value.

A shining star in the global solar market over the past couple of years, First Solar has devoured thin-film competition; however, its competitive advantage appears to drying up. 

Thin-film solar panels are less efficient at converting sunlight into energy than their polysilicon counter-parts, however, they have historically been cheaper to produce.  The cost of polysilicon has dropped 69% in the past year -- selling for $24.27 per kilogram now, compared to $78.46 in April 2011, which has essentially eliminated First Solar's pricing advantage.

Recognizing a change in the market, First Solar announced a massive restructuring last week.  The new vision will call for the closure of the company's manufacturing facility in Frankfurt, Germany as well as shutting down four production lines at its manufacturing facility in Malaysia.  Additionally, the company will be cutting its global workforce by 2,000 employees -- roughly downsizing First Solar's human resources by 30%.

The savings from these initiatives is expected to be $30-$60 million this year and $80-$120 million annually moving forward. 

In regard to the changes, Mike Ahearn, Chairman and and Interim CEO said, "The solar market has fundamentally changed, and we are quickly adapting our market approach and operations to maintain and build upon our competitive advantage.  After a period of robust growth, First Solar is scaled to operate at higher volumes than currently exist following the reduction of subsidies in key legacy markets."  Ahearn believes the moves will allow the company to focus its resources on developing the markets it expects to be generate long-term growth.

The maneuvers led to an uptick in investor confidence in the company, as shares rose 10% on the day of the announcement.  However, the change was temporary, and one analyst, Aaron Chew with Maxim Group LLC in New York says his firm disagrees with Ahearn and believes First Solar has entirely lost its competitive advantage.

"The bull case for First Solar now rests solely on hope, not reality.  [The company] needs a wholesale change in business model and valuation," Chew said.

On a conference call with reporters, he continued, "I think there's some hope the restructuring will help, but the simple fact is that $20 poly is here to stay.  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.

Chew believes now that it has lost its manufacturing advantage, First Solar will try to shift its business operations toward project development.  He has moved his rating for First Solar from a hold to a sell and reduced his 12-month price target to $9.