First Solar Inc. (FSLR) a Victim of European Debt Crisis
The company expects both sales and profits to be well below analyst estimates.
FSLR now expects net sales of $2.8 billion to $2.9 billion in 2011. Only two months ago, the company forecast sales of $3 billion to $3.3 billion meaning that the situation at the company has deteriorated rapidly.
In addition, FSLR sees earnings per share for 2011 at $5.75 to $6. This is a major cut to guidance as the company previously forecast earnings of $6.50 to $7.50 per share.
For 2012, the news is even worse. FSLR is forecasting earnings per share of $3.75 to $4.25 on net sales of $3.7 to $4 billion.
In the spring of 2011, Jim Chanos revealed a short position of FSLR when shares traded at $140. Shares now trade for $33 as his thesis has largely played out.
In a way, FSLR was a roundabout way to bet against the European debt situation. As European governments were forced to implement austerity measures, solar subsidies were the first to go. As short sellers like Chanos were precluded from shorting many European banks (due to a short selling ban), shorting FSLR was an effective strategy.
The lesson for investors should be to be careful with industries that depend on government largesse. As the deleveraging cycle continues, a number of companies from infrastructure to telecom may experience negative growth rates in their revenues generated from government spending.