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First Solar debate rages on with blowout quarter

Regardless of how well the cadmium telluride solar-panel maker is liked in the clean-tech world, company is certainly racking up the revenue and profit.

First Solar, the fast-growing maker of a type of solar panel that's a big source of debate among those in the clean-tech world, surprised investors again by reporting revenues and earnings that far exceeded expectations, capping a year of unusually strong growth.

The Phoenix-based company, which uses a material whose cost effectiveness is up for debate, said revenues came to $200.8 million for the fourth quarter of 2007 while net income came to $62.9 million, or 77 cents per share. Analysts had expected revenue of $180 million and earnings per share of 53 cents. For the fourth quarter of 2006, the company reported revenue of $52.7 million and $8 million in net income.

As a result, analysts increased their annual estimates for the company. Morgan Stanley's Dave Edwards, for instance, now expects First Solar to report revenue of $981 million for the year and earnings per share of $2.88, up from revenue of $872 million and earnings per share of $2.30.

For the year, revenue came to $504 million, and net income came to $158.4 million. In 2006, revenue hit $135 million (or $23 million less than profit in 2007) while net income came to $4 million.

The company's stock is trading around $223. A year ago, shares of First Solar were hovering around $33. It went public in late 2006 at $20.

First Solar has both fans and detractors. It is arguably the first thin-film solar panel maker to hit it big. Although it was formally launched in 1999, its technology stretches back to the '80s.

The long gestation period has enabled it to fine-tune its manufacturing processes, a key in the solar world. Rather than work with silicon or copper indium gallium selenide (CIGS), it makes its solar panels from cadmium telluride.

Cadmium telluride solar cells aren't as efficient as silicon ones, but they are cheaper. And, unlike CIGS, cadmium telluride solar cells are in the market. First Solar's management has also landed long-term contracts with suppliers and laid out a road map that will lead to a fairly steady expansion of production capacity.

Detractors, though, assert that the company could be hurt by limited supplies of raw materials in the future and increased competition. Additionally, most of the company's sales have been in Germany, which provides sizable subsidies. The stock is also trading at a high multiple of earnings. (When we dubbed the company the Google of solar, armchair experts poo-poohed it.) But despite the predictions, the company has continued to outsell even the optimistic projections.

Morgan Stanley put a price target of $275 in 2012 on the stock, while pointing out bear and bull scenarios that could take it to $125 or $400, respectively.

The big questions for the future are whether the competitors can match First Solar in manufacturing and how well it can do in expanding overseas.