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Solar stocks go red as equipment maker warns

Energy Conversion Devices announces layoffs and a production slowdown amid a worsening climate, sending its shares (along with others) down significantly.

Update at 10:51 a.m. PDT, with analyst comment.

Energy Conversion Devices' shares plummeted 30.3 percent in morning trading on Tuesday, after the solar-equipment maker warned investors that its third-quarter earnings would fall short of earlier projections amid a weakening economic environment.

The company, which issued its warning after the markets closed on Monday, announced that it would cut 70 positions, issue a two-week production stoppage, and consolidate some of its manufacturing facilities. It also erased its third-quarter and fiscal-year forecast, noting that the financial climate had become too murky to predict, sending its stock down as low as $12.85 a share during intraday trading.

The company, which makes thin-film solar-laminate products, said the credit crunch is impacting projects in the global pipeline for photovoltaics.

Other solar stocks fell into the red in morning trading, as investors apparently were spooked by Energy Conversion's announcement and that of Canadian Solar, which reported weaker-than-expected fourth-quarter results Tuesday. SunPower, JA Solar Holdings, Trina Solar, and First Solar were all down in morning trading, while the broader markets moved into the black.

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Canadian Solar was also down, falling as low as 16.2 percent, to $3.25 a share, in intraday trading. It said its fourth-quarter revenues fell nearly 43 percent, to $73 million, from those posted last year. And it reported a net loss of $50.6 million, compared with a net gain of $6 million the previous year.

Shawn Qu, CEO of Canadian Solar, said in a statement:

The end of 2008 was a challenging time for Canadian Solar and for the industry. In Q4, difficult credit conditions for our customers, marketwide module and raw-materials inventory price declines, and winter weather in Germany directly affected our revenue growth and profitability.

The challenging environment for solar companies ironically comes at a time when consumers' awareness of green technology is on a steep rise, and government willingness to help offset the costs is growing.

Wall Street analysts at Jefferies & Co. still remain bullish on Energy Conversion Devices' long-term prospects but are cautious in the near term, according to the analysts' research note:

Energy Conversion Devices is well-positioned to serve a niche rooftop market without substantial direct competition for the coming couple of years, we believe. Yet near-term concerns around demand visibility leave us cautious.

As a result, Jefferies reduced its recommendation to a "hold" from a "buy." And it cut its expectations that Energy Conversion will hit $37 a share in the next 12 months to $15 a share.