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Downward pressure on solar panel prices and profit margins will continue “indefinitely”, Arizona-based First Solar has warned, cutting its earnings guidance again and setting out a strategy for ending its reliance on subsidised markets.

The gloomy outlook, coming from a company that was widely seen as one of the industry’s success stories, reflects expectations that the oversupply of solar panels – caused by heavy investment in production capacity, particularly in China – and cuts to subsidies for solar power in Europe are likely to continue.

First Solar, the world’s largest solar power company by market capitalisation, said earnings would fall short of expectations this year and decline further next year as a result of project delays.

Its shares fell 20 per cent to $34.14 early afternoon in New York. In February, they were briefly over $175.

The profit warning follows an earnings downgrade less than two months ago.

First Solar has been better placed than some companies to withstand the upheavals in the industry, because it not only manufactures thin-film panels but also installs and services large-scale solar power plants, which provide a more steady revenue stream.

However, it has been going through a turbulent period, suddenly losing its chief executive in October just before its third-quarter results were announced. It has not yet appointed a permanent replacement.

It said on Wednesday it was eliminating 100 jobs, about 1.5 per cent of its global workforce, with 85 of those to go in the US, mostly as a result of cutbacks in research and development.

Mike Ahearn, chairman and interim chief executive, told analysts that the solar industry was “structurally imbalanced”, with low barriers to entry and hence no limit on production capacity, but falling demand as a result of subsidy cuts.

Leading European markets such as Germany, Italy, Spain, France and the Czech Republic have all been curbing solar subsidies. California’s renewable portfolio standard, which says 33 per cent of the state’s electricity must come from renewable sources by 2020, has created a surge in solar projects, but most power companies are now on track to meet that requirement, so the flow of new developments is dwindling.

As a result, First Solar is aiming to continue driving costs down so it can compete without subsidy.

Mr Ahearn said: “We’re shifting our revenue base from subsidies to sustainable markets starting in 2012. It won’t happen overnight, but we’ll have to transition out of the subsidies we currently depend on.”

First Solar’s target is to be deriving virtually all of its new revenues from “sustainable” – that is, unsubsidised – markets by the fourth quarter of 2014.

However, it is disadvantaged in that attempt because unlike most of its rivals, its panels do not use polysilicon, which has been falling sharply in price.

Theodore O’Neill, analyst at Wunderlich Securities, said: “First Solar doesn’t have a competitive advantage in building utility-style projects. At the end of the day it has to cut the cost of producing panels, by keeping factories open longer or increasing efficiency”.

He added: “First Solar is not dead yet, because it still has some margin to cut into, but it feels a bit like they are chasing a rabbit down a hole.”

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