The surprise resignation of First Solar's top exec badly shook the market's confidence in the thin-film leader -- and might be a harbinger of more bad news to come, some say.

October 25, 2011 - In a surprise move, First Solar CEO Rob Gillette has left the company "effective immediately," with no explanation as to why. In a terse statement the company said it "thanks him for his service," and chairman/founder Mike Ahearn will move back into the CEO role on an interim basis.

Gillette's departure follows two months after FSLR's top finance exec, CFO Jens Meyerhoff, left the company; he'd been there since 2006 and steered through its subsequent IPO, then helped create and helm the company's utility systems business. Meyerhoff's departure, though, was seen as no big deal, merely continuation of a "full management overhaul" begun by Gillette who took over in 2009. At the time there was speculation that Gillette's "flat org structure" probably hastened some execs' exits, and that Ahearn might be next to leave.

While Meyerhoff's departure seems explainable given the company's history of exec turnover (also seen as a negative by some analysts), Gillette's departure seems to have caught everyone off guard -- he was still publicly FSLR's top exec at last week's Solar Power International event in Dallas. "It's an absolute and total surprise," said Mark Bachman, an analyst with Avian Securities LLC, quoted by Reuters. (Bachman points out that an upcoming Nov. 15 investor/analyst meet-and-greet with FSLR execs did not actually mention Gillette: "maybe that should have been a sign," he said.)

It's also hard to cast in any positive light the vacancy of the CEO so soon after the CFO, absent any explanation from the company and just days away from reporting 3Q numbers. "This is not a good sign," worries Gordon Johnson at Axiom Capital Management, quoted by MarketWatch.

[Updated 10.26:] Credit Suisse's Satya Kumar makes comparison to 45 other CEO transitions at S&P 500 companies, where only four others turned to interim seatwarmers (AMD, Yahoo, PG&E, Gannett), but at least those companies offered more info about the process. "We find the lack of information inexcusable," he writes -- though he admittedly says this from a stock-trading perspective.

So what's behind the move? Speculation runs the gamut of possibilities: a debate over FSLR's upcoming financials, possible glitches in its recent sales of solar development projects, internal disagreement (e.g. Gillette and board members), uncertainty over upcoming customer contract renewals, etc.

Citi's Tim Arcuri says Gillette's departure is a harbinger of things to come, suggesting that "FSLR may be facing a layoff of up to 10%" in an effort to offset anticipated factory utilization slowdowns "during the next several quarters" -- which may also contributed to Gillette's departure, he added. Moreover, "at least two large customers [...] are pushing back hard on prior contracts," determined to reset their deals at $0.75-$0.80/W module pricing in 1H12. "This leaves very little room for FSLR's opex and implies 'core' EPS could approach zero," Arcuri calculates. (He thinks that FSLR's "core" EPS is probably now ~$2.50-$3.00)

Deutsche Bank's Vishal Shah backs the notion that FSLR's project sales might be shaky, saying in a research note that "negotiations of sale of Topaz project to Enbridge fell through," which would delay revenue recognition for FSLR and dent overall systems business profitability. He also noted other factors weighing down FSLR, from growing competition (see expansions from GE and Abound Solar), on top of still-sinking polysilicon prices -- as well as FSLR's need to keep up its impressive cost/efficiency roadmap.

Investors aren't waiting for anything beyond speculation at this point, they're voting with their feet -- the stock is down -25% this afternoon (Tuesday 10/25) to ~$42. (TheStreet notes that FSLR's stock " target="_blank">was already on a long march down from $180 earlier this year -- though that's aligned to a sector-wide slump, not just FSLR.)