A little over a year ago, First Solar seemed to be on top of the world. The U.S. solar giant was one of the largest and most successful solar-panel manufacturers, and solar power plant builders, in the world. It had the lowest manufacturing costs in the industry and the highest market capitalization of any solar-panel manufacturer.

Just a year on, the company’s situation is starkly different. Last month, First Solar announced it would close one factory in Germany, shut down four other production lines, and lay off 30 percent of its workers. Last week, it announced a massive loss of $450 million for the first quarter of 2012. The announcement surprised analysts, who had predicted the company would have significant profits. Last fall, First Solar’s CEO abruptly left the company, and its image suffered after it had to replace thousands of defective solar panels. Its stock has plummeted from about $130 a year ago to $17 on Friday.

“First Solar is definitely having pains right now. It’s not the runaway leader it’s been in past years,” says M.J. Shiao, senior analyst for solar markets at GTM Research.

First Solar isn’t the only solar company in financial trouble. Over the last several years, solar-panel manufacturers in China have built new factories and flooded the market with inexpensive solar panels, driving down prices, which fell by 50 percent last year alone. That has reduced or eliminated profit margins and forced some solar-panel companies out of business.

First Solar’s costs are still among the lowest, if not the lowest, in the industry. But it has trouble competing for two main reasons. First, some other solar-panel companies are selling at cost or below cost, possibly enabled by government support. “When crystalline-silicon solar-panel prices were still in the range of $1.50 to $2 per watt, First Solar, with its lowest cost of production—about 70 to 80 cents a watt—was doing very well. Now the prices for silicon panels have crashed to under $1 a watt,” Shiao says.

Second, its thin-film, cadmium-telluride solar panels are less efficient than the silicon solar panels made by manufacturers in China. This limits the kind of applications the panels are good for—for example, they aren’t well-suited to roofs, where space is at a premium. The lower efficiency isn’t as much of a disadvantage for large, ground-mounted installations, where space is typically less expensive, and where First Solar has found its niche. But even for this application, First Solar has had to charge far less than its competitors, something it can no longer do.

Yet, despite everything, some analysts say that First Solar’s prospects look good in the long term. Companies selling at or below cost probably can’t do that forever and stay in business. If First Solar outlasts them, its lower costs will again become a competitive advantage.

First Solar says that in the near term, it can count on customers who don’t want to buy solar panels from companies that are selling at too low of a price, for fear that those companies will go out of business and not be able to support the panels over their entire 25-year life.

First Solar also isn’t just a solar-panel manufacturer, but also a builder of solar power plants.  A large share of the cost of solar power comes from things other than solar panels, including designing and building complete solar-power systems and connecting them to the grid. In general, installation is the most profitable part of the industry, and revenues from this side of the business—and the backlog of solar projects that it’s contracted to build (projects that also create a steady demand for its solar-panel factories)—might keep First Solar afloat.

In its earnings call last week, First Solar said it has other advantages over its competitors. It has more experience installing large solar power plants, which is important for guaranteeing performance. It’s also developing technology to make its solar power plants more attractive to utilities. Solar power is intermittent, with power output dropping and spiking as clouds pass overhead. To compensate, First Solar offers detailed forecasts to help utilities plan for how much power the panels will produce. It also installs power electronics that help smooth out fluctuations in voltage and frequency. Yet, although First Solar emphasized power electronics, others are also developing such technology.

In its earnings call, First Solar predicted better times ahead, and emphasized its new strategy of marketing its panels and solar power plants not in places such as Germany, where the industry is driven by subsidies, but in places such as India, where solar power could compete on its own because it’s sunny and prices from conventional electricity sources are relatively high.

Subsidized markets can be unpredictable, and subject to shifting political winds. After higher-than-expected costs for a feed-in tariff in Spain, the government ended the program and the market disappeared. Similar things have happened in other countries. That unpredictability makes it difficult to plan how many factories to build.

Focusing on new markets, at first glance, wouldn’t seem to help First Solar much. The same factors that make these markets attractive to First Solar make them attractive to other manufacturers as well, the same ones it has trouble competing with in subsidized markets.

First Solar does, however, have at least one significant advantage. In places such as India, which are hot and humid, First Solar’s technology is better suited to the climate. At high temperatures, the power output of silicon solar panels drops, but First Solar’s thin-film solar panels fare better than silicon panels. In humid areas, clouds and haze also diffuse sunlight, and thin-film solar panels do better in diffuse light than silicon ones. As a result, the performance gap between thin film and silicon narrows in these places.

Breaking into these new markets may prove challenging, though. Without a government guarantee of a return on investment, as is the case in Germany, it will likely be harder, at least at first, to convince banks to finance large projects, and companies could run into problems negotiating local politics in India.

But if the first large projects are financially successful, that could spur more investment and lead to growth that’s even faster than what’s been seen in subsidized markets, says Travis Bradford, president of the Prometheus Institute for Sustainable Development. (Subsidies have allowed the solar industry to double in size every two years for much of the past decade.)

“First Solar is saying it can compete in many markets around the world without subsidies,” Bradford says. “That could open up markets that are orders of magnitude larger than the ones we see today.”