First Solar's thin-film panels might be piling up in European warehouses, a bad omen for a company envied by many in thesolarindustry.

A ThinkEquity research note on Friday estimated that six key First Solar (NSDQ: FSLR) customers aren't able to install the solar panels quick enough. Those customers, including EDF Energies Nouvelles, Conergy, Ecostream, Phoenix Solar and Colexon, might have an even tough time doing so in 2009, when First Solar is due to ship even more panels to them than it did in 2008.

"We believe there are multiple of 10MW's of First Solar panels sitting in customer warehouses. Moreover, we don't expect these modules to move out soon, given weakening economics, lower natural gas prices, higher interest rates, and tougher underwriting requirements," wrote Jonathan Hoopes, managing director of energy technology research at ThinkEquity.

While an inventory build up is bad news for First Solar and its customers, the phenomenon might spell more trouble for crystalline silicon panel makers, said Travis Bradford, president of the Prometheus Institute, which tracks the solar market.

The market is currently dominated by makers of crystalline silicon panels, which can convert more sunlight into electricity than thin-film panels like the ones from First Solar. But First Solar, which uses cadmium tellurium instead in its panels, is known for producing panels cheaper than anyone else.

Last month, the Tempe, Ariz.-based company said it was making panels at $1.08 per watt. It's selling panels at roughly $2.50 per watt.

"It says a lot more about crystalline silicon module pricing than First Solar's value offerings," said Bradford, who also is an advisor to Greentech Media. "If the best-value product is piling up, then it's really bad news for the less-valued products."

The news follows reports from a week ago that installers and distributors in Spain are grappling with excess supply. Some installers there have dropped the price to $3 a watt.

"Spain is a bit of a mess," said Paula Mints, a solar analyst with Navigant Consulting. "Where are those panels going to go in this economic downturn? We are in a precarious situation."

Hoopes estimated First Solar shipped about 208 megawatts worth of panels to the six customers between the second half of 2007 and 2008. He combed through company announcements and presentations and figured that roughly 105 megawatts, leaving 103 megawatts in their inventories.

Hoopes cautions that his estimates might be too high, given feedback he received from a few companies. Colexon and Conergy told Hoopes that some of the panels in their inventories are being sold through their wholesale or retail outlets.

Colexson's CFO Henrik Christiansen said an inventory that lasts 60 days to 75 days is considered "healthy," Hoopes wrote. 

The company has been expanding its factories to prepare for shipping more panels in 2009, a move that would seem unwise given the depressing global economy, Hoopes said. A growing number of solar companies, including Q-Cells in Germany, have recently cut production and sales outlook (see Q-Cells Cuts Sales Forecast After Customers Delay Deliveries).

First Solar is scheduled to deliver 353 megawatts worth of panels to the six customers in 2009, according to Hoopes' estimate.

Most of First Solar's panels go to customers based in Germany, followed by France and Spain, according to First Solar's filings with the U.S. Securities and Exchange Commission. All three countries have feed-in tariff policies, which require utilities to pay government-set rates for all solar energy produced in the country. The solar electricity rates are higher than the prices for conventional power, making solar energy development a lucrative business.

The feed-in tariffs have made Germany and Spain the top two solar markets worldwide.

Hoopes downgraded First Solar's stock and reduced the price target to $105 per share from $175 per share.

First Solar's shares dropped less than 1 percent to close at $116.92 per share Friday.