Chinese solar-wafer manufacturer LDK Solar (NYSE: LDK) reported first quarter earnings that beat the Street's expectations but the company still managed to disappoint investors by forecasting tighter margins.

After the market closed Monday, LDK said its net income for the first quarter of 2008 was $49.8 million, or 45 cents per American Depository Share (ADS), compared with $21.6 million, or 27 cents per ADS, a year ago.

LDK's revenue also jumped, to $233.4 million, from $73.4 million a year earlier.

Analysts expected LDK to earn 39 cents per share on revenues of $218.4, according to Thomson Financial.

But it was the company's shrinking gross margins that got at investor confidence.

Gross margins for the quarter tightened from 30.1 percent in the fourth quarter of 2007 to 27.7 percent in the first quarter of 2008.

The gross margin for the first quarter of 2007 was 38.7 percent.

LDK blamed its tighter margins on the limited amount of silicon available, which is no surprise, as the solar industry still battles a shortage of the key material (see Trina Solar Shares Fall 20% on 3Q, China Sunergy Troubles Continue, China Sunergy Snags Silicon, Silicon Still a Hot Topic at Photon and Solar Sector Heading for a Shakeout).

LDK then proceeded to cut its gross margin forecast for the year to be in the range of 23 percent to 28 percent. Previously, the company had forecast gross margins to be in the range of 26 percent to 31percent.

By closing on Tuesday, investors had dropped LDK's stock down $1.52, or 4.06 percent, to $35.94 per share.

Sanjay Shrestha, a Lazard Capital Markets analyst, said in a research note that key to LDK's margins going forward will be the company's ability to ramp up its own silicon-making plant.

In April, LDK said it would issue $300 million in convertible notes to help build its silicon plant and expand its wafer production (see LDK Wants $300M).

According to LDK CEO Xiaofeng Peng, construction of the company's silicon plant remains on track.

Piper Jaffray analyst Jesse Pichel said he remains skeptical about LDK's ability to increase its silicon production with the new plant, at least in 2009.

"We see very little progress of its (silicon) plant and no equipment has been installed," he wrote in a research note.

As a result, Pichel said he doesn't see LDK being able to produce any meaningful amounts of silicon until 2010.