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Just a few days ago, Rep. Cliff Stearns, R-Fla., declared that the United States "can’t compete with China to make solar panels and wind turbines,” according to an interview with NPR. With a simple statement, the congressman summarized the prevalent American sentiment facing the market today. Characterized with the public collapse of Solyndra and the radical 70%+ drops of First Solar, Inc (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR) in the past year alone, one would be quick to imagine the solar problem lies secluded to non-Chinese solar developers in America.

Yet just a brief look at the Chinese solar panel manufacturers in China show similar share price failures across the board. Yingli Green Energy (NYSE:YGE), LDK Solar (NYSE:LDK), JA Solar (NASDAQ:JASO), ReneSola (NYSE:SOL), Canadian Solar (NASDAQ:CSIQ), and Trina Solar (NYSE:TSL) have all seen negative shocks to their valuations well in excess of 60% in the past year. For what’s being touted as an American problem of inability to compete sure appears to be hurting the Chinese as much as it is the Americans.

Like all circumstances when heavy losses accumulate across the board, fears abound that a sector is broken, as does the notion to flee it. In the case of the solar industry, the lofty sky may be falling, but the industry’s fate is not about to be decided overnight. Understanding the root of the issue is the first factor in deciding what to do.

As the global recession took hold in the late 2000s, China redirected a stimulus program aimed at modernizing and expanding its basic infrastructure. Along with this was an incentive scheme named Golden Sun, geared at propping the industry with subsidies in order to accelerate its mainstream adoption. Such artificial demand prompted the expansion of a manufacturing base to meet it. Further centralized controls over state-owned banks and policies allowed for ease of access to capital for companies providing manufacturing capacity as well as subsidized raw materials used by these companies.

As a result, an oversuppy of inventory began to form, due in part to a manufacturing base that had expanded too quickly. This was coupled with falling demand by uncertainty in the European markets and uncertainty over the extension of solar subsidies that had already been in place around the world. All of this cumulated into a true market shock to the industry as solar panel prices fell worldwide and margins shrank to unsustainable levels.

Taking a step back, a big-picture analyst would say that what’s actually happening to the solar industry as a whole can ultimately be perceived as beneficial. With falling solar prices, comes a larger adoption of the industry by the end user. Already we see that the American market alone is beginning to thrive in terms of demand. This ironic contrast seems poorly timed in light of the struggles American solar companies are facing.

Likewise, barring any intervention that would allow otherwise, continued innovation should drive the technology to become ever more efficient in order to stay competitive. Those unable to improve their inefficiencies to stay profitable will ultimately fail altogether, likely being acquired or picked apart by the competition and increasing the economy of scales over time. Therefore, the end scenario that remains for the industry isn’t a regressive demise, but rather one typified by consolidation.

Consolidation can only mean one thing: Margins matter more so now than ever. Companies that are struggling now to remain profitable are going to be battling with others in similar situations. Many will not survive. For hungry investors looking to feed at the bottom of the barrel, now is the time to choose individual companies that have demonstrated their ability turn a profit rather than buying a portfolio of hard hit companies.

Disclosure: I am long FSLR, CSIQ.