TOP CONTRIBUTORS

Avinash Gandhi

Amit Amin

Isaac Middendorf

SPWRA AT A GLANCE

 

 

 

 

 

 

SunPower, was once owned in majority by Cypress Semiconductor, is a manufacturer and distributor of silicon-based solar cells, which are used to convert sunlight to electricity. Since Cypress Semi spun off SunPower as a tax-free dividend to CY stockholders in 2008, SPWRA/B is now an independent company. The company produces solar power products for installation on residential and commercial units, though the recent acquisition of PowerLight Corporation has allowed new forays into large-scale, utility-sized power. SunPower is an international corporation and focuses on those countries that have government-supported initiatives to promote renewable energy implementation. The company currently has a manufacturing capacity of 628 MW per year.^[1]

With the rising prices for traditional forms of energy like coal and oil and global environmental concerns, government subsidies and industry innovations may drive significant growth in the renewable energy industry over the next few years (some predict the solar market will triple by 2010). SunPower has come along for this ride, as its revenues over the past several years have increased fifty-fold. While the solar power industry has long been dogged by accusations of less-than-pleasing aesthetics and low conversion efficiency, SunPower has made its primary goals to create visually-appealing mass market solar panels with industry-leading conversion levels at low cost. To this end, in January 2010, SunPower teamed with Carbon Free Technology to unveil a 500 kilowatt solar panel on the roof of a Harvard University building. The installation features some of the best solar panel technology available with nearly double the energy generated per square meter versus standard installations. ^[2]

Note that SunPower trades under two tickers - SPWRA and SPWRB. SPWRA has 1 vote/share, SPWRB has 8 votes/share. They both have equal rights to equity and dividends. The chart on this page shows SPWRA shares.

Business Financials

SunPower has grown by a factor of almost 60 from 2004 to 2006. In 2006, the company posted its first operating profit. As a solar power company, SunPower also has the highest mass-market panel efficiency in the industry.

For the third quarter of 2009 revenue was $466 million up 36% as compared to the previous quarter. Overall profit fell 48% to $12.8 million.^[3]

In October 2009 SunPower began construction on a 1 MW solar power plant in Mesagne, Comune di Brindisi, Italy. The plant will span 2.6 hectares and will highlight SunPower's T20 Tracker technology. It allows the panels to follow the sun during the day and has been reported to deliver up to 30% more energy than fixed systems. The plant will be completed early in 2010 and is ownde by Bluenergia S.r.l.^[4]

Revenue for the second quarter of 2009 was $298 million, an increase of 29% from the previous quarter. Non-GAAP operating income was $26.8 million. The company's components segment accounted for 63% of revenue, while its systems segment comprised the additional 37%. The company has focused on reducing inventory levels and controlling variable expenses to maintain market share and price premium.^[5]

In September of 2009 it was announced that SunPower would supply solar modules, trackers and project management services for a 100MW power plant in Montalto di Castro, Italy. The first phase is scheduled to be completed by the end of 2009 with the entire project completed in 2010. It will be the largest solar power plant in Italy and by owned by SunRay Renewable Energy.^[6]

In the first quarter of 2009 total revenue was $213 million down 22% from the same period in 2008. The fall was attributed to extended winter conditions in Europe and delayed purchasing decisions by customers due to the slowing world economy and difficult domestic credit environment. At the end of the quarter the company had 19 solar cell manufacturing lines with a total manufacturing capacity of 628 megawatts per year and produced 132.2 MW during the first quarter.^[1]

In the first quarter of 2008, the company saw revenue of $273.7 million, 92% higher than 1Q07 revenues. 65% of this came from the company's "Systems" segment, with the remainder from the company's "Components" segment. The company saw a non-GAAP operating income of $39.1 million.

In the second quarter of 2008, SunPower saw revenues of $383 million, up 120% year on year. Systems made up 79% of revenue while components made up the remainder. Operating income was $45 million. The company achieved a world-record polysilicon PV efficiency of 23.4%.^[8] At the end of 2008 revenue was $1,435 million and operating income was $152 million.^[7] This was an increase of 46% as compared to 2007 and was attributed mainly to increases in average selling prices of products, which was due to rising market demand and favorable currency exchange rates.^[9]

SunPower is sensitive to its small customer base. The company sells large numbers of its products to relatively few solar distributors and installers. Conergy AG (FRA:CGY) and Solon AG (FRA:SOO1), for example, contributed 25% and 24% respectively to SunPower's 2006 revenues, and PowerLight, before being acquired, contributed 16%. A loss of any of these these customers would significantly affect SunPower's operating performance.

In late 2006, the company acquired PowerLight, one of the largest solar installers at the time. This acquisition brings SunPower towards vertical integration but also makes a direct competitor to several of its commercial solar cell customers.

Litigation

In February 2008 SunPower sued solar company SunLink Corporation sighting infringement of SunPower's patent rights covering its PowerGuard and SunPower T10 Solar Roof Tile mounting products. In October 2009 the companies settled when SunLink acknowledged infringment of SunPower's patents with its MMS rooftop solar product. Under the settlement SunLink licensed SunPower's designs and additional terms of the agreement were not released.^[10]

Trends and Forces

Environmental Concerns are Pushing Renewable Energy Growth

It is a widely held belief that fossil fuels are limited in supply, with easily extractable reserves quickly being depleted due to worldwide economic growth. As the world approaches peak oil quantity, the quantity at which more than half of oil reserves have emptied and the resulting scarcity drives up prices, the demand for renewable energy increases. Solar power is a fully renewable source, as the sun will not stop releasing light for another 4-6 billion years. Furthermore, current energy production methods release pollutants like smog, as well as carbon dioxide gas, which contribute to the greenhouse effect and global warming. Solar energy production produces little, if any, pollution or emissions, making it one of the cleanest sources of power. Increased popular education on these issues is creating pressure for governments and energy companies to regulate energy production. This movement is having a worldwide impact on energy regulation in the form of increased government subsidies for clean energy sources and global emissions caps.

Class Action Lawsuit and Accounting Irregularities May Put a Damper on Share Prices

On November 16, 2009, SunPower acknowledged accounting irregularities in past financial reports that were under investigation. To date they have only released a brief statement explaining the initiation of the investigation. There are more than a dozen class-action lawsuits waiting to be filed if the irregularities are serious. Following this admission, SunPower shares fell approximately 18%.^[11]

One of the class action lawyers released a statement accusing all of SunPower's reports from 2008 onwards of being false and unreliable. Furthermore, they claim that SunPower made unsubstantiated accounting entries during the period, overstated its financial results, and that it did not follow Generally Accepted Accounting Principals ("GAAP") ^[12]. The magnitude of the accounting irregularities are not yet known, and the size of these infractions will eventually determine whether the market reaction was overly bearish or merely mild.

Homes with Solar Panels Sell at Higher Prices

SunPower has one of the highest efficiencies of any rooftop PV system manufacturer, at 23.4%; furthermore the company's panels have 10% higher energy capture than the industry average, are faster to install, and cost less than other silicon-based cells, making SunPower T10 panels ideal for residential solar installations. Despite falling housing values and a tough market for new home builders, houses that are built with integrated solar systems are flying off the market - at twice the velocity of grid-based houses.^[13] Couple with legislative tax breaks for residential solar power like the California One Million Solar Homes initiative, and housing manufacturers have more incentive to add solar panels - especially high-efficiency, low-cost panels like SunPowers' - to their construction plans.

Government Support for Renewable Energy is Vital to the Growth of the Solar Industry

Without government support, solar companies would have difficulty selling their products, as solar energy is less cost effective than coal and natural gas.^[14] Governments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence, but the financial crisis of 2008 and 2009 has hastened the decline of subsidies in large markets like Germany and Spain, the world's largest and second largest solar markets, respectively.^[15] Examples of legislation benefiting the industry by making it more profitable, and therefore more likely to grow include:

• The European Union has inked its goals to get 20% of its energy from clean sources by 2010.^[16]
• China's Renewable Energy Law aims to raise the total percentage of renewable energy used in the country to 15% by 2020.^[17]
• The U.S. Stimulus Bill of February of 2009 included $60 billion in loan guarantees for companies building solar and wind plants.^[18]
• Although the Obama administration has the goal of doubling renewable energy production from 2009 to 2012,^[19] until an actual federal law is passed, many states are keeping their local goals and initiatives in place.

As the financial crisis has strained government budgets and crashed the price of oil, once a strong motivator for developing renewable energy, support for solar power has, in some places, decreased. Examples include:

• In June of 2008, Germany approved a law cutting its solar subsidies by 10%. Further, under the law subsidies will fall another 8%-10% each year for the next three years.^[21] This is particularly damaging to Sovello, the German solar power manufacturer that Evergreen has a one-third stake in.
• Also in mid 2008, the Spanish Government cut its solar subsidies by 30%.^[22]

Nevertheless, shifts of power from one administration to another and one party to another in several countries and states have increased the likelihood that new legislation benefiting the industry will pass. Examples include:

• Obama wishes to implement a carbon trading scheme. Doing so would make polluting methods of power generation, like coal and natural gas plants, more expensive, making solar power and other clean energy sources more cost-competitive. ^[23]
• Ontario is considering implementing solar subsidies.^[24]

Oil and Gas Prices vs. Solar Efficiency

Oil and gas prices have until recently been trending upwards. As rising oil and gas prices lead to more expensive commercial electricity, consumers may start to demand new, cheaper sources of power. Solar power is currently far less efficient than other energy sources, even wind. SunPower's R&D focus is on increasing this efficiency while minimizing the use of inputs like polysilicon. If SunPower can develop technology that allows more electricity to be produced with less area of land taken up by solar modules, for less money, then solar power will become more competitive. SunPower is making progress on this front; their current line of products has an efficiency of 23.4%, the highest on the mass market. Furthermore, sunlight is available in massive quantities for half the day, and is free, unlike oil or coal. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative, despite the current level of inefficiency. Concurrently, as solar power's efficiency rises, it becomes more competitive with oil and gas. SunPower, then, stands to benefit both from rising oil and gas prices and from its industry-leading product efficiency.

Silicon Demand Growth is Causing Silicon Shortages

SunPower uses polysilicon for the majority of its products, as do most solar power companies, there was a worldwide polysilicon shortage in 2006-2007. Prices have dropped from $400/kg to $100/kg as of now (Feb 2009). This shortage was caused by a lack of silicon refining capacity, and the fact that PV cells need large quantities of silicon. In the past, companies like MEMC Electronic Materials (WFR) produced silicon wafers for the semiconductor industry. Now, with the advent of solar power and its rapid growth, demand for polysilicon has increased greatly, leading to a temporary undersupply as production capacity was not enough to meet demand. This undersupply led to rising prices for solar equipment which in turn raised the price of solar power compared to other clean energy production technologies such as wind and ethanol.

Flash-forward to Feb 2009, and polysilicon prices are a quarter of what it was (at the peak), and many panel manufacturers have figured a way to re-use wafers with circuits on them - by simply grinding away the circuits and forming a p-n junction (which is the basic building block of a solar cell). Moving forward, SunPower will lose pricing power as there is little that differentiates one panel from another. Sure, SPWRA/B's cells/panels have the highest efficiency in the market, but from a cost per watt point of view, the leaders are FSLR and STP.

SunPower is in a position to dodge the shrinking margins bullet, however, as the company recently signed an agreement with Jiawei SolarChina to be supplied with 900 MW worth of silicon over the next five years, enough to meet projected production requirements without being as susceptible as competitors to rising silicon prices. The company has secured enough polysilicon contracts to cover 100% of its capacity growth into 2009, more than half of which will be supplied by M. Setek and DC Chemical.^[25]

Competition

Sunpower Solar Panels Boast the Highest Efficiency per Square Foot in the Industry

As of July 2009 Sunpower made solar panels that had the highest PTC/Sqft values in the industry. This basically stands for watts per square foot that each panel produces under realistic testing conditions. Five of the companies panels are in the top ten PTC/Sqft values with its 230W and 225W monocrystalline modules taking over the top two spots. Its only close competitor is Sanyo (SANYY). The ability of Sunpwer to maximize power generation and minimize square footage will make its panels much more attractive then competitors. This is especially true in residential settings where productive roof space can be at a premium.^[26]

Solar Panel PTC/Sqft Comparison^[26]

While SunPower estimates it has about 5% market share.^[27] Other competitors, with 2005 market share include:

• Sharp Electronics (24%) - The largest photovoltaic cell manufacturer in the world
• Suntech Power Holdings (4%) - A Chinese photovoltaic cell company that is muscling its way into world solar markets
• JA Solar Holdings, (insignificant in 2005) - A Chinese PV company that only sells monocrystalline solar cells; it lets its customers take care of building the modules and systems.
• Solarfun Power Holdings (insignificant in 2005) - Another Chinese PV company that operates 90% in Europe and makes most of its money by selling modules, rather than individual cells.
• Evergreen Solar (insignificant in 2005) - A solar company that produces string ribbon PV cells and operates at all production levels from silicon wafer to power system.
• Kyocera (8%) - A Japanese electronics company that is also a major manufacturer of solar cells
• Q-Cells (9%) - A privately owned, German solar manufacturer
• First Solar (insignificant in 2005) - A thin cell solar panel manufacturer that uses cadmium telluride instead of silicon for its cells.
• BP (5%), Mitsubishi (6%), and Sanyo (7%) - Not primarily photovoltaic cell manufacturers, but heavy market competitors nonetheless.
• EMCORE (insignificant in 2005) - A Concentrated Photovoltaic System manufacturer that uses Gallium arsenide PV cells and got its start in the solar business making power cells for satellites.
• Energy Conversion Devices - This company uses amorphous thin-film silicon in its ultra-thin, albeit low-efficiency solar cells.

References

1. ↑ ^{1.0 1.1} SunPower First Quarter 2009 10Q Pg. 30
2. ↑ "500-Kilowatt Rooftop Solar Power System Installed at Harvard," Foxbusiness.com January 12, 2010
3. ↑ "Lower forecast hits SunPower stock," San Jose Business Journal.com, October 23, 2009
4. ↑ "Key Developments For SunPower Corporation," Reuters.com, October 20, 2009
5. ↑ "SunPower Surprise Leads Solar Shares Higher," 247 Wall Street.com, July, 23 2009
6. ↑ Osborne, Mark, "SunPower to build 100MW solar power plant; largest in Italy," PV-tech.org, September 22 2009
7. ↑ ^{7.0 7.1} Hoover's Financials- SunPower Corporation, accessed on May 25, 2009
8. ↑ SeekingAlpha: "SunPower Corp. Q2 2008 Earnings Call Transcript"
9. ↑ SunPower 2008 10k Pg. 34
10. ↑ Associated Press, "SunPower, SunLink settle patent infringement case," Forbes.com, October 8, 2009
11. ↑ The Street, "SunPower Speaks! And Says... not Much," December 15, 2009
12. ↑ Law Offices of Howard G. Smith Announces Update to the Shareholder Lawsuit Against SunPower Corporation -- SPWRA December 18, 2009
13. ↑ SPWR 1Q08 Earnings Call, Page 1
14. ↑ gstriatum.com - Photovoltaic solar energy will be cost competitive with gas in 2012
15. ↑ The Observer - Scandal sullies Spain's clean energy
16. ↑ EurActiv - 20% renewables by 2020: is it possible?
17. ↑ World Watch - China's Renewable Energy Law Takes Effect; Pricing and Fee-Sharing Rules Issued
18. ↑ USNews - Obama's Stimulus Keeps the Solar Power Dream Alive for Start-ups
19. ↑ Reuters - U.S. installed solar capacity up 17 percent in 2008
20. ↑ National Caucus of Environmental Legislators - Select State Actions to Address Climate Change
21. ↑ Bloomberg - Germany Accelerates Cuts to Solar-Energy Subsidies
22. ↑ Scientific Alliance - The reality of wind power and green-collar jobs in Spain
23. ↑ BarackObama.com - BARACK OBAMA’S PLAN TO MAKE AMERICA A GLOBAL ENERGY LEADER
24. ↑ San Fransisco: Business Times - Recurrent Energy buys UPC Solar projects
25. ↑ SPWR 1Q08 Earnings Call, Page 2
26. ↑ ^{26.0 26.1} Solar Panel Efficiencies, SRoeCo Solar, Accessed on July 18 2009
27. ↑ Seeking Alpha:"SunPower Corp. Q2 2008 Earnings Call Transcript"
28. ↑ Dolan, Kerry, "Squeezing Energy From The Sun," Forbes.com, September 10 2009
29. ↑ Sharp Solar Systems Product Profile Brochure, Sharp
30. ↑ ESLR 2007 Earnings Call Transcript, Page 1
31. ↑ Osborne, Mark, "First Solar first to US$1 per watt manufacturing cost," PV-tech.org, February 25, 2009
32. ↑ Osborne, Mark, "Sanyo a ‘HIT’ with 23% solar cell efficiency record," PV-tech.org, May 22, 2009