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SunPower (SPWR)Stock (Scientific & Technical Instruments Industry, Semiconductor - Specialized Industry)
 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.
[edit] Business FinancialsSunPower 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. In the first quarter of 2008, the company saw a 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%.[1]
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. [edit] Trends and Forces[edit] Environmental Concerns are Pushing Renewable Energy GrowthIt 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. [edit] Homes with Solar Panels Sell at Higher PricesSunPower 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.[2] 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. [edit] Government Support for Renewable Energy is Vital to the Growth of the Solar IndustryGovernments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence. Examples include:
Emissions caps and clean energy mandates that are supported by subsidies and tax cuts make solar energy relatively cheaper. This means that corporations and utilities companies may turn to clean energy sources to generate electricity for manufacturing facilities and power plants, directly benefiting solar cell producers like SunPower. Without government support, however, solar companies would have difficulty vending their products, as solar energy is currently much less cost effective than coal or natural gas. [edit] Oil and Gas Prices vs. Solar EfficiencyOil and gas prices have trended upwards over the past several years. 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. [edit] Silicon Demand Growth is Causing Silicon ShortagesSunPower uses polysilicon for the majority of its products, as do most solar power companies; currently, there is a worldwide polysilicon shortage. This shortage has been caused by a lack of silicon refining capacity. 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 its undersupply as production capacity is not enough to meet current demand. This undersupply has led to rising prices for solar equipment which in turn raises the price of solar power compared to other clean energy production technologies such as wind and ethanol. 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.[3]If the company's growth is higher than expected, however, then the deal will only offset the eventual shrinking of profit margins. [edit] CompetitionWhile SunPower estimates it has about 5% market share.[4] Other competitors, with 2005 market share[5], include:
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