SunPower Gives Optimistic Outlook for 2010, Plans to Launch Gen 3 Cell

By Ucilia Wang

SunPower (SPWRA) (SPWRB) executives expressed an optimistic outlook as they announced third-quarter earnings that beat Wall Street expectations Thursday.

But the company's shares dropped about 11 percent in recent trading as it lowered its earnings outlook for 2009. SunPower now expects to generate between $1.43 billion to $1.5 billion in sales for the year, resulting in $0.50 to $0.60 per share.

Previously, the San Jose, Calif.-based company had expected to post $1.35 billion to $1.7 billion in sales and $0.45 to $0.90 per share.

Executives from SunPower told analysts that they are boosting solar panel production and looking at lining up other solar panel makers to provide products for the company's power plant building business.

"Our Q3 performance reinforces the advantage of our vertically integrated model," said Tom Werner, CEO of SunPower. "We see strong demand into 2010."

On the technology front, the company plans to start shipping its Gen 3 cell in 2010. The company already can produce Gen 3 cells with 24 percent efficiency, Werner said. The cells in mass production have about 22 percent efficiency.

In the third quarter this year, SunPower generated $466 million in sales, a boost from $378 million in the third quarter in 2008.

Net income for the third quarter was $12.8 million, or $0.13 per share, compared with $24.7 million, or $0.29 per share from a year ago. Some one-time charges, including $5.3 million in non-cash interest charges associated with a new way of accounting for interest expense for convertible bonds.

Excluding one-time charges, the company's earnings per share reached $0.42, above the $0.40 per share expected by analysts polled by Thomson Reuters.

SunPower executives highlighted power plants it recently completed or are under construction to show its ability to attract project financing. The company is building a 24-megawatt project in Montalto, Italy.

Back in June, SunPower said it had lined up $100 million from Wells Fargo to finance power projects in the United States.

"Since capital is scarce, banks want to build relationship and avoid technology risks," said Dennis Arriola, SunPower's chief financial officer. "We are finding that SunPower is a company that banks want to do business with around the world."

The company expects to close more project financing before the end of the year," Arriola said.

Comments

[gebby:]

the company is on a strong multi year growth path yet wall street was somehow disappointed as reflected in stock price action. i expect the stock will recover as 2010 and beyond are forecast to be strong years for the company despite economic uncertainties. in addition oil prices have been rising and are likely to remain high.

Oct 23 07:53 AM

[Jack Yetiv:]

As I have opined on these pages several times recently, I believe the solar business is going to be a relatively low-margin business in 2009 and beyond. SPWRA's conf call simply confirms this impression.

I think the fourth quarter may still show some decent margins because of cost-cutting and because I believe ASP reductions will slow down because demand will exceed supply--primarily because panel-fab-building slowed down significantly in late '08 and the first half of '09, but I believe by next year, ASP's will drop again as production increases to meet demand.

Of course, as prices go down, that will further boost demand, which will arrest pricipitous falls in prices (and hence, margins), but once equilibrium is reached, I believe gross margins of good companies (like SunPower) will be in the 20% range--as they were this quarter (FSLR will have higher margins than the 20's because of its cost advantages, but its margins are going to be compressed as well, rpobably down from the 50's last quarter to the 30s by the end of next year).

I do believe that SPWRA can increase sales by 20-30% next year, but that is not going to yield such a high EPS that it justifies a forward PE against 2010 income in excess of 20.

Jack Yetiv

DISCLOSURE: No position in any solar stock, neither short nor long.

Oct 23 12:36 PM

[jimp:]

Jack Yetiv,

Is this a good time to buy Renesola SOL? Is their a solid reason why its stock price is so low? This would be a long term hold.
Miss your articles.

Oct 23 01:19 PM

[Road Runner:]

It seems to me that the sudden 13% drop in stock price after the earnings release may have been an attempt to manipulate the stock by getting others to sell thinking there is something wrong with Sunpower. This big drop doesn’t match the earnings report and conference call. The only thing wrong, that I see, is that some of the projects scheduled for the 4th quarter will get pushed into 2010. All the good things Sunpower disclosed far outweigh this disappointment.

Oct 23 01:59 PM

[Road Runner:]

Jack, You make a good case and you may be right.

But, I believe that demand is going to be stronger than anyone expects starting in 2010. The "tailwind" behind solar around the world is growing which will, in my opinion, lead to upside surprises starting in 2010. This greater than expected demand will help keep margins better than you, and others, expect, and it will keep Sunpower’s production at full capacity.

Lets look at some of these solar “tailwinds”: The growing consensus that global warming is real and is a big problem. The desire and effort by the Obama administration to promote solar and other renewables. The massive Chinese solar incentive package that is absorbing much of the solar panel glut. Increasing oil prices. Improving US and world economy. Improving financial markets. Other countries starting to promote solar like Italy where solar is at grid parity now because much of the electricity is generated from oil (Italy is a mismanaged country). Other US states wanting to catch up some with New Jersey where installing a home or business roof-top system is “dirt cheap” because of massive incentives (who would have thought that New Jersey would lead in solar incentives?).

Sunpower has a unique advantage in the solar world. It has the highest efficiency cells, hands down. This gives Sunpower an advantage in the home solar market. This market, because it does not rely on big planning and big finance, has the potential to grow more quickly than large solar plants as module prices decrease, government incentives increase, and the economy recovers. This is why I feel that Sunpower is in a strong position to become one of the few dominate players in the solar market as the natural cycle of consolidation happens as solar matures.


On Oct 23 12:36 PM Jack Yetiv wrote:
> As I have opined on these pages several times recently, I believe
> the solar business is going to be a relatively low-margin business
> in 2009 and beyond. SPWRA's conf call simply confirms this impression.
>
>
> I think the fourth quarter may still show some decent margins because
> of cost-cutting and because I believe ASP reductions will slow down
> because demand will exceed supply--primarily because panel-fab-building
> slowed down significantly in late '08 and the first half of '09,
> but I believe by next year, ASP's will drop again as production increases
> to meet demand.
>
> Of course, as prices go down, that will further boost demand, which
> will arrest pricipitous falls in prices (and hence, margins), but
> once equilibrium is reached, I believe gross margins of good companies
> (like SunPower) will be in the 20% range--as they were this quarter
> (FSLR will have higher margins than the 20's because of its cost
> advantages, but its margins are going to be compressed as well, rpobably
> down from the 50's last quarter to the 30s by the end of next year).
>
>
> I do believe that SPWRA can increase sales by 20-30% next year, but
> that is not going to yield such a high EPS that it justifies a forward
> PE against 2010 income in excess of 20.
>
> Jack Yetiv
>
> DISCLOSURE: No position in any solar stock, neither short nor long.

Oct 23 02:07 PM

[Bob55:]

In agreement with Road Runner about possible stock manipulation here and most other solar stocks including FSLR's previous quarter earnings release. Nothing disclosed accounts for this big of a price drop.

Oct 23 02:11 PM

[Road Runner:]

Add this to my last comment:

Also, Sunpower is well managed and vertically integrated. It has a strong distribution network (never underestimate “push” marketing). It is opening offices in new countries as stated during this earnings release. It is actively reducing the costs of the entire solar system (beyond panel costs) like by reducing installation costs by making their panels easier and faster to install.

Oct 23 02:18 PM

[jimp:]

Anyone familiar with or like Natcore technology NTCXF.PK
They state that they can reduce the cost of making solar panels by up to 60% They will simply license the technology to existing solar panel makers. Its hard to evaluate, since I don't understand the science behind it.

Oct 23 02:35 PM

[Road Runner:]

I am not familiar with this company and its technology. Just reading www.tradingmarkets.com.../ tells me that NTCXF is developing thin-film solar cells using “quantum dots”. This is just one of many thin-film research efforts going on, so there is your first warning about this company. Also, they are in the research phase, like many other solar companies, so there is no clear path to profitability. This is another warning sign against this stock.

The solar industry is entering the mature stage where new startups and technology will have a much harder time entering. So while Natcore is developing their cells, the established companies are improving their cell technology, their manufacturing processes, their manufacturing scale, their distribution network, their installation technology, their financial “clout”, etc. In other words, the “barriers to entry” are increasing in the solar industry.

Solar panel (the installable panes of solar cells that is the final product out of the factory) costs are only about a third of the price of a complete solar system. Thus, as silicon based solar companies decrease panel price, there is less advantage for lower cost thin-film panel makers because the remaining two thirds of the system cost is going to be somewhat the same no matter what solar cell technology is used. In fact, this remaining non-panel system cost is higher for thin-film because the lower efficiency of thin-film makes the panels bigger for the same energy output increasing shipping, installation, mounting equipment costs, etc.

Thin-film is not proven to last for 20 years plus like silicon based solar which has been around for decades and has a proven track record for longevity. Banks are hesitant to invest in solar technology that does not have a proven longevity track record. So this is another mark against all thin-film solar.

At this point, the only way, in my opinion, for a startup to become a solid solar company is to have a clear cost advantage over its competitors. No “me too” technology is going to do it.

I recommend against investing in this company. But, if you choose to follow it, look for these key things. Efficiency must be in line with silicon at 20% plus. Panel manufacturing costs must be substantially lower than silicon. Longevity must be demonstrated and/or tested. The company must be financially strong. Some other emerging thin-film product must not be better.

Oct 23 04:26 PM

[JohnDough454:]

Just because you don't understand a price movement doesn't mean there is manipulation.

Perhaps someone with a large position simply doesn't agree with your enthusiasm and liquidated?

Oct 23 07:20 PM

[Bob55:]

When you're finding companies meeting and often beating expectations quarter after quarter and you have major price drops time and time again, manipulation appears to me to be the more likely cause than simply someone with a large position liquidating their position. As for future outlook, it did not look so bleak as to warrant such a huge price drop. Sorry but something just isn't kosher in this market.

Oct 24 12:31 PM

[Road Runner:]

JohnDough454, You may be right that someone with a large position may have decided to liquidate right after earnings release if they didn't see a strong upside surprise.

But, why I am leaning toward stock manipulation is the size, speed, and timing of the trade. It happened immediately after earnings release in after-hours trading. The trade happened without any time to fully digest the earnings report. The timing of the trade was perfectly timed to create the maximum negative emotional effect. I believe too many investors look too much at the how the stock reacts to news instead of the contents of the news. I believe short-sellers believe the same thing. Look at how they added (not fully responsible) panic to the bank stocks a year ago.

Also, I’ve said it before that I believe that solar is still a bad word for many investors. Many long time investors in solar (like I am for about half of my solar shares) are very disgusted with their solar stocks. The stock manipulators may be thinking that there are many current investors that need just one more disappointment to become fully discouraged and sell their shares. This is a physiological phenomena where people sell shares near a bottom because they want to stop worrying about how much more money they could lose.

There was no revenue or earnings miss, and full year guidance was only narrowed within its previously forecasted range. The issue of some 4th quarter projects being moved to 2010 was minor. They announced some very positive things for 2010 like increasing production, and drawing down of extra solar panel inventory.

In either case, there is no need to worry about the future of SunPower from this price action. SunPower is strong and growing stronger.

On Oct 23 07:20 PM JohnDough454 wrote:

> Just because you don't understand a price movement doesn't mean there
> is manipulation.
>
> Perhaps someone with a large position simply doesn't agree with your
> enthusiasm and liquidated?

Oct 24 04:56 PM

[Road Runner:]

I want to point out something very positive about SunPower (SPWRA and SPWRB) from its income statement yahoo.brand.edgar-onli...

SunPower divides its business into 2 parts: systems and components.

“Systems” is building large projects that require bank, or some other, financing. Looking at the income statement clearly shows that income has dropped a large amount in this area. This is because bank financing dried up as we all know too painfully well. Q3 2009 systems income was $168 million. Q3 2008 systems income was $ 193 million. A 13% drop.

“Components” is selling the individual components like solar panels, etc. This is the small project end of the business that doesn’t require large financing. This includes home and business rooftops. The components end of the business showed very good growth and profits even during this deep recession. That says a lot about the strength of SunPower. Q3 2009 components income was $298 million. Q3 2008 components income was $184 million. A 38% increase - nice.

Because SunPower has an advantage in the home and business rooftop market with its high efficiency cells (takes up less space for same energy output), the components part of the business is what I get excited about. I see this as SunPower’s “bread and butter” going forward.

Oct 24 05:48 PM

[Road Runner:]

Oops. Sloppy math.

Instead of saying "A 62% increase" above I should have said "A 38% increase". That's even better.

Oct 24 05:52 PM

[Road Runner:]

I need to slow down. One more try.

Instead of saying "A 38% increase" above I should have said "A 62% increase". That's even better.


On Oct 24 05:52 PM Road Runner wrote:

> Oops. Sloppy math.
>
> Instead of saying "A 62% increase" above I should have said "A 38%
> increase". That's even better.

Oct 24 05:54 PM