SunPower Gets Market Drubbing, so Who's Next?

SunPower (SPWR) came out with 4Q07 earnings that slightly exceeded forecast and guidance that was a touch weak for 1Q08 and roughly inline for all of 2008. SPWR dropped 15% in the morning on the news, illustrating how difficult it is for solar stocks to regain momentum even on fairly decent news.

I’ve previously posted on oversupply as a likely issue this year for solar stocks, and here’s how SPWR’s results relate to that: The company stated “In the latter part of 2008 and beyond, we expect our industry’s silicon feedstock to become more abundant, leading to lower solar panel prices, which will redistribute the power and profit pools in the value chain”. This statement illustrates the beginning of where PV is heading: Increasing poly supplies will lead to increased cell production. Prices at the level of poly, cells, and panels will start to decrease. Margins at these levels will begin to compress. Within a year, the entire industry at all levels will move into oversupply (see my previous post on this topic) and margins throughout the food chain will compress.

SunPower is somewhat buffered from upcoming panel price declines because it is vertically integrated. My personal take on SunPower’s results is to apply them to a non-integrated company like JA Solar (JASO). JA Solar buys poly and wafers and produces cells to sell to panel manufacturers. As prices at the panel level start dropping, integrated suppliers like SunPower will have greater ability to drop prices. Because of oversupply at the panel level, the vertically integrated suppliers will be able to provide a greater portion of the industry’s needs and will capture this share because of their pricing ability. The standalone panel manufacturers, who are frequently smaller companies, will be increasingly squeezed out, and non-integrated cell suppliers like JASO will get squeezed with them. The fact that JASO is planning large capacity increases this year will only make matters worse for them.

I will be listening on the SunPower call for clues about supply and demand in 2H08 and beyond and their view of whether worldwide solar incentives can be expected to increase significantly. If demand is, for whatever reason, increasing massively despite the stagnant-to-declining incentives picture, then my oversupply thesis could be wrong. So far, it’s right on track.

SunPower is one of the strongest and best-positioned companies in the industry, so this weak response to its outlook does not bode well for the remaining companies still to report.

Disclosure: I’m short SPWR, JASO, and FSLR

Comments

[Buffettz:]

What negative response? It's share price has now recovered on a down day. I would not draw any long-term conclusions on one days share price movement especially while the overall market is shakey. Recent corrections from rediculous PEs was purely about the stock market, not the solar market. I challenge you to find during the earning season any solar company voice any concern whatsoever on weakening demand. SPWR's conference call is extremely bullish on future demand.

2008 Jan 26 01:18 PM

[elfie:]

this guy is a short seller

he pretends to be a fair reviewer but there appears to be bias in his points

2008 Feb 27 05:30 PM

[anand:]

I very much liked your article on " PV Industry in Oversupply in 2008."

I would love to talk to you offline, or via the comment section here. Is that possible?

I have some ideas on what solar companies represent the best buys at present, and would love to run my numbers (spreadsheets) and metrics buy you.

2008 Oct 28 01:33 AM