First Solar and SunPower: Competitors With Synergy

First Solar and SunPower are leaders in their respective industries. I say "industries" because FSLR and SPWR are as different as can be when it comes to PV manufacturers. SPWR's strength are FSLR's weaknesses, and vice versa.

FSLR's business is almost primarily in Germany, whereas SPWR has a growing U.S. business which includes heavyweight customers such as WalMart (WMT). FSLR's panels are low-efficiency low-cost whereas SPWR's are high-efficency and carried a 10% premium/watt over Suntech (STP) and Kyocera (KYO) products at Akeena Solar last time I visited.

Although the utility scale, commerical, and retail PV markets all have some overlaps currently, I expect these markets to get highly segmented and dominated by niche players. FSLR or some "third generation" CIGS company will eventually dominate the utility scale 1MW+ market where land is plentiful and cost is the only issue. The retail market is still up for grabs but SPWR looks to have the upper hand due to high efficiency and better aesthetics, an important concern to homeowners.

This is similar to how when Wal-Mart squeezed out their competitors with superior price and selection, their competitors had to either find a 7-11 like convenience niche or disappear KMart style. Some will argue that the retail distributed generation is the real holy grail of the renewable energy market and that utility scale generation will be the niche. This is a distinct possibility although it may take 20 years or more for that to occur.

It's unknown whether SPWR's acquisition of PowerLight will prove to be a wise one in the neverending race to drive down costs. Personally, I would prefer to focus all my capital on increasing manufacturing volume to drive down costs in this early phase. I would wait until the industry was more mature to acquire an installer and possibly a polysilicon/wafer supplier. SPWR obviously can produce more product than they can install as evidenced by the fact that AKNS also offers SPWR product.

The long-awaited drop in polysilicon prices would hurt FSLR's pricing advantage, but it would benefit no one more than SPWR. This is because as prices fall across the board, efficiency will become more of an issue in the retail rooftop market. When PV is economical, homeowners and businesses will want to maximize electricity generation. Since I've long subscribed to Cramer's recent revelation that FSLR could be a category buster, SPWR therefore makes an interesting alternative to FSLR. Being an FSLR Perma-Bull I don't own any other PV stocks, but I'd consider purchasing SPWR in the future as a hedge.

Disclosure: I am long FSLR.

Comments

[Zenfar:]

Would it make sense to also acquire a 3rd generation CIGS as a hedge as well?

2008 Apr 21 01:44 PM

[tessant:]

where is STP in this? They are bigger than SPWR and the stock is valued lower! Might want to mention them; unless this was an article about US companies..

Scott
-marketbar

2008 Apr 21 01:56 PM

[rdmill:]

You make a terrific case for diversifying into SPWR along with FSLR. Both ought to be winners over time for the very reasons you gave!
What about Akeena which can install any number of different types of solar panels? Does oit have any meaningful competition as installer of frist choice?

2008 Apr 21 02:05 PM

[Piggybank:]

And what about competitors from Europe to SPWR? Sunpower is all considerd a smaller company compared to Renewable energy corperation (REC) a Norwegian verticly integrated silicon PV producer with at end 2007 1300 million $ annual revenue and 270 million $ annual net profit compared to SPWR's 775 million $ annual revenue and a measel 2 million $ anual profit in 2007. Sure SPWR's profit is fastly increasing and thats very important, but SPWR's market cap is almost 8 billion $ and Renewable energy corp's market cap is only about 3 billion $. That is just .... omg...

Suffice to say that REC probably has an even better product that SPWR, and is active in a better market for Solar. (Europe) Thus i have shares in REC (im european) and no shares at all in SPWR. (and i don't like the dollar neither currently)

2008 Apr 21 02:24 PM

[solar jim:]

where is STP in this? They are bigger than SPWR and the stock is valued lower! Might want to mention them; unless this was an article about US companies..

Scott
-marketbar


Pretty Simple reason STP isn't mentioned - they aren't a market leader in terms of innovation or efficiency. What's the conversion of STP panels? SPWR is at 22% currently. I'll bet you even money STP is in the 15-16% range. That's why they aren't mentioned. SPWR makes other products such as roof tiles that substitute for roof shingling during construction of a new home while STP does not have such a product that I am aware of. That's why STP isn't in here. Again, I may be wrong, but I don't believe STP installs system as well as panels whereas SPWR is vertically integrated, which is another reason.

While STP may be a good investment its a China play and the way they win is through mass production and saving on labor, not innovation. Think SPWR as being more Intel with innovation versus STP being more AMD in backward engineering Intel's successes. Whenever any crunch or industry consolidation occurs I am way more confident of SPWR's ability to survive/weather the downturn and come out with gains versus STP whose only advantage, at best, is cost.

2008 Apr 21 02:47 PM

[solar jim:]

Andrew,

Only thing I would point out is that I believe the reason SPWR does not use all of their own cells for themselves is due to contractual obligations to deliver these cells, which were in place prior to their acqisition of Powerlight, which then allowed them to use their own surplus cells after contractual obligations for themselves.

2008 Apr 21 02:51 PM

[solar jim:]

SPWR has a lot of intellectual property as well on their products, which helps keep them in the lead over other silicon PV producers, like REC mentioned earlier.

2008 Apr 21 02:53 PM

[solar jim:]

I also agree with Andrew regarding FSLR. Of the current public PV companies it is the best. People keep talking about Nanosolar/Miasole, etc... but neither is at commercial stage yet or producing more than a few (less than 10) Mw per year. By end of 2009, FSLR will be at roughly 1000Mw per year, or 1 Gw, of production. For thin film solar FSLR is the only one to own. They are years ahead of the competition.

2008 Apr 21 02:57 PM

[Gumby:]

Coal mining companies are soaring lately... forget solar trinkets , buy real men stuff like coal!!! Power plants are running cleaner than your stinky chimney, stove pipe or charcoal grill!!! Coal mining companies are signing new contracts with utilites with higher prices for each ton of chalky coal this year and next year or so. Coal companies will double in stock prices while solar stocks is a crapshoot at best... they are still young. Remember Atari and Commodore?? same thing..

2008 Apr 21 08:11 PM

[Gumby:]

dont order another cord of firewood... Flip up your thermostat to 85 degrees and let the juice flow in from coal fired powerplants. It is cleaner than to stoke your stupid fireplace with soot and particulates spewing out of naked chimneys and stove pipes and spread all over the mountain hamlets....

2008 Apr 21 08:13 PM

[Gumby:]

Power to coal , flappy arms to solar stocks!!

2008 Apr 21 08:13 PM

[tessant:]

SPWR's cost of making solar is way more than STP. When PLUTO comes out in 2h08, STP will be ahead in that also. And then theres valuation...i know SPWR has some real fans. but the valuation RELATIVE to STP just doesnt compare.

The INTC/AMD comparision is laughable. I am a solar bull, but you have to admit STP is a better investment at these levels.

2008 Apr 21 09:53 PM

[Andrew Ling:]

tessant, spwr's strength is not in their costs. The problem for STP is it's not their strength either when faced with FSLR's $1.12/watt product. SPWR can at least find a niche. If women are willing to spend $20K on a handbag surely people will be willing to spend a few thousand extra just for a nice modern looking solar array.

2008 Apr 21 11:48 PM