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

[User 181316:]

New investor in this space, even with FSLR's high premium right now, do you still consider FSLR a buy?

2008 Apr 21 05:21 PM

[Andrew Ling:]

Yes I would buy more at these levels if I wasn't already fully margined. Earnings are next Wed and FSLR has gained 30%+ 3 of 4 times upon reporting earnings. If FSLR breaks out above $300 the sky is the limit. If I were to see rampant speculation is this stock I would sell part of my holdings but I have yet to see that. It is still being accumulated in large chunks by institutional investors. With very favorable exchange rates in the 1st quarter expect more of the same.

2008 Apr 21 06:23 PM

[Andrew Ling:]

BTW, unless you're an experienced swing trader you shouldn't be concerned about the price of the stock. Trying to time the market and therefore having an underinvested position are the biggest mistakes retail investors make. I've told my friends and family members this who have all made money in FSLR but all got in and out. All ended up losing money trying to buy back at a lower price. I have also lost money trying this although I only allocate 10% of my holdings for trading, albeit still a large number of shares.

2008 Apr 21 06:28 PM

[keanemd:]

Hey Andrew

Because of the volatility, I instead purchased a call spread of PBW. It kind of makes me sleep better! But good luck and keep writing. We can all use the knowledge of each other to earn a buck or two in the market!

2008 Apr 21 07:05 PM

[Andrew Ling:]

I've thought about buying FSLR calls right before earnings but decided against it because the premium that you pay for a comparable amount of leverage in spreads is much greater than the cost of margin interest. Also it's difficult to fill the order sizes I would want and options income is short term cap gains. I'm considering intentionally going over my 50% margin requirement the day before earnings into my 25% day trading margin requirement but once again cap gains becomes a problem. If it goes up I'll have a huge tax liability in the highest bracket. If it goes down I could have a huge loss which will be hard to balance out with gains. I'm going to have to run some assumed probabilities to see if the potential gains is worth it. Reminds me of the money management dilemmas I used to face in my poker days.

2008 Apr 21 08:00 PM

[Stephen Fra...:]

SeekingAlpha,
It is truly shameful that you post every article written by this pumper. Andrew Ling is clearly drinking the Kool-Aid, or at least thinks that he can manipulate sentiment and interest singlehanded. Why post four articles that a say practically the same thing within a single week (three of which are posted on the same day)? Don't sell out your site to just anyone. Andrew is using SA is a vehicle to attempt to better himself; don't allow the website to get used in such a sorry way.

2008 Apr 21 11:29 PM

[beandog:]

We are solar champions!

beanieville.blogspot.c...

We called solars like FSLR when Cramer hated us for it.

2008 Apr 21 11:52 PM

[Andrew Ling:]

You're accusing me of manipulating a stock with a market cap of $25B? Minus well accuse me of pumping up the entire US market with my postings. Lemme guess you lost money shorting FSLR. One of my last four articles was a double post indeed. Not sure if that was my mistake or seekingalpha's. The other three are completely different. Did you even read them? One compares FSLR with Sharp and AMAT. Another looks at the long term technicals. The latest is FSLR and SPWR.

2008 Apr 21 11:54 PM

[Stephen Fra...:]

Point taken, I was going to revise the post because that was a little unrealistic. I haven't made or lost any money on FSLR. I respect that you've done well so far, but don't share your enthusiasm going forward.

2008 Apr 22 12:01 AM

[tessant:]

"Minus well"
speaka da english?

2008 Apr 22 09:42 AM

[Stephen Fra...:]

Insiders selling almost $100mm of stock in the past few days?
that's always a good sign!

2008 Apr 23 12:55 AM

[Andrew Ling:]

sfrankola insiders are selling, as they always do, but institutions are still buying at a ratio of 2-1 as of yesterday. Last week the ratio was as high as 5-1 to the buy side.

2008 Apr 23 06:34 PM

[llsolar:]

Andrew:
FSLR ratings are due out tomorrow...what is your take....do they crush the estimates yet again or are some of us solar heads in for bad news???

2008 Apr 29 11:42 AM

[Andrew Ling:]

They came in right between my estimates and analysts estimates but unfortunately there were no new contract or factory construction announcements. I went into earnings fully margined and came out with a 10% buffer for price fluctuations which is my standard position. I may have to reduce the position further soon as my annual 3 months in Europe approaches.

2008 Apr 30 01:37 PM

[Aydalh:]

Ouch, just 10% extra equity? With a 9% real-time drop in PPS and an assumed 30% maintenance requirement you must be getting hit with a big margin call if it closes this way. Better put more cash in before your annual 3 months leave.

2008 May 01 12:59 PM

[Andrew Ling:]

It just depends on how my wifi access in Europe is. I'll still be trading before each close and I may be on and off all day still since market hours are 1:30-9:30pm GMT.

2008 May 02 10:50 PM