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Oil at $127, Buy Sunpower

Posted on Wednesday, May 14th 2008

Sunpower’s (SPWR) strategy on tying up with PolySilicon vendors seems to be getting them the expected results as is evident from their recently announced Q1 results and future outlook.

Q1 2008 revenue was $273.7 million, recording a 22% sequential increase and 92% annual increase. The market was expecting revenue of $245.2 million. The Components segment accounted for 35% and the Systems segment accounted for 65% of the revenue.

Their foothold in the European market strengthened with revenue contribution increasing from 51% the year before to 70% in the current quarter. US share of revenues slipped from 39% to 22% and the Rest of the World contributed 8% compared to 10% the year before. Germany is one of the most advanced markets for Solar Energy uptake, and SunPower has traditionally been very strong there.

For fiscal 2008 they raised their guidance of revenue to $1.3-$1.375 billion with Non GAAP EPS of $2.10-$2.20. They expect the market to grow by 40% during the year 2009 and see themselves as growing by more than 40% as they expand their market share.

SunPower is taking a unique approach to tapping the market. They are the only ones who have focused on the customer, the customer experience, and the channel to the customer. Their technological leadership is evident from the facts that almost half of cell production in the quarter was Gen2 solar cell technology with a minimum conversion efficiency of 22% and they are also migrating to a thinner 145 micron wafer technology.

SunPower brought to the market a new architecture which resulted in a conversion efficiency of 20%. Today, they are talking of 22% efficiency of power conversion thus retaining their position as world leaders in the highest efficiency solar products.

Strategies of vertical integration, broad and differentiated product offerings and their regional mix as they expand in Italy and enter into partnerships in
China
will stand them in good stead.

Despite the performance, the stock slipped 13% from its previous day to $86.80 on the announcement of its results. Today, however, SPWR is trading at $94-$96. With oil at $127 a barrel, SunPower still has a long climb up, and I plan to hold on to the stock for the long term.

Besides, there is a Bill in the House this week which is supposed to approve subsidies for renewable energy that will most likely get approved, blowing more wind into SunPower’s sails.

1yr SPWR

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Much of this growth is being fueled by Power Purchase Agreements. That said, the company often executes PPA’s directly with customers with the expectation that it can later assign the agreement to an outside financier.

SunPower, however, doesn’t disclose its total exposure to unsecured financing or the value of sales guarantees, called system put-rights, whereby SunPower could be required to buy back customers’ systems.

See this.

David J Phillips Monday, June 16, 2008 at 2:28 PM PT

I think that’s a brilliant strategy, David. I am a big fan of smart and strategic use of corporate venture capital techniques to gain scale.

Sramana Mitra Monday, June 16, 2008 at 3:43 PM PT

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