SunPower Slows, But Obama’s Stimulus Should Help

After quarters of stellar growth, SunPower (NADSAQ:SPWRA) too seems to have been hit by the economic meltdown, and its earlier confidence in meeting projected numbers has wavered. In the recently announced Q1 results, revenues of $214 million fell by 22% over the year and came in far short of the market’s expected $269 million. EPS of $0.05 was also significantly short of the Street’s expected $0.24.

By segment, Component revenues of $108 million grew 14% over the year while Systems revenues fell 41% over the year to $106 million. SunPower attributed the slow growth in the components segment to the long winter in Europe, which affected sales in Germany; challenging business conditions due to uncertainty about the economic environment; and tight credit, which resulted in slowing demand and customers delaying decisions.

Going forward, SunPower revised down its 2009 guidance with revenues now projected to be in the range of $1.3-$1.7 billion with non-GAAP EPS in a range of $1.25-$1.75.

In view of falling demand, the company has optimized inventory levels by adjusting factory outputs at its fabs in the Philippines. It has also rescheduled a portion of the building of Fab 3 in Malaysia.

Continuing with its product and market diversification strategy, the company is addressing the three emerging markets of rooftops, distributed power plants and utility scale projects. SunPower’s success in the rooftop market is notable because of its higher conversion efficiencies, which enables it to offer customers better NPV (net present value) than any other solar company in the segment.

Further, with interest in the US in the distributed power plants growing, SunPower should have an edge over competitors as it has already developed that segment as a core business in Europe over the past five years. Finally, in the area of utility-owned solar programs, which includes rooftops, distributed power plants and central power stations, SunPower should expect superior performance given its credibility and performance standards. Recently, it announced a three-year 300 to 600 megawatt supply agreement with the FPL Group, one of the country’s biggest electricity and gas utilities, and will be working with them to accelerate solar deployment across the United States.

SunPower has been able to manage production costs when others in the industry have suffered. It attributes its success to tie-ups within the industry. Besides PolySilcon, it has also integrated or partnered with others in the production of ingots and wafers. Additionally, its R&D team has made a constant effort to advance the conversion efficiency of their cells while maintaining costs, thus reducing overall costs.

The stock is trading at low levels of $29.03, taking its market capitalization to $2.5 billion.

This, though, is likely to change as President Obama’s stimulus for solar energy adoption kicks in in the upcoming months, in his bid to make 20% of America’s energy needs to be coming from alternatives by 2021. Other countries like Spain, Japan, China and Australia are all putting in policy level goals to accelerate solar and other alternative energy adoption. If a global alternative energy agenda takes off in the next 5 years, SunPower, clearly, will be a significant beneficiary, alongside many other solar manufacturers and intigrators.