First Solar And SunPower Diversifying Away From European Markets

Solar stocks are headed for a weak year driven by the lowering of feed-in-tariffs in Germany and Italy and increasing competition from low-cost Chinese manufacturers. These two factors together have impacted the sale prices of solar energy in the market. Analysts estimate that global PV market demand in 2011 will grow 19% over the year to 19.8 gigawatts, driven by North America, India, and China. From 2010 to 2013, the market is expect to grow at a compounded rate of 12% a year. The major solar players are already focusing on these emerging markets.

First Solar’s Financials
For the second quarter, First Solar’s (NASDAQ:FSLR) revenues fell from $587.9 million a year ago to $532.8 million. Production grew 40% over the year to 482.9 megawatts and total cost per watt produced and core manufacturing costs per watt fell a cent each to $0.75 $0.73. EPS of $0.70 was significantly short of previous year earnings of $1.33 per share. The market was looking for EPS of $0.92 on revenues of $582.0 million.

For the year, they are projecting revenue of $3.6 billion-$3.7 billion with EPS of $9.00-$9.50. The Street was targeting revenue of $3.75 billion with EPS of $9.24.

First Solar’s Global Expansion
First Solar has been focusing on geographic expansion to reduce dependence on the European markets. In terms of megawatts, North America’s market share grew 17% a year ago to 25%. The company expects the region to be their biggest market by 2012.

India remained a focus area driven by favorable government policies and local partners. First Solar expects India to account for more than 10% of their megawatts this year. During the quarter, planned shipments in India grew to over 200 megawatts compared with 100 megawatts in Q1 and 10 megawatts last year. They recently signed four new module customers in India and contracted more than 250 megawatts year-to-date for deliveries in 2011 and into 2012. Together, North America and India contributed 50% of their quarter’s revenue.

The stock is trading at $100.36 with a market capitalization of $8.66 billion. It touched a 52-week high of $175.45 in February of this year.

SunPower’s Financials
SunPower (NASDAQ:SPWRA) continued to surpass market expectations. Revenue of $592 million grew 54% over the year and were ahead of the Street’s target of $586 million. EPS of $0.19 for the second quarter was in line with market expectations.

SunPower projected current quarter revenues to be $700 million-$750 million with EPS of $0.05-$0.015. The Street was looking for revenue of $742 million and EPS of $0.19. For the full year, the company’s projections of revenue of $2.80 billion-$2.95 billion with EPS of $0.75- $1.25 were ahead of the Street’s target of $2.76 billion revenues with EPS of $0.72.

SunPower’s Falling Cost Structure
SunPower has been focusing on lowering their cost structure to help compete with the low-cost Chinese manufacturers and to maintain profit margins. They are working to reduce the cost per watt to $1.48 per watt by the end of this year and claim to be on track toward that goal. They also accelerated the reduction of the steps involved in producing solar cells and are targeting a 15% reduction in the same by the end of 2012.

SunPower’s International Growth
Like its peers, they are focused on expanding in markets other than Germany. To cater to the growing demand in the U.S., they recently announced plans to set up a plant in Mexicali, Mexico. During the current quarter, 63% of revenue came from North America compared with 45% reported a quarter ago and 34% reported a year ago. Europe’s share has been on the decline with the 30% revenue contribution during the quarter compared with 43% last quarter and 56% a year ago.

The rest of the world brought in 7% of revenue for the quarter compared with 12% a quarter ago and 10% a year ago. However, SunPower is focused on emerging markets and recently signed up an agreement with Mahindra in India for delivery of 15 megawatts of solar panels by the end of this year to help build multiple grid-connected solar power plants in India in the states of Punjab, Rajasthan, and Gujarat.

Their stock is trading at $15.70 with a market capitalization of $1.57 billion. It touched a 52-week high of $23.36 last month.