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Earnings season is upon us and two of the solar industry's largest players have weighed in on how the year has begun. First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWR ) seem like they're operating in different worlds. I'll compare the two in a second but let's get to the numbers first.
First Solar struggles
Revenue for the first quarter was $497.1 million at First Solar, down 12% from last year and 25% sequentially. Net loss ballooned to a whopping $449.4 million, or $5.20 per share, on $401.1 million in restructuring charges.
Revenue fluctuates because of the company's power plant sales, but there are two red flags I would like to highlight. Capacity is expected to drop from 2.4 GW in 2011 to below 1.7 GW in 2012. This is due to the previously announced closure of a plant in Germany, but it gives less opportunity for revenue in the future. More importantly, gross margin declined to 15.4%, a third of what it was a year ago. I'll highlight why this is important below.
On the other end of the spectrum is SunPower, which can't match First Solar's cost per watt but crushes First Solar in efficiency. The company had revenue of $580.1 million in the quarter and a GAAP loss of $74.5 million, or $0.67 per share. Non-GAAP loss was $13.5 million, or $0.12 per share. Revenue was up from last year and down sequentially, but like First Solar, comparisons in revenue mean very little.
What is important for SunPower is that margins have stabilized and appear to be rising ever so slightly. In the first quarter, non-GAAP gross margins edged up to 12.7% from 11.3% in the previous quarter. GAAP gross margin rose from 6.8% to 9.2%. Management expects further improvement in the second quarter to a GAAP gross margin of 11% to 13%.
This margin level brings SunPower up to where Suntech Power (NYSE: STP ) , Canadian Solar (Nasdaq: CSIQ ) , and Trina Solar (NYSE: TSL ) performed last quarter. We'll find out in a few weeks whether these manufacturers are increasing margins, as SunPower is, or whether competition within China is still hot and they're forced to compete on price more than quality.
Another thing to note from SunPower's earnings is that 63.4% of revenue came from the Americas, primarily the U.S. This is important because tariffs on Chinese companies that are coming down in two weeks could put them further behind in the U.S. and this is one of the few markets in the world that appears to be steady right now. Europe is collapsing and while China, India, and others are growing, there's fear of boom and bust with their subsidy structures.
Solar from two sides of the market
There is a lot of debate in the industry over whether thin-film solar has a place in the future or whether crystalline silicon will eventually take over. The results this quarter highlight the different directions the companies and technologies are heading in, as you can see below.
Source: Company earnings announcements.
SunPower is by no means going to shoot to a 40% gross margin like First Solar once had, but the fact that margins have stabilized over recent quarters and even increased slightly show that the company is in a reasonably strong position even in a very tough market. At the very least, the chart above shows that the two companies are heading in different directions financially.
Unless First Solar is able to make a step change in its conversion efficiency or lower costs faster than expected, I don't see the narrative changing. SunPower has a step reduction in costs coming through the pipeline and is coming closer and closer to meeting First Solar on an efficiency-adjusted basis.
Down, but not out
I think First Solar will continue to struggle operationally versus higher efficiency manufacturers, but consider that the company actually increased operating cash flow guidance and earnings per share guidance for 2012. The company may not be in the strongest strategic position, but from an investment standpoint shares are looking very cheap. Don't count First Solar out just yet.
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