SunPower Continues to Dominate Solar Competition

The solar industry has gone through a long and painful decline over the past few years but it is finally maturing and winners are starting to emerge. One of the winners appears to be SunPower (NASDAQ: SPWR  ) , the high-efficiency-module manufacturer.

Separating from the field
SunPower reported earnings last night and the company continues to make progress toward sustainable profitability. It generated $635.4 million in revenue in the quarter and earnings of $0.22 per share on a non-GAAP basis. Analysts only expected $507.7 million in revenue and earnings of $0.06 per share so the results easily topped estimates.  

The biggest takeaway was continued gross margin improvement. SunPower has steadily increased non-GAAP gross margin over the past year. This is the number I focus on because it pulls out variability of projects from quarter to quarter.  

 

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q1 2013

GAAP Gross Margin

9.2%

12.3%

12.4%

6.9%

9.3%

Non-GAAP Gross Margin

12.7%

15.1%

14.1%

18.7%

22.7%

Source: SunPower

During the first quarter, 2,100 leases were signed in the rooftop market, proving that SunPower is making inroads against SolarCity (NASDAQ: SCTY  ) in the residential market. SolarCity is offering a similar leasing structure but SunPower offers a higher-efficiency module, which should be more cost effective in the long term.

The C7 Tracker is also being tested on a megawatt scale now, which is intended to bring SunPower even more business in the utility market. SunPower is trying to use its higher efficiency to its advantage by concentrating the sun's power seven times on each solar cell. Though, First Solar (NASDAQ: FSLR  ) is by far the cost leader in utilities. Interestingly, First Solar bought TetraSun to get into the residential space that SunPower dominates, while SunPower is pushing C7 to get into the space First Solar dominates.

Both First Solar and SunPower are benefiting from utility-scale projects right now but I think the first quarter shows why SunPower will eventually separate from First Solar and the rest of the field; its higher-efficiency solar modules are generating better and better returns every quarter while competitors scramble to catch up.

Management held off giving guidance until analyst day on May 15, when we should get an even better peek into the company's future.

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