SunPower Just Keeps on Growing

SunPower (NASDAQ: SPWR  ) survived solar's downturn, falling European subsidies, and the Chinese trade wars. Now the company is in a very strong place, while many of its competitors are struggling with low-efficiency panels and high debt loads.

SunPower continues to drive the industry forward by focusing on lowering solar's levelized cost of energy with innovative solutions like efficient panel-cleaning robots.

SPWR Operating Margin (Quarterly) Chart

SunPower operating margin (quarterly) data by YCharts

In the past, SunPower has had lower margins than First Solar (NASDAQ: FSLR  ) , but things are starting to change. For many years First Solar won the solar wars by focusing on cheap panels with low efficiencies. The problem is that prices have come down so far that the photovoltaic modules have fallen from 67% of a project's total cost in 2008 to just 32% in 2012.

Now, SunPower's high-efficiency panels are flying off the shelf. Its earnings have exploded from a loss of $0.41 per share in the third quarter of 2012 to a profit of $0.89 per share in Q3 2013 and its operating margin is up.

SunPower enjoys a strong advantage with its highly efficient panels. These products require less real estate and fewer inverters to produce equivalent power to less efficient panels. SunPower has played its cards well by focusing on lower total system costs

First Solar and SunPower have already started to diverge. From 2010 to 2012, SunPower's inventory as a percentage of sales decreased from 14.1% to 12%. In the same time period, First Solar's inventory as a percentage of sales increased from 7.8% to 12.9%. In absolute terms, SunPower's inventory has fallen from $313 million in 2010 to $291 million in 2012, while First Solar has seen its inventory more than double from $200 million to $435 million. 

SunPower's sales are so strong that the company is expanding production with 350 megawatts of new production capacity. 

The efficiency game
Low efficiencies are holding First Solar back, and the company is working with General Electric to turn things around. It hopes to reach panel efficiencies of around 17% by the end of 2016, but SunPower is aiming for 23% efficiency with its X-Series panels by 2015.

SunPower's acquisition of the robotic solar-panel cleaner Greenbotics is a natural extension of the company's goal to make solar as cost effective. This is a great example of SunPower stepping outside of its core manufacturing competencies to boost its overall product line.

The robot reduces the amount of water required to clean a solar panel by 90% compared to traditional methods, providing a considerable decrease in operational and maintenance costs in dry desert regions.

The Middle Kingdom 
Beijing recently decided that manufacturers need to spend 3% of annual revenue or a minimum of $1.6 million a year on research and development. For heavily indebted Chinese manufactures struggling with continual losses, these new R&D requirements are only one more headache. The insolvency of Suntech shows that Beijing is willing to let companies go bankrupt. 

JA Solar  (NASDAQ: JASO  ) and LDK Solar (NASDAQOTH: LDKYQ  ) are two good examples of second-rate Chinese manufacturers that may end up suffering from China's new R&D requirements. 

LDK Solar's sales have collapsed. In 2012, the company posted a gross operating loss of $90 million. It is only a few steps away from bankruptcy with more debt than it can handle. At the end of 2012, it had $5.5 billion in total liabilities against $5 billion in current assets. It is only a matter of time before LDK Solar closes its doors, and required R&D spending only speeds up the inevitable.

JA Solar is also in a tough spot. At the end of 2012, its total liabilities were still less than its total assets, but it posted losses from continued operations of $91 million in 2011 and a loss of $266 million in 2012.

The company recently announced that it has pushed its panels beyond 20% efficiency, but this is a muted victory seeing as SunPower's X-Series panels are already 21.5% efficient. With expected losses in 2014, it's best to stay away from JA Solar for now.

Final thoughts
SunPower is making solar power more economical with everything from new solar panel cleaning robots to more efficient panels. Now it is expanding capacity while its inventory is falling. SunPower is one of the best solar manufacturers around as competitors like First Solar, LDK Solar, and JA Solar try to catch up.

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  • Report this Comment On December 03, 2013, at 8:49 AM, clanza875 wrote:

    Why not mention that SPWRs technology (monocrystalline silicon) is also the most expensive? All of that increased efficiency comes at a large cost. Examining company reported nonGAAP earnings may not tell the whole story.

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