SunPower Deflowered

Last quarter, I had some choice words about SunPower's (Nasdaq: SPWR) cloudy communications. I suspect a similar issue socked the company's shares yesterday.

All in all, first-quarter results looked strong. Both the components and the systems segments beat revenue guidance, and SunPower hiked sales and earnings guidance for the full year. Thanks to thinner wafers and bleeding-edge cell efficiencies, the company's polysilicon intensity, in terms of grams per manufactured watt, continued its decline.

SunPower's usage of 6.3 grams/watt is light for a traditional photovoltaic player. To my knowledge, it's surpassed only by Evergreen Solar's (Nasdaq: ESLR) String Ribbons and, of course, the non-silicon based thin film modules offered by the likes of First Solar (NYSE: FSLR). SunPower's silicon weaning is just one of the methods by which it aims to halve installed system costs by 2012.

Polysilicon supply also exceeded expectations, helping the company crank out 20% more megawatts' worth of modules sequentially. The company's recently installed manufacturing lines primarily drove volume gains, but ample raw material supply made the new lines' ramp-up really rock n' roll.

Despite the solid silicon supply, poly costs didn't dip as anticipated, hurting gross margins in the components business. SunPower reassured everyone that it still sees polysilicon prices pulling back over the course of 2008, taming those costs to the tune of 10%.

The company's shares opened moderately lower on these results, perhaps on word of majority owner Cypress Semiconductor's (NYSE: CY) spinoff of its SunPower stake. The stock really dove during the midday conference call, however. That's when SunPower's CFO let everyone know that the third quarter is likely to come in flat compared to the second.

I don't know why folks would freak out about this -- a similar thing happened last quarter, when margins strengthened sequentially while revenue eased. This is exactly what will happen in the third quarter, when more components are internally allocated to SunPower's systems.

The fact that an analyst on the call had to clarify that this allocation shift was lowering third-quarter revenue indicates that misunderstanding these future flattish revenues is probably pervasive. SunPower made a mistake by briefly looking ahead to its third quarter, which looks limp in isolation. As the company itself noted, project bookings are viewed on a two- to three-quarter basis.

I can only wish that this tantrum by Mr. Market will encourage SunPower to abandon quarterly guidance in favor of half-yearly forecasts.

SunPower is rated a middle-of-the road three stars in Motley Fool CAPS. Click right here to weigh in -- our stock picking community is totally free!

Related Foolishness:

• Cypress Semiconductor? More like Cypress Solar.
• SunPower's a top holding of this smokin' stock picker.
• Does this event mark the sunset of the silicon squeeze?