A Pair of Solar Surprises

After hours yesterday, we got a pair of reports out of the solar energy space. Both SunPower (Nasdaq: SPWRA  ) and MEMC Electronic Materials (NYSE: WFR  ) delivered some unexpected news.

SunPower turned in quarterly results that exceeded the Street's expectations. Revenue clocked in at a record-high $466 million, representing a 57% sequential lift. That was well ahead of the 40% improvement that management forecast last quarter. Production also hit a record of 110 megawatts. Gross margins of 19.1% (or 20.7% on a non-GAAP basis) were hurt in part by an $8.5 million writedown on some old third-party panels. Backing that out, margins actually ticked slightly higher sequentially.

Unfortunately, the revenue beat wasn't the only unexpected aspect of this earnings report. SunPower also narrowed its full-year revenue guidance. The top end of that range was cut from $1.7 billion to $1.5 billion. The average analyst estimate for the year recently stood at a touch more than $1.4 billion, so the after-hours sucker punch that SunPower shares received yesterday seemed harsh to this Fool.

Meanwhile, MEMC announced a very interesting purchase in conjunction with its quarterly earnings release. The wafer maker is acquiring Goldman Sachs (NYSE: GS  ) -backed SunEdison, an American solar project developer that has built around 300 solar power plants and sports a 1.5-gigawatt pipeline. Applied Materials (Nasdaq: AMAT  ) is also an existing SunEdison investor.

This move by MEMC would seem strange if it weren't so similar to the steps already taken by Chinese wafer players LDK Solar (NYSE: LDK  ) and ReneSola (NYSE: SOL  ) . Both firms have moved downstream, hammering out 500-megawatt project development agreements with Jiangsu province's Yancheng City. ReneSola has also acquired multiple cell and module manufacturers.

After getting hammered during the downturn, it seems no one wants to occupy a narrow niche in the solar supply chain. Vertical integration is all the rage, though it's not clear that this model will work for everyone. Just as not every module maker is suited for in-house polysilicon production (remember when Trina Solar (NYSE: TSL  ) floated and then canned that plan?), not every wafer shop is cut out to be a project developer. This match could ultimately work out for MEMC and SunEdison, both strong players in their respective solar segments, but the synergies are somewhat lost on me.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


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