SunPower , the second largest U.S. solar equipment manufacturer, published a mixed set of Q1’17 earnings figures on May 9, amid continued pressure on both panel and PPA pricing. While the company reported a narrower than expected loss, its guidance for Q2 came in below expectations, causing the stock to decline by about 5% in aftermarket trading. Although the conditions in the industry could remain challenging in the interim, SunPower has been taking multiple steps to better weather the downturn and position itself for a maturing market, by focusing on providing differentiated products while cutting down its capital intensity.
We have a $8 price estimate for SunPower, which is about 20% ahead of the current market price.
Focusing On More Premium And Differentiated Solutions
SunPower has been shifting away from lower-value products towards more differentiated solutions to shore up its margins and create a niche for itself in a market that is increasingly dominated by Chinese producers. The company has been skewing its production mix away from its low-margin E-Series modules to its high-end X-Series modules (22%+ efficiency) after shutting down its Fab 2 facility in the Philippines. SunPower has also been focusing on pre-engineered solutions to help improve performance and reduce installation costs. The firm is scaling up sales of its Equinox integrated residential solution, which combines panels, micro-inverters and mounts into a single package. Equinox accounted for ~80% of new customer orders in Q1. The firm also offers Oasis 3 blocks for the power plant market, while providing the Helix solution for commercial operations. SunPower also expects to gradually integrate more battery storage and software services into its distributed solar products in key markets.
Reducing Capital Intensity Of The Business
SunPower has also been outlining plans to reduce the capital intensity of its business. In the power plant space, the company has been cutting down its direct development footprint (with fewer projects also being carried on its balance sheet), while increasingly focusing on its SunPower Solutions group, which sells complete equipment packages to developers. The company said that the group saw about 400 MW in bookings so far this year. Separately, SunPower also signed a manufacturing joint venture in China during Q1, under which its partner expects to construct about 5 GW of P-Series panel assembly capacity, using a mix of both internally sourced and third-party solar cells. The P-Series modules are produced using mass-market multi-crystalline solar cells with a differentiated connection technology to improve performance, and the new facility, which will be located in the heart of the low cost Chinese supply chain, could drive some economies of scale for the company. SunPower’s next generation of monocrystalline IBC-based panels are also reportedly much more capital efficient to produce.
Key Takeaways From Earnings
- Revenues remained almost flat year-over-year on a non-GAAP basis at $429.5 million, as declines in the power plant business were largely offset by growth in the commercial space. Gross margins declined by 10% to 6.5%, amid weaker pricing.
- On a non-GAAP basis, SunPower expects Q2’17 revenues of about $275 to $325 million, with gross margins of 2% to 4%. The company expects to deploy 330 MW to 360 MW of panels during the quarter.
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