SunPower shines, up 24% today

SunPower Corp (SPWRA), the second-biggest U.S. solar cell maker, is up 24% today after reporting a second-quarter profit of 26 cents a share, far surpassing the expected loss of 3 cents a share. Even more, SunPower raised the lower-end of sales guidance and boosted 2009 earnings projections to 45 cents to 90 cents, up from 25 cents to 75 cents estimated in April. The company cited “a highly visible pipeline of deals we expect to come through in the third quarter” as the reason for increased guidance.

Despite higher prices, tough credit, and general economic weakness, SunPower almost doubled panel shipments from last quarter and was able to maintain only a 10% quarter-over-quarter price decline despite rapidly falling China panel prices. These solid quarterly results are evidence of the strength of SunPower’s backlog of utility orders.

As the credit crunch reduced rooftop sales that use lower-margin individual panels, SunPower has shifted its focus to large-scale utility solar plants. The company’s vertically-integrated business model has widely been expected to capture significant market share in the U.S. utility scale market.

There were a few exciting aspects from a competitive advantage standpoint. One, there appears to be some brand awareness for SunPower products and SunPower’s Levelized Cost of Electricity (LCOE) proposition is compelling to end-customers. For more on SunPower’s LCOE, click here. Two, and even more exciting, are SunPower’s plans to reduce production costs and enhance economies of scale.

By manufacturing panels in Mexico and Malaysia, the company plans to reduce solar plant assembly costs and enhance economies of scale. That, in addition to cheaper silicon, will help drive costs down to less than $2 per watt by the fourth quarter and $1 per watt by 2014. In other words, SunPower will be as competitive (if not better) than the current cost-leader First Solar (FSLR).

SunPower has always offered the most efficient high-quality product in the solar power industry. Now it appears to be on track to match First Solar’s cost advantage and economies of scale. It also seems that SunPower’s brand name is strengthening. All of this bodes well for SunPower’s long-term competitive advantage.

For more on SunPower and the solar industry, see my initial write up here.


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Peter J. Lazaroff, Investment Analyst

Note: SPWRA finished the day +28.93%