SunPower (NASDAQ:SPWR), a manufacturer of high efficiency solar panels released its third quarter earnings on Thursday, evincing signs that a turnaround may be imminent. The company’s revenues grew by 9% sequentially to $649 million while net loss narrowed from $84 million in the previous quarter to $48.5 million. 
The firm’s performance in North America was particularly noteworthy delivering y-o-y revenue growth of about 36% on strong activity in the utility and residential space. A weak European market weighed down the company’s performance with revenues in the Europe Middle East Africa (EMEA) region falling by almost 70% y-o-y while gross margins remained negative due to aggressive pricing.
Rooftop Market Shows Promise
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SunPower’s leasing program in the United States continues to attract reasonably good adoption and the company is now the market leader in residential solar leasing with about 13,000 contracts added over the last year. Leasing reduces the upfront costs that the customers must pay to install solar power systems. The company is also considering extending the leasing program to Europe where it has a strong dealer presence. ((SunPower Q3 Earnings Call Transcript, Seeking Alpha))
In Japan, SunPower is leveraging its distribution relationship with Toshiba to grow in the lucrative rooftop market. In Q3, shipments to Japan grew sequentially by 30% and the country now accounts for about 10% of SunPower’s revenues. Japan is an ideal market for SunPower’s advanced panels as the market values quality and high technology. The country also recently introduced highly attractive feed-in-tariffs which should help grow residential solar installations.
Operations And Technology
In the increasingly commoditized solar panel market, SunPower stands out as the technology leader. The company’s panels offer the highest conversion efficiency up to 24%, making them attractive for tight spaces like rooftops. The firm’s panels are also more weather resistant and offer lower performance degradation comparable to thin-film panels. During Q3, the company announced a 25 year product and performance warranty program for its solar panels.
Despite its strong product differentiation strategy, the company is not immune to the happenings in the solar market, and cost control remains imperative. The firm is focusing on improving production yields and lowering raw material consumption to achieve its target of reducing panel manufacturing costs by up to 25% by the end of this year. Last month, the company outlined plans to idle some manufacturing capacity and lay off about 900 workers in its fabrication plant in the Philippines.
Utility Scale Projects
SunPower expects to see robust growth for its utility scale projects business. The company has a strong pipeline of utility scale projects in the United States with most projects concentrated in California. It also expanded the international footprint of its utility business with the acquisition of an Austrian renewable energy project developer. Utility scale projects are attractive to the company since it involves longer-term contracts that allow for better economies of scale and lower exposure to panel price volatility.
We are currently updating our $5 price estimate for SunPower following the earnings release.Notes: