SunPower (NASDAQ:SPWR), a high efficiency solar panel manufacturer and project developer, is expected to release its fourth quarter earnings on February 7. The firm has posted sequential operating losses over the last three quarters due to the oversupply of panels in the global market.
For Q4, we expect the firm’s revenues to grow marginally, aided by stronger rooftop installations in the U.S., and potentially by a stronger performance by the firm’s utility scale solar business. However, the firm’s profits are likely to be impacted by higher restructuring costs for the quarter (could be as high as $40 million).  Here are some of the key trends we will be watching when the firm releases earnings for the quarter.
Cost Control And Operational Improvements
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SunPower’s monocrystalline panels compete with polycrystalline panels that are sold by Chinese manufacturers and are typically more expensive to manufacture. Recently, the declining costs of polysilicon, a raw material used to manufacture polycrystalline panels has caused their prices to decline to less than $0.70 per watt, widening the price gap between polycrystalline and monocrystalline panels.
In order to improve its competitiveness, SunPower has been focusing on cutting costs by increasing production yields and lowering raw material consumption. The firm has set a target of reducing panel manufacturing costs by around 25% to around $0.75 per watt, on an efficiency adjusted basis by the end of this year (SunPower quotes efficiency adjusted panel prices that consider the balance of system and tracking benefits of its high-efficiency panels). The firm also outlined plans to idle some manufacturing capacity and lay off about 900 workers in its fabrication plant in the Philippines in October. In the earnings release, we will be watching the firm’s progress in reducing panel costs and also its progress in improving the efficiency of its panels.
U.S. Market: Solar Leasing And Utility Solar Projects
The U.S. rooftop market is less subsidy intensive compared to other developed markets like Europe, making solar energy more sustainable and less dependent on government regulations. Rooftop solar installations have been on the uptrend in the U.S., with both residential and commercial installations showing strong growth in the third quarter. Residential installations grew by around 12% sequentially while commercial grew by around 24%. SunPower’s monocrystalline panels are best suited for rooftop applications due to their smaller footprint and higher efficiency. The firm has a strong distribution network in the U.S., and also operates a solar equipment leasing scheme to increase sales to the residential market. The firm is now the market leader in residential solar leases and has lined up a total of around $530 million in financing, from lenders including U.S. Bancorp (NYSE:USB) and Citigroup (NYSE: C).
SunPower has also been making steady progress into the North American utility scale solar market, and recently bagged a contract from MidAmerican Energy to construct the world’s largest solar power plant. Building large scale projects are attractive to solar firms due to the larger volumes and relatively lower exposure to the volatility in solar panel prices. We will be interested in hearing of the firm’s progress in executing on its utility scale projects, and also business outlook for this year. (See Also: How SunPower Benefits From The MidAmerican Deal)
International Markets: Japanese Growth In Focus
As conditions remain challenging in Europe, SunPower is looking toward other international markets for growth. One country that is particularly attractive to SunPower is Japan, which accounts for around 10% of the firm’s revenues. Solar power is likely to play an increasing role in Japan’s power generation mix as the government has planned to phase out its nuclear power plants by 2030. SunPower’s high efficiency product line is a good fit for the Japanese market, which requires better conversion efficiency given the lower availability of real estate. The Japanese government is providing feed-in-tariffs which are among the highest in the world to encourage installations. SunPower has an agreement with Toshiba to supply panels in the Japanese market.
During Q4, SunPower bought a 42% stake in Diamond Energy, an alternative energy project developer based in Australia. This strategic investment could help the firm boost panel sales in the Australian market, and also give the firm access to the fledgling utility scale solar market in the country.Notes: