SunPower Earnings Will Show Difficult Solar Market Conditions

May 2nd, 2012 by Trefis Team
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SunPower (NASDAQ:SPWR) will announce its earnings on Thursday. With the solar industry still under the grip of an oversupply situation, the company is expected to report a loss because of restructuring costs associated with the closure of one of its fabrication facilities in the Philippines. The company has announced plans to reduce its manufacturing costs and aims to produce panels at $0.86 /watt by the end of this year. Low costs are key to surviving the current shakeout in the solar industry as Chinese players like Yingli Solar (NYSE:YGE) aggressively cut prices as demand from European markets falls.

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With the global demand for solar panels set to fall by almost 10% in 2012 because of subsidy pullback from European governments, the solar industry is set to see another tough year ahead.

SunPower and First Solar have announced closure of some of their manufacturing plants to cut costs and adjust to the low demand scenario. SunPower announced that it would be closing its Fab 1 plant and make changes to its manufacturing process in other facilities to make them more efficient. The closure of the Fab 1 plant is also expected to boost the company’s supply chain efficiency. Dropping panel prices have forced players to focus on reduced costs to survive the downturn. The restructuring is expected to cost the company between $51-69 million in charges. (See: SunPower Looks to Cut Costs to Survive Industry Downturn)

Industry analysts have long predicted a round of consolidation in the solar industry. Although SunPower does hold around $0.6 billion in debt, its takeover by Total has provided the company with access to credit lines, which should help the company survive the current downturn. SunPower produces high efficiency panels that sell at a premium to other panels in the market. However, with the panel market becoming increasingly commoditized, SunPower is focusing on reduced costs to be competitive with low cost Chinese manufacturers. Lowering production costs to$ 0.86 /watt should help the company maintain positive margins despite falling panel prices.

We will be revising our $12.74 price estimate for SunPower, which is double its current market price.

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