SunPower’s 2016: A Tough Year In Review
SunPower (NASDAQ:SPWR), the second largest U.S. solar manufacturer, had a challenging 2016, amid a sharp decline in solar panel pricing, weaker power plant contracting activity and an increasingly uncertain regulatory environment in the United States. SunPower’s stock is down by 75% year to date, significantly underperforming the MAC global solar index, which was down by about 43% in the same period. Below we outline some of the key takeaways from SunPower’s 2016.
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Challenging External Factors Hurt SunPower’s Results And Outlook
SunPower’s revenues for the first nine months of the year grew by about 29%, as the firm executed on its power plant project backlog while seeing a stronger uptake for its commercial solar products. However, gross margins fell by 210 bps to about 16.5%, due to weaker pricing. The global solar market saw an oversupply situation during the second half of 2016, driven by feed-in-tariff cuts in China, which have dented aggregate global panel demand, and also due to significant capacity expansion by panel manufacturers. The price of solar panels has declined by over 30% this year, and further reductions are expected in 2017. Panel demand is also expected to fall to 69 GW in 2017 from about 74 GW this year, per GTM Research. Things have been difficult in the projects space as well, due to competition from independent power producers and smaller players. SunPower’s project visibility for 2017 remains weak, as the firm has only around 182 MW of utility scale projects slated for completion in 2017, compared to over 575 MW this year.
There were adverse developments on the policy front as well. The election of Donald Trump to the U.S. Presidency could result in a reduction of renewable subsidies at the federal level, while altering the United States’ stance on climate change. Separately, Japan, which was another growth market for SunPower, also faced setbacks amid subsidy cutbacks and reduced renewable investments.
SunPower Is Taking Multiple Steps To Navigate Downturn
SunPower has been taking several steps over the last few months to navigate the downturn. Firstly, the firm announced plans to lay off roughly 3,700 workers this year, with a majority of the cuts coming from its fabrication and manufacturing units in the Philippines. SunPower intends to shut down its Fab 2 facility in the Philippines, removing roughly 700 MW of older, higher-cost solar cell manufacturing capacity, while skewing its production mix towards its high-end X-Series module produced at its Fab 4 units. SunPower will tap into its P-Series module technology – which utilizes third-party polycrystalline cells – to provide low-cost volume flexibility and greater capital efficiency. The firm will also reduce its exposure to the self-development of utility scale projects in international markets, while focusing on a few core regions such as the U.S. as well as Latin America and France. (related: SunPower’s 2017 Guidance)
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