SunPower's conundrum is that its absolute dominance in silicon solar cell conversion efficiency hasn't consistently translated to success on the top and bottom line. And that's true this year in the context of what CEO Tom Werner has characterized as an industry in "significant transition."
The company has gone through numerous restructuring periods over the course of its history -- most recently shutting down its 700-megawatt Fab 2 in the Philippines and and letting go of up to 2,500 workers.
SunPower recently announced financial results for the last quarter of 2016, with misses on Q4 earnings and Q1 guidance.
Abandon utility-scale solar to focus on residential?
SunPower has "reduced its exposure" to the power plant business, noting that PPA pricing is under considerable near-term pressure. GTM Research reports average PPA prices for utility-scale projects falling below 6 cents per kilowatt-hour in 2015 (including the ITC benefit) and below 5 cents per kilowatt-hour in 2016.
In contrast with its utility business, SunPower's gained residential market share and saw sequential increases in revenue, megawatts deployed and megawatts recognized. The firm deployed 94 megawatts of residential systems worldwide, up 13 percent sequentially and in line with guidance. Market growth has slowed in California, a dominant residential market, because of "much needed, but epic rain," and tax speculation has caused some customers to "pause."
The "Q1 growth rate is not what we expected," according to the CEO.
Still, would it make sense for SunPower to double down on residential and commercial while de-emphasizing its utility-scale business? In spite of the carnage occurring in the residential solar market for players such as Sungevity, SolarCity and Enphase, some equity analysts see that as the best path.
JMP Securities' Joseph Osha wrote in a research note that SunPower parent Total could have "better access to financing" than competing residential financiers like Sunrun and SolarCity. Osha suggests that SunPower's "solid brand and a reputation of reliability" are "virtues that are becoming increasingly important in the residential market."
"All of this makes the company's continued commitment to the utility-scale solar power plant business difficult to comprehend," contends Osha, adding, "Few of SunPower's unique technology advantages favor the company in the utility-scale business."
Credit Suisse analyst Andrew Hughes also believes that SunPower's hopes for 2017 may ride on residential, "even though U.S. market growth is slowing due to regulatory pressure and U.S. tax uncertainty." Credit Suisse is looking for 355 megawatts of residential deployments for SunPower in 2017, along with growth in market share.
"It makes no sense for SunPower to remain in a business that it is ill equipped to succeed in, in our view, and unfortunately the company's strategy is holding up the potential for progress in other segments of the solar market, especially residential," JMP's Osha wrote. "In our opinion, SunPower can only become investable when the company is more focused on the residential and small commercial segments, where it can compete effectively."
Commercial and energy storage
Werner said, "The commercial market is also subject to policy dynamics," suggesting that "time-of-use rates under the NEM 2.0 policy framework in California have increased customer uncertainty. However, we are encouraged to see an increasing commitment by schools and public agencies in California to invest in renewable energy, supported by state policy which allocates over $40 billion in local bond funds toward modernization and new construction, including renewable energy infrastructure."
Record solar cell performance
"In Fab 4, our team recently achieved average production solar cell efficiency of 25 percent," said the CEO, adding, "It's rather phenomenal -- when we IPO'd, the company said that 25 percent was beyond the theoretical limit, and that is the median efficiency that we achieved last week in Fab 4."
"There is a clear trend toward moving from basic front-contact design into a [passivated emitter rear contact, or PERC, architecture]. And I think over the next year or two or three, we'll see a transition." Werner has noted that the industry is also in a transition from multicrystalline to monocrystalline, and "that becomes more competitive for us -- and we have to innovate within the module."
"While we have no special insight into the current administration's policy position on renewables, we have based our 2017-2018 business plan on the following assumptions. First, we expect no change to the current ITC policy structure. Second, we are not forecasting any implementation of the Clean Power Plan, though we believe that many utilities will continue to convert to low-carbon generation regardless of the future status of the CPP. Third, we do expect some type of corporate tax reform over the next 12 to 18 months."
"We believe that 8point3 is undervalued," adding that the YieldCo "includes not only power plant projects but, importantly, commercial and residential [projects], so we have a diversified set of segments that we developed that can be dropped down into 8point3. So we think patience is a virtue here." The CEO pointed out that "our current 37 percent ownership stake in 8point3 is currently worth approximately $400 million" but "book value does not reflect this and is carried in our balance sheet as negative $60 million due to real estate accounting standards."
Guidance for Q1 and 2017
The company's first quarter of fiscal 2017 GAAP guidance:
- Revenue of $315 million to $365 million
- Gross margin of negative 2 percent to 0 percent
- Net loss of $175 million to $150 million
The company's 2017 guidance:
- GAAP revenue of $1.8 billion to $2.3 billion
- Deployments in the range of 1.3 gigawatts to 1.6 gigawatts
- The company expects to exit the year with approximately $300 million in cash