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Tapping Into the Sun

Posted on Monday, Apr 16th 2007

In India, the scorching tropical sun is worshipped as a God. These days, it appears that countries like Germany and Japan, and more recently, sunny California are following suit. Solar energy, one of the purest forms of alternative energy, is making headways in becoming a major market phenomenon.

I have recently been speaking with Tom Werner, the CEO of SunPower (Nasdaq: SPWR), one of the leaders in the high-efficiency solar cell market. SunPower designs, manufactures and markets high-performance solar electric technology worldwide. SunPower’s high-efficiency solar cells and modules generate up to 50 percent more power per unit area than conventional solar technologies and have a uniquely attractive, all-black appearance.

In 2003, SunPower identified a big market which at the time was a $1.5 or $1.7 B, and had not had a down year in 20 years. The whole market was about turning sunlight into power, and the efficiency varied. At the time there was mainstream efficiency, 15% efficient products which means that 15% of the sunlight which hits the solar cell is turned into power.

There were conventional crystalline and silicon solutions that were all the same; they had the same conversion efficiency. The unique thing that SunPower brought to the market was a new architecture which converted 20% to power, which was a better conversion efficiency. It did what you would have bought solar systems for, it just did it better than anybody else.

On the wings of superior technology and a more than perfect market timing, with the German market taking off in a massive way, SunPower has built a strong company. The later half of 2004 marked the beginning of production operations. SunPower began producing solar cells, a result of $150M of capital investments from Cypress Semiconductor. SunPower went public in 2005. The stock was scheduled to start the day at $18. Well, when the stock started trading it opened up at over $27.

SunPower did $236 Million in 2006 revenues. This was a massive jump from the $78 Million 2005 revenues. In 2006, they have also become profitable, with a $26 Million Net Income. Looks like a very strong ramp rate, and a lot of growth in the future.

So does the market look like it would sustain the growth? Apparently yes. Today’s Total Available Market (TAM) is around $20 Billion. SunPower is the highest efficiency technology in the world, although Sanyo is close. The rest of the market can be classified as medium efficiency. There is also a new technology emerging called thin films, which uses a thin film on a substrate to convert sunlight into energy. You can segment the market into high efficiency which is really SunPower and to a degree Sanyo, then your medium efficiency products, and finally the thin film products.

All SunPower needs to do is continue to execute on the channel side, and win market share from the lower efficiency providers, and soon enough, it would have a Billion in sales! If past execution is any indication, there’s no reason to believe that the growth won’t continue.

On top of that, the TAM itself is also growing rapidly, so SunPower’s growth rate is likely to be uncontrollable. To get more color, I recommend you read Tom Werner’s interview.

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India can be one of the biggest market for such a technology, but how realistic it can be when you consider it as main stream power providing system?

-Nishant

Nishant Monday, April 16, 2007 at 2:40 PM PT

[...] Tom Werner, CEO of SunPower back in April, and wrote my first analysis piece on the company (Tapping Into The Sun). I also bought a chunk of SunPower stock right around then, and am happy to report that the [...]

Sunpower: Good Planning on PolySilicon - Sramana Mitra on Strategy Monday, October 8, 2007 at 8:36 AM PT

Jack…

I Googled for something completely different, but found your page…and have to say thanks. nice read….

Jack Tuesday, October 30, 2007 at 4:57 AM PT
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