Earlier this year, the Obama government announced its federal-level energy policy to simulate demand for renewable energy. As a result, solar power is no longer the luxury it once was. In addition to federal programs, there are state incentives which together help reduce installation costs by 40% to 90%. New Jersey, for instance, offers up to 90% incentives for home solar panel installation through federal tax credits, a cash rebate, and a funding program through PSE&G. According to a recently released study by the Lawrence Berkeley National Laboratory, panel prices fell 31% over the ten-year period from 1998 to 2008. Analysts expect a further 8% to 10% reduction in prices in the coming years. But even though falling prices have spurred demand, the leading equipment manufacturers’ results weren’t all sunny. With Chinese manufacturers flooding the market, American companies are trying to respond by better managing their offshore Asia manufacturing operations. Like all other manufacturing businesses, solar power is also seeing China and Asia becoming critical to companies’ scaling and competition strategies.
First Solar (NASDAQ:FSLR), the largest manufacturer in the United States, saw revenues slide from $520 million last quarter to $480 million. Revenues grew 38% over the year but missed the market’s expected revenues of $528.8 million. EPS of $1.79 managed to exceed the market’s expected $1.74 target.
Revenues were much lower than anticipated, primarily because of the $58 million in revenues that the company earned on its Sarnia project which were deferred to Q4, price reductions driven by its rebate program and foreign exchange movements.
First Solar continued to bring its manufacturing costs down from previous quarter’s $0.87 per watt to $0.85 per watt and recorded a 21% drop in costs over the year. First Solar is looking to reduce the cost of production for thin-film modules by a third in the next five years. The company generated 292 megawatts during the quarter, and the annualized capacity per line grew 2.5% over the quarter to 53 megawatts, with efficiency growing 11% to 11% on average.
FirstSolar saw significant growth in its pipeline, signing power purchase agreements worth 550 megawatts. With the German market getting ready for the proposed roll-back of solar subsidies starting in January, the company has seen demand shift to the current year instead. First Solar’s rebate program and lower costs have also helped to drive demand.
The company expects revenues of $1.98 billion to $2.03 billion compared with analysts’ projected revenues of $2.00 billion.
The stock is trading at $121.93 with a market capitalization of $10.4 billion, significantly lower than the $207 levels attained earlier this year.
Meanwhile, SunPower (NASDAQ:SPWRA) announced that Q3 revenues grew 57% sequentially to $466 million and 24% over the year while managing to beat the market’s expected $420 million target. By segment, Components generated 64% and Systems 36% of revenues during the quarter. EPS of $0.42 managed to beat the market’s expected $0.40.
SunPower grew capacity by 57% over the year and produced 110 megawatts of power. With financing for projects slowing, the company announced the development of a 24-megawatt Montalto power plant in Italy, which will be the highest photovoltaic power plant in that country, and the company is hopeful of more wins in the coming quarters. Overall, SunPower had more than 60 megawatts of power plants under construction, the most in its history.
SunPower is following a three-pronged strategy for growth. First, the company is working on growing its dealership network, and expanded it by more than 50% in the quarter, not only in existing markets, but also in the newer markets of France, Korea, and Canada. In France, SunPower announced its first major supply agreement for commercial rooftops with a leading grocery chain, the Casino Group, to supply 14 megawatts by the end of the year.
SunPower’s second focus is on improving the efficiency of its products. The company is currently developing Fab 3 and Gen 3 solar cells to be launched next year, which should result in greater efficiency and lower costs. SunPower has already produced Gen 3 cells with 24% efficiency levels in its production facilities. The company aims to improve efficiency to 25% by 2014. It recently announced the production of the world’s most efficient full-sized solar panel, which claims 20.4% area efficiency, and expects to market this panel within the next two years.
Finally, SunPower is focusing on reducing production costs to meet the falling prices. To help achieve the goal of cutting current costs of “less than $2 a watt in Q4 to less than $1 a watt in 2014,” SunPower is opening facilities at lower cost locations, tying up with JV partners who are focused on innovative solutions to the use of wafer and ingots and are working on improving utilization of polysilicon in their products. With the continuous decline of silicon prices, SunPowershould be able to compete well with First Solar’s cheaper cadmium telluride panels. The company has already completed its Fab 2 facility in the Philippines and is building its Fab 3 facility in Malaysia to help control production costs.
In the shorter term, Sun Power is focusing on managing demand and inventory levels. The company reduced inventory levels by 10% during the quarter.
SunPower remained optimistic about the residential market and maintained its market leadership position in California. With prices expected to slide further in Q4, the company expects stronger demand in the residential segment.
For the fiscal 2009, SunPower projects revenues of $1.43 billion to $1.50 billion with net income per share of $1.15 to $1.25 and production of nearly 400MW.
The stock is trading at $24.81, taking its market capitalization to $2.35 billion, also significantly lower than the 52-week high of $52.22 reached almost a year ago.
The solar industry is all set to grow with prices coming down and demand and competition increasing. It is not only the local players that are competing; Chinese manufacturers have also entered the fray. With lower prices, Chinese companies such as Trina Solar and Solarfun Power seem to be gaining bigger ground in the European market. They are no longer restricting themselves to simply selling solar equipment in the United States market and are tying up with U.S. players to provide expertise and jointly develop energy and cost-efficient solutions. For instance, within solar, ENN, the Chinese manufacturer of thin-film solar panels and solar farm developer, recently announced its tie-up with Duke Energy Generation Services. This arrangement will let ENN bid on large-scale contracts for solar farms and solar projects within the United States and compete with the likes of SunPower and First Solar.
With the Chinese now competing on both thin-film and production cost advantages, U.S. companies will need to counter them on both fronts – technology and cost of manufacturing.