FRIDAY, MAY 8, 2009
INVESTORS' SOAPBOX AM
SunPower May Lose More Market Share
Sharp, SolarWorld and Suntech are offering very competitive products.
Pacific Crest
THROUGH THE FIRST four months of 2009, applications for the California Solar Initiative (CSI) are up 59% over the same period in 2008. We found the data surprising as we expected the market to be affected more negatively by the turmoil in the financial sector.
From January through April of 2009, CSI applications have already achieved 51% of the total applications submitted for all of 2008. Applications through April accounted for over 78 megawatts [MW], a level that was not achieved until July of last year.
Of the 78 MW of applications year-to-date, the government sector accounts for 33 MW, a 135% increase over the 2008 data. And more surprisingly, this sector has already achieved 93% of the total applications submitted for all of 2008. We note that despite the better incentives from the enhanced Investment Tax Credit (ITC), the residential market is tracking only modestly ahead, while the commercial sector is doing slightly better. In our view, the weakness in the economy is likely affecting the residential and commercial markets more than government spending.
An analysis of the data show both Sharp [of Japan] and SolarWorld [of Germany] dominating the government sector, while Suntech Power Holdings [of China] (ticker: STP) garners the largest portion of its revenue from the commercial sector. From our channel checks with both suppliers and installers in California, we believe this growth in market share is being driven by significant reductions in module prices. Our contacts suggest that these three companies are offering more significant price discounts than SunPower (SPWRA).
SunPower continues to dominate the residential market for CSI applications; however, this market is growing only marginally compared with the growth in all the other sectors. SunPower has been trying to maintain its premium pricing structure, but we find the gap to be widening and SunPower's competitors to be winning market share. SunPower's margin profile could be at further risk if the company cuts prices significantly to stem the losses.
SunPower's management team will not agree with our assessment that the company is losing market share. SunPower contends that completed projects rather than applications should be analyzed, because the module supplier can be changed during the install process. This rearview-mirror analysis clearly shows SunPower in a dominant position, but it also tells the investor nothing about future trends. We contend that application data (culled to remove any erroneous data, including withdrawn and cancelled applications) give the investor a better view of future trends. We believe this to be especially true in a declining price environment where the solar consumer is most concerned with not only the price of the system, but also the ultimate cost of the electricity being produced.
If SunPower continues to maintain its premium-pricing structure while professing its dominance in both brand and technology, we believe further market-share losses are a likely outcome given the very competitive and substitute products offered by Sharp, SolarWorld and Suntech.
-- Mark Bachman
-- John Robertson
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