It shouldn’t really come as a surprise that photovoltaic manufacturers are lowering their projected earnings for 2011.
After all, there’s a glut in the market and manufacturers continue to lower prices in an attempt to move product.
SunPower Corp. (NASDAQ: SPWRA SPWRB) recently said it plans to revise full-year earnings for 2011 when it reports its third-quarter earnings early next month. Although it didn’t specifically say it would lower guidance, news reports widely anticipate that it will do so.
As one of the U.S.‘s largest solar manufacturers, SunPower’s plight may be indicative of the fortunes of solar companies in the coming months. However, it and the U.S.’s other solar giant, First Solar (NASDAQ: FSLR), also develop projects, which should help them weather the flood of oversupply, chiefly from cheap Chinese imports.
“The challenging market conditions continue to impact our global residential and commercial business. As a result, we will revise our 2011 revenue and earnings outlook on our third quarter earnings conference call to be held on Nov. 3, 2011," said Dennis Arriola, SunPower CFO, in a press release.
One of the challenges facing SunPower is its pipeline of European projects, according to JP Morgan analyst Christopher Blansett.
“SunPower gets a lot of its business from Europe,” he said. “The dollar’s been strengthening against the Euro.”
Even if everything else remains the same, its earnings could still be impacted by that.
“Secondly, obviously we’ve continued to see solar module pricing declines throughout the second half of 2011,” Blansett said. “We’ve been building a massive oversupply for years.”
The oversupply is leading to continued, steep pricing declines.
The pricing declines are largely coming through Chinese solar companies.
“We’ve been hearing many Chinese companies have been providing extremely favorable terms,” he said.
But the company has plenty of captive projects ahead of it that will stave off any larger impact of lowered module costs for the near future. And it’s still attracting capital.
This past Monday it announced a new, $275 million two-year credit facility. It also attracted $200 million in letters of credit with Deutsche Bank AG and Deutsche Bank Trust Co. Americas.
"Our new revolving credit agreement reduces our overall cost of capital, improves our balance sheet flexibility and liquidity, and further demonstrates the value of our relationship with Total," Arriola said. "Additionally, our new letter of credit facility will further support our strong and growing commercial, utility and power plant businesses in North America.”
Blansett isn’t worried about the company.
“They don’t have an issue. If things got really bad, Total might absorb them as a company,” he said. “They have a strong project pipeline in the U.S. for the next couple of years.”
That side of the company’s business will keep it going strong and make sure it has a continued market for its modules.
The case is similar for First Solar.
“They have an even stronger project pipeline in the U.S.,” Blansett said.
Both companies are well positioned for at least the next two years, he said. After that, it’s harder to tell as module and materials prices are likely to keep declining.
Image courtesy of SunPower.