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SunPower cuts workforce 15%, sharpens DG focus

Citing “near-term industry challenges,” SunPower forecast a net loss this year and in 2017 due to a weakening power plant business, and said it will focus more on distributed generation while imposing company-wide cost reductions that include the closure of a module factory.

SunPower pegged its fiscal year 2016 net loss at $125m-$175m versus $50m profit guidance in May, and $100m-$200m net loss in 2017. It also reduced its EBITDA guidance by about $175m this year to $275m-$325m.

The company posted a second quarter net loss of $70m, or $0.51 per share, versus a $6.5m net profit, or $0.04 per share a year earlier.

Excluding items, net loss was $30.1m versus a $27.2m net profit a year earlier.

Revenue in the quarter rose for both its commercial and residential businesses, but declined to $104.7m for power plants, from $161.5m a year earlier and $220.5m in the first quarter.

The company said while the long-term fundamentals for solar power remain strong, various factors are combining to hurt its power plant segment and financial performance through next year. These include:

  • Extension of the US 30% federal investment tax credit in late 2015, as well as the bonus depreciation credit. “While beneficial to the long-term health of the industry, (this) has reduced the urgency to complete new solar projects by the end of 2016, with many customers adopting a longer-term timeline for project completion,” SunPower said in a statement.
  • Near-term economic returns have deteriorated due to aggressive PPA pricing by new market entrants, including a number of large, global independent power companies.  
  • Customer capital project internal rates of return (IRRs) are rising in the near-term as buyers have increased their hurdle rates in response to SunEdison’s bankruptcy.   
  • Continued market disruption in the yieldco environment has impacted SunPower’s assumptions related to monetizing deferred profits.
  • Near-term cost of capital is slowly increasing, be it tax equity or project finance.

SunPower will now focus power plant development on a “limited number of core markets,” which chief executive Tom Werner said on a conference call is the Americas and France, plus any countries where majority-owner Total has a strong presence that would allow it to leverage synergies.

“Outside these core markets, we will focus our power plant business on the sale of our new Oasis complete solution incorporating Performance Series panel technology to developers and EPC companies in global markets, including Total,” the company said.

As well, it will delay the timing of certain projects in its 2016-2017 pipeline to take advantage of planned cost reduction efforts over the next 24 months.

“We expect these actions to significantly lower operating expense and capital deployment in our power plant business while maintaining leadership in our core markets." 

Plant closure, layoffs

In connection with the realignment of its power plant segment around core markets, the company will close its panel assembly facility in the Philippines, a move that will result in the loss of 1,000 jobs.

It will transfer equipment from the plant to what it calls “our latest generation, lower cost facilities in Mexico. This change will optimize our supply chain and move final panel assembly closer to our key markets.”

SunPower will cut another 200 jobs in downstream operations and in corporate. Werner, who took responsibility for the “difficult decisions” and upcoming 15% company-wide workforce reduction, said he would accept only $1 in salary for the second half of this year as a contribution to achieving cost-cutting targets.

The company will take a $30m to $45m restructuring charge in the third quarter.

Positives

Amid the stream of sour near-term news, which appeared to surprise analysts on the call, Werner said there were positive developments for the San Jose, California-based company.

First, its DG market position led by the US is strong and SunPower will continue to benefit from sector growth this decade and beyond. Second quarter megawatt-volume deliveries were up 25% year-on-year and market acceptance of the company’s products has been solid, according to Werner.

Second, SunPower has a $1.3bn pipeline that is growing in the commercial segment, it is gaining share and pricing is stable. Overall performance is above plan.

Third, rooftop solar panel efficiency continues to improve and hit a record 24.1% in the quarter.

Fourth, SunPower’s Latin America portfolio now totals 800MW.

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