The reaction to this good news was great with a move from around $26 to near $40 in a blink, which I think is a bit much. I just did not like that it happened in one day, though if I had options, I would be crying out of happiness. A move like that makes me worried about what happens if First Solar, Inc. (NASDAQ:FSLR) runs into a road block.
Imagine if the company misses, or even if it just meets. In watching the market recently, I feel like the gap between missing and reporting earnings in-line with expectations is just as bad. My cynicism aside, the boldness of the guidance has me concerned. The fact that the share price knifed up also has me concerned, because a stumble will send this lower than it started.
More power, less space
The most important development is the acquisition of TetraSun, which removes the issue I had with First Solar, Inc. (NASDAQ:FSLR). As a thin film provider, it was only a viable supplier for certain projects. Normally, these are huge projects where space is not an issue, and high temperature is not expected. However, residences have limited roof space and thin film panels are not useful. You need higher efficiency silicon cells like those SunPower Corporation (NASDAQ:SPWR) makes.
I am pretty sure that TetraSun makes polycrystalline silicon PV cells instead of the higher efficiency monocrystalline ones of SunPower Corporation (NASDAQ:SPWR). However, monocrystalline cells are much more expensive to produce, and squeezing out efficiency through other methods is probably the better choice.
The price action on the stock has me concerned, but the acquisition is a great one from a strategic point of view. First Solar, Inc. (NASDAQ:FSLR) has opened up an entire new market for itself with the acquisition of TetraSun. As long as the technology is solid, the company probably has the ability to ramp up production. Innovation is the key acquisition, not the ability of the company to produce more panels. First Solar can build out capacity themselves as they see orders rise. Now, the company can target customers who have to worry about space.
I think this is troubling news for SunPower Corporation (NASDAQ:SPWR), though not necessarily fatal. That could change if First Solar, Inc. (NASDAQ:FSLR) sees major success. First Solar is strong enough to really find success in what used to be SunPower’s stronghold. The minor edge that SunPower has with its different cells might not win it more customers if it needs higher prices to maintain profitability.
Most recent quarterly gross margins for SunPower are 6% versus 27% for First Solar. SunPower probably needs to price its products lower to be competitive. You normally do not see such a divergence in gross margins in exactly the same industry, but the technology each company uses is very different. SunPower’s gross margin has been low since mid 2011, so I do not think it is some anomaly like supply issues.
First Solar’s revenue is rising while SunPower has flat revenue. I focus less on earnings for these companies, because I do not see solar as an established industry. It is an established technology, but the industry is still working through its fair share of problems and lacks a certain stability.
