SunPower Corporation (SPWR), First Solar, Inc. (FSLR): This Week in Solar

Earnings season has finally begun for the solar industry, and so far the numbers look encouraging. In my review this week I’ll cover SunPower Corporation (NASDAQ:SPWR)‘s second-quarter numbers and what they mean for the rest of the industry, the potential sale of a leasing leader, and a solar battle brewing in the Arizona desert.

Let the earnings begin
SunPower Corporation (NASDAQ:SPWR) reported earnings after the market closed on Wednesday, and the numbers couldn’t have been much better. The company generated a GAAP gross margin of 18.7% and earnings per share of $0.15, both well ahead of the company’s own estimates. On a non-GAAP basis, gross margin was 19.5% and the company made a profit of $0.45 per share, crushing Wall Street’s $0.11 estimate.

The stock dropped in trading Thursday, but I don’t think that’s bad long-term and actually provides investors a nice entry point. But what can we decipher about the rest of the industry from SunPower Corporation (NASDAQ:SPWR)’s report?

SunPower Corporation (NASDAQ:SPWR)’s North American demand was led by the systems business, which will be similar at First Solar. But First Solar, Inc. (NASDAQ:FSLR)’s thin-film product is so much different from SunPower Corporation (NASDAQ:SPWR)’s that it’s difficult to draw conclusions for First Solar, Inc. (NASDAQ:FSLR) from SunPower Corporation (NASDAQ:SPWR)’s earnings. What we can take is that management was bullish on the systems business everywhere from Japan to the Middle East to Chile, and First Solar, Inc. (NASDAQ:FSLR) would benefit from utility-scale solar in each country. Look for momentum in bookings for First Solar, Inc. (NASDAQ:FSLR), something the company desperately needs after a year of falling backlog.

We can draw a lot more from SunPower’s success in Japan, which is the hottest market in solar this year. The Asia-Pacific region was 16% of SunPower’s revenue in Q2, generating a 16.6% gross margin, and accounted for 28% of shipments. That’s an increase of 30% sequentially and should be similar for other manufacturers. Canadian Solar Inc. (NASDAQ:CSIQ) was one of the first to benefit financially in the first quarter, and I’d expect that trend to continue. Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and Trina Solar have been slower to get into the Japanese market, but I expect them to have gained momentum in the second quarter, which should help both sales and margins.

SunPower’s leasing business was also strong, constrained more by financing than the ability to sell to customers. That’s a good sign for SolarCity, which is growing more quickly in leasing than SunPower is and also has more financing lined up. I expect the company to have at least hit its own installation targets if not beat them, given growing demand across the country.