================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 19, 2006
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
SUNPOWER CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 000-51593 94-3008969
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
3939 North First Street
San Jose, California 95134
(Address of principal executive offices, including zip code)
(408) 240-5500
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 19, 2006, SunPower Corporation. (the "Registrant") held a Webcast
Conference Call to discuss its results of operations for the third quarter of
2006, a transcript of which is attached as Exhibit 99.1. On the same date, the
Registrant issued the press release attached hereto as Exhibit 99.2 announcing
its results of operations for the third quarter of 2006.
The information contained in this Form 8-K shall not be deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act") or otherwise subject to the liabilities of that section, nor shall it be
deemed incorporated by reference in any filing under the Securities Act of 1933
or the Exchange Act, except as expressly set forth by specific reference in such
filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits.
The following exhibits are furnished with this report on Form 8-K:
99.1 Transcript of Sunpower's conference call on October 19, 2006.
99.2 SunPower Corporation press release dated October 19, 2006.
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUNPOWER CORPORATION.
By: /s/ Emmanuel Hernandez
-----------------------
Emmanuel Hernandez
Chief Financial Officer
Date: October 23, 2006
3
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------
99.1 Transcript of Sunpower's conference call on October 19, 2006.
99.2 Registrant's Press release dated October 19, 2006, is furnished
pursuant to Item 2.02 of Form 8-K
4
Exhibit 99.1
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 1
CYPRESS SEMICONDUCTOR
MODERATOR: DEBBIE BLASQUEZ
OCTOBER 19, 2006
12:30 PM CT
Coordinator: Good morning and welcome to SunPower Corporation's Third
Quarter 2006 Earnings Release conference call.
Your lines have been placed on a listen-only mode until
the question and answer segment of today's call.
This call is being recorded. If you have any objections,
you may disconnect at this time.
I would now like to turn the call over to Mr. Tom Werner,
CEO of SunPower Corporation.
Thank you.
Sir, you may begin.
Thomas Werner: Welcome to SunPower's Third Quarter 2006 Earnings Call.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 2
We had another very strong quarter with excellent
execution across the board that resulted in another
quarter of operational results that exceeded our guidance.
Our first fab now has three lines fully ramped. The total
capacity of these three lines is over 75 megawatts.
Our move to thinner wafers in quarter one continues to pay
off. We now run 190 micron wafers on all of our lines, and
we have a polysilicon utilization of less than 7.5 grams
per watt.
We are on schedule and on budget for beginning our Q4 ramp
of our Generation 2 technology on Line 4, and we are on
schedule and on budget, ramping our first automated panel
line.
Lastly, we're on schedule and on budget for installing our
Lines 5 and 6 that go into our new fab towards the middle
of next year. And, we more than doubled our installer
network footprint in the United States.
Since the beginning of Q4, we have announced a 2007
silicon contract with REC SiTech, solidifying our 2007
silicon supply.
And we launched our new groundbreaking 315-watt solar
panel. Compared to conventional solar panels, our new
SPR-315 offers up to 50% higher power per square foot and
50% fewer panels to install.
During the remainder of this call, we will discuss our
business strategy, view highlights of our business, report
Q3 financial results, and provide guidance for Q4 and
confirm our guidance for our revenue guidance for 2007.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 3
Let's first look at business strategy.
Our goal as a company is to drive down install - system
cost to achieve economic purity with retail electric
rates. When we accomplish this, we will then be able to
participate in the global electricity market which is
measured in the form of a trillion dollars.
We have direct control over the solar cell and solar panel
portions of the value chain, the technology core of the
value chain that represents 50% to 70% of total installed
cost. In these areas, we are increasing cell and panel
efficiencies, improving silicon utilization, continuing to
improve operating efficiencies, rapidly expanding our
company to achieve scale economies, and establishing a
scalable low cost silicon supply portfolio.
We have or expect to achieve in the near future,
substantial influence on the downstream channel in key
regions. We plan to scale outbound marketing and lead
generation; provide innovative and scale efficient
solutions for systems engineering, logistics, financing,
and after-sale service; develop comprehensive product
solutions that integrate improvements across the value
chain and silicon ingot site installation. And, we will
diversify our customer base by application and geography.
All of these strategies taken together will allow us -- we
expect these to allow us to drive installed solar system
cost to be competitive with retail electric rates.
Let's now talk about technology.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 4
SunPower makes the highest efficiency solar cells
commercially available. We're the only company shipping
solar cells at a minimum rating of 20% efficiency. This
compares to a market average of 14% to 16% according to
third party industry analysts. We are leveraging this
technology advantage across the entire value chain.
This advantage or that advantage stems from innovation by
our founder, Dick Swanson, and his team.
And we're thrilled that Dick has been recognized twice in
the last few months for this success. First, in Dresden,
he was recognized with the Becquerel Prize by the European
Commission. Last Tuesday, two days ago, Dick received a
Wall Street Journal Technology Innovation Award.
We continue to invest in research and development, and we
will substantially extent our lead in terms of efficiency.
By the end of this year, we will be shipping our
Generation 2 solar cells with a rated efficiency of 22%.
In fact, we are already manufacturing preproduction
volumes of our Generation 2 solar cell.
On the operating front, our R&D team works closely with
our manufacturing operations on equipment and process
design among other things. Evidence of this partnership
can be seen in our operating results.
We are meeting or exceeding our operating metrics. We've
ramped three lines on plan or better, and those three
lines compete against each other in terms of performance
against operating metrics. We've also successfully
converted all three lines to 190 micron wafers.
And we continue to improve polysilicon utilization. In Q3,
our polysilicon utilization was 7.5 - a little less than
7.5 grams per watt.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 5
On Line 4, which will produce our Generation 2 technology,
we will reach approximately 7 grams per watt.
And as silicon eases in the future, we expect significant
leverage because of our excellent utilization of
polysilicon.
And in the operation section, we are on schedule and on
budget for completing build-out of Fab 1, beginning
construction. We've begun construction at Fab 2, the
building that we bought in quarter two, and we're ramping
our automated panel line and I'll speak more of that in a
few minutes.
In terms of expansion, we had strong operational results
that allow us to have better visibility into our expansion
plans.
By the end of this year, we expect to be at 108 megawatts
of capacity and our first fab will be completely full.
By the end of next year, we will have almost 100 more
megawatts; we will be at 207 megawatts, and that will be
because we have implemented three new lines that utilize
our Generation 2 technology and that'll be in the new fab
that be bought at quarter two.
At the end of 2008, we expect to have about 375 megawatts
which is five more Generation 2 lines that will fit within
our new fab. Note that this new fab has a capacity of 10
lines so that there'll be two more lines that we can add
sometime beyond 2008 is the current plan.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 6
Let me say a few things about our automated panel line. We
manufactured our first production panels in the last few
weeks. That plant that we manufacture in has a 90-megawatt
footprint. The first line has a 30-megawatt capacity.
The reason why we're doing this is so that we can lower
cost to advance automated production. By being automated,
we can replicate these lines close to end-markets so that
we can reduce supply chain cost sometime in the future.
Now let me make few comments about silicon.
As you all probably know, silicon supply remains a gating
factor in most of the solar industry. We expect silicon
supply constraints to continue through sometime in 2007.
Our company is positioned very well for rapid expansion
with existing deals 2008 and beyond. We expect to continue
to work on polysilicon procurement in support of our ingot
suppliers in 2007 and 2008.
Let me remind you that we take a portfolio approach to
silicon supply and that we diversify on three dimensions.
The first is length of term. We have short, intermediate,
and long-term contracts, the longest being 10 years.
We also diversify along the lines of suppliers. We have
agreements with both incumbents and emerging suppliers.
And lastly, we diversify along technology lines. We have
partnerships with established players as well as
investments with emerging players.
Let's talk about polysilicon supply a little bit more.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 7
First, we do business with the top three incumbents. We
signed agreements to support market entry of two new
entrants. The first being (M.Setec) and they are on track
for supply in 2008.
The second is DC Chemical and they are also on track to
begin supply in 2008.
Let me just say a few words about DC Chemical.
DC Chemical is a $1.7 billion company in terms of revenue.
They are strongly profitable, and they produce a broad
range of chemicals, including some of those used in
polysilicon manufacture.
Now, let's talk about ingot supply.
Today, we do business with leading ingot suppliers
including (M.Setec), REC SiTech, and (Filtronic) among
others.
(M.Setec) has been a partner with us since our inception
and we're very pleased with this partnership and we expect
this to be a long -- a very long-term partnership.
We also announced a joint venture with Woongjin Coway. The
idea of this joint venture is that they will produce
ingot, utilizing DC Chemical poly.
Let me just say something about Woongjin.
Woongjin is a leading environmental products company. They
have $1 billion of profitable revenue and a $2 billion
market cap.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 8
Now, the purpose of this JV is to reduce supply chain cost
because we produce polysilicon in the region and then
we'll turn it ingot in the region. We'll also be able to
utilize advanced technology that'll allow us to have very
competitive cost.
We end the silicon comments with the cash prepayments that
we will incur over the next two years.
First and the fourth quarter of 2006, we'll have $47.6
million or prepayments. In 2007, we'll have $48.3 million,
and in 2008, $18.3 million.
Our silicon contracts support both our expansion and our
cost reduction plans for 2007 and 2008.
Now, let me talk about marketing.
As I've mentioned earlier, we introduced groundbreaking
SPR-315 product this past Monday at the San Jose Solar
Conference.
This is the highest efficiency, highest power
mass-marketed solar panel available. It's designed to
enhance installation efficiency to drive system cost down.
In fact, it requires half the panels, produces 50% more
watts per rooftop compared with conventional solar panels.
We're also on track with our plans for geographic and
customer diversification. We're expanding in Europe and
Asia. We have an incredibly strong focus on our home
market.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 9
Back in Q3, we captured 14% share in the California
residential retrofit market.
We also have continued to invest in the outbound channel,
specifically in the domestic outbound channel. That
investment is starting to bear fruit.
During this quarter, we'll start to roll out an
increasingly broad array of products and services,
beginning with the inverter line, customer financing,
centralized lead generation, innovative logistic
solutions, and finally, driving all of these things lead
to improved scale economies and efficiency in a fragmented
outbound channel.
On in the international side, we've received lots of
questions in Germany and Spain, and I'll defer broad
comments on that until the Q&A section. What I will say is
SunPower is doing and I would say that SunPower has strong
demand continuing in all regions.
We have strong momentum in the US market and we're rapidly
expanding our dealer network. We've doubled our installer
network in the past three months. We now have 56 dealers
in 13 states. And our market share has increased seven
times over the past four quarters.
The signing of the California Solar Initiative reinforces
the importance of California market.
We also have sales ramping in Korea. We continue to expand
our presence in Japan. And we have a broad base of
customer demand throughout Europe including Germany,
Italy, Spain, Portugal, France, and Greece.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 10
Let me end with guidance, we will provide top-line gross
margin EPS guidance for next quarter and revenue guidance
for this year and next year.
We expect Q4 revenue in the range of $70 million to $72
million. We expect Q4 non-GAAP net income in the range of
16 to 17 cents per share. And Q3 non-GAAP gross margins of
25% to 26%.
In terms of 2007, we'll confirm our guidance from last
quarter of full year revenues of greater than $360
million.
Now, I'd like to turn the call over to Manny Hernandez who
will provide details for our Q3 financial results.
Emmanuel Hernandez: Thanks, Tom.
Good morning everyone and thank you for joining our third
quarter conference. We ended for the quarter, we ended
September 30.
Before I go over the financial results, I would like to
remind everyone that during this conference, management
already made and will continue to make statements that are
not historical in nature. We consider these statements as
forward-looking pursuant to the Private Securities
Litigation Reform Act of 1995. Those statements are based
on our current expectations and are subject to certain
risk.
Please refer to our press release and our SEC filings for
a more detailed discussion of those risks.
Let me now give you a summary of our 2006 third quarter
financial results.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 11
Revenue for the third quarter was $65.3 million, a 19%
increase from our prior quarter revenue of $54.7 million
and almost three times the year-ago third quarter revenue
of $21.9 million.
As Tom mentioned, demand for our products continue to be
strong across all regions at relatively stable average
selling prices.
On a GAAP basis, we posted a net income of $9.6 million or
14.7% of sales or 13 cents per diluted share. And that
compares to last quarter's net income of $5.4 million or 8
cents per share and the year-ago quarter net loss of $1.6
million.
On a non-GAAP basis, which is adjusted to exclude non-cash
charges for amortization of intangible assets and
tax-based compensation, our third quarter net income was
$12.1 million or 18.5% of sales. This resulted in diluted
earnings per share of 16 cents, a 61% improvement from the
prior quarter's net income of $7.5 million or 11 cents per
share.
Our year-ago third quarter was a net loss of $0.1 million.
Our third quarter net income benefited from $3.9 million
of other income mostly interest from cash that we have on
hand. Absent that interest benefit, our operating income
also improved to $8.8 million of 14% of sales compared to
last quarter's operating income of $6.2 million.
Our gross margin for the third quarter was 25.3% compared
to last quarter's 23.5%, a 180-basis point improvement
benefiting from our 19% increase in revenue, slightly
higher ASPs, and continued benefit from our manufacturing
cost reductions, most notably our thin wafer initiative.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 12
We still expect to exit this year with gross margin of 25%
to 26% while we commence the ramp of our fourth line and
also the ramp of our automated module factory.
Briefly on the balance sheet, we ended the third quarter
with cash and short-term investments of approximately $274
million. The company continues to have no debt. Our DSO is
65 days, while our net inventory closed at 49 days.
Capital expenditures for the quarter was $31.6 million and
depreciation was $4.2 million.
The total capital for the year is still estimated at $95
to $100 million, and full year's depreciation of
approximately $16 million.
Let me now turn it over back to Tom to lead us through the
Q&A session.
Thomas Werner: Thanks, Manny.
I'll open the call for questions in just a minute.
A couple of housekeeping items first. I have with me Peter
Aschenbrenner, our VP of Sales and Marketing, and Julie
Blunden, our VP of External Affairs so that they can
provide answers as well.
And one other housekeeping item, I would like to have the
questioner ask one question and perhaps a follow-up. And
if you have more beyond that, then maybe you can come back
in the queue later. But that way, we can make sure we get
to everybody and the call has a reasonable period of time
that we can get through it.
So with that, I'll turn it to questions.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 13
Coordinator: Thank you, sir.
At this time, if you do have any questions or comments,
please press star-1 on your touchtone phone.
Again, star-1 for any questions or comments.
Sanjay Shrestha, you may ask your question and please
state your company name.
Sanjay Shrestha: Great. First Albany.
Good morning guys. First of all, congratulations on a
great quarter here.
Just a couple of quick questions: First one, Tom, you kind
of mentioned in your passing about a lot of type of other
pricing pressure, the administrative issues in Spain and
things of that nature, but seems like ASP didn't go up,
again, for you guys here on a sequential basis.
I was wondering if you can kind of go into some more
detail as it relates to, not necessarily the supply side
of the raw material, but the demand side of the equation,
how that's playing out for you guys in a variety of
different markets and sort of like internal planning that
you have in place for 2007.
How are you looking at it internally? Are you sort of
modeling a price decline curve about 5% to 7% or given
your, you know, premium sort of commanding ability are you
sort of saying that the price sort of stayed flat for you
guys despite the potential decline for some of the other
players in the industry and hence, you know, margin with
all the benefit of technology ramp-up and stuff like that.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 14
Thomas Werner: Thanks Sanjay. That was a heck of a single question -- a
good one to start with.
You know, we get asked a lot about what's happening in the
overall market and we find ourselves opining on that and
then we usually end up saying, "But let's talk about
what's happening in SunPower specifically."
And so, we want to be a little cautious about trying to
talk too much about the overall market because we don't
pretend to be a third party analyst.
Sanjay Shrestha: Sure.
Thomas Werner: And with that, it's just characterization. I'll turn it
over to Peter and let him go through the details.
Peter
Aschenbrenner: Okay. Sanjay, I think I'll start with what our
expectations are for next year in terms of our pricing.
As we said, the past few calls, we have a target blended
ASP of about $3 and 50 cents a watt and we expect that to
continue - stable at that level into 2007. I think you
touched on some of the reasons that support that in what
is, and should be in the future, you know, declining price
industry as we drive things down to grid parity cost.
So in the new term, there are a few elements that support
our ability to maintain stable pricing. First of which is
that we have, I think, developed a strong brand presence
in the market in a relatively short period of time. And
there's a significant amount of latent demand for our
product that we haven't been able to serve as yet as we've
been growing our capacity.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 15
So we've got a lot of customers in the queue waiting for
product from SunPower. And as we broaden our customer
base, we'll be able to get higher incremental ASPs to
those customers.
Secondly, as we expand capacity, we can direct incremental
product to higher ASP market that - where we're able to
charge a premium for our product. And some of these
markets include Korea, Southern Europe among other
regions.
And finally, there'll be a gradual shift in our product
mix going forward whereby we will see shift to higher
value products such as the new SPR-315 which provides
cost-reduction potential for installers by virtue of its
greater efficiency and size.
And also, I think we'll see relatively flat cell - solar
cell sales in absolute megawatt terms with growing module
volumes with their higher relative ASP.
So all these factors together, among other things, allow
us to forecast a stable ASP outlook.
Sanjay Shrestha: Got it, got it. Okay. Okay. Okay, that's great.
That's great. And if I could, just a quick follow-up
question.
Tom, you mentioned in your sort of prepared remarks that
you think that the polysilicon situation could start to
ease sometime in 2007. I just wanted to clarify that. Is
that more specific to you guys and your level of comfort?
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 16
You've had new JV partners - are related deliver
polysilicon. Or are you seeing some of the new entrants
making dramatic technological progress giving you a level
of comfort that even on an industry basis going into 2008,
the whole polysilicon situation could actually be much
better than, you know, the way it might even by the first
half of `07.
Thomas Werner: Sure. So I'll just comment briefly on the macro
environment and then spend most of my time on SunPower.
Sanjay Shrestha: Yes.
Thomas Werner: On macro environment, in terms of the macro
environment, we think the incumbents are minimally being
successful with their expansion plans. And, we're
optimistic as they are, increasingly, I believe, that
their expansion plans will actually be beaten a little
bit. So I think that the incumbents will - were planning
to a degree anyway, that they'll be able to exceed their
expansions plans.
We also know that the semiconductor market is softening to
a degree. And I think that will start to play out, you
know, during the first half of '07, that there'll be some
supply that'll move over to solar. It's sort of an obvious
thing for people that do both.
That's really the only two comments I'd make on the
overall macro environment.
In terms of SunPower, which I think is far more relevant
because frankly, it's what we spend all our time on is can
we get enough silicon.
Sanjay Shrestha: Yes.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 17
Thomas Werner: And I would say that you should think of our silicon
situation really in three phases and this has a lot to do
with what I said about getting to electric power grid
parity, and we kind of look at three phases getting there.
First is the first half of next year is a continuation of
'06 and that is that we have contracts for the silicon we
need to hit our expected revenue.
In the second half of `06, we have new supply coming
online that both allows us to hit our expected revenue but
also starts to improve the economics. And of course, while
both of those things are happening, we're expanding our
business. So we have scale advantages as well.
And then in 2008, we have a substantial change in supply
with the new players coming on as well as an improvement
of the economics of that supply. And both of those things,
as well as our ability to ramp lines, give us a big scale
advantage.
So if you think of those, those three phases in 2008, we
really accelerate to the back half of '07, we start to
accelerate, and the first half of `07, we're setting the
table. And all of that -- the big picture -- relates to
striving towards electric grid parity.
The last comment I'm going to make just briefly is, yes,
we also have increasing confidence in the new entrants -
as I mentioned, some of the statistics on those companies.
They're big companies. They have most of the technology
needed. And in collaboration, we believe that they have
the pieces they need that they didn't have when they
started and the progress that both companies have had
during - since the last time we had this call is at least
on plan if not better.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
Confirmation#: 4796455
Page 18
Sanjay Shrestha: Got it. That's great. Once again, thank you and
congratulations on a great execution there, guys.
Coordinator: Thank you.
Our next question comes from Jesse Pichel.
You may ask your question. Please state your company name.
Jesse Pichel: Hi. Jesse Pichel from Piper Jaffray. Good morning.
First question is could you give us some housecleaning
items with ASPs, megawatts shipped, and percentage of
module versus cell.
And secondly, for Manny, Manny, how do you reach 30% gross
profit, five more points of margin specifically? Could you
break that out for us between polysilicon savings, if any,
two efficiency increases, you know, or three, some type of
other efficiencies? And what ASP percent decline do you
assume in reaching that 30%?
Thank you.
Thomas Werner: Okay. So, thanks, Jesse.
And we'll have Peter take the first question and then
Manny will take the second one.
Peter
Aschenbrenner: Okay.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
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Page 19
Jesse, our shipments for Q3 were just a hair over 17
megawatts. Our ASP was $3.57 a watt. As you know, I think
we don't break that out into cell and module percentage
for reasons of confidentiality agreements we have with our
cell customers.
So I guess that's my part of the answer.
Manny?
Emmanuel Hernandez: Hi, Jesse. On the 30% gross margin target that we've set
for ourselves and are still planning to achieve by the
second half of 2007, let me start with the last part of
the question, what ASP assumption or decline did we assume
there.
Keying off what Peter just went through, we're actually
staying with our assumption that we could hold ASP stable
in the 350 per watt range for the year so most of the
improvements kind of come from both scale but more
notably, on the polysilicon side, Jesse, because we
continue to reduce our grams per watt.
And the efficiency, think about at this way, from an
efficiency standpoint, Gen 2 is really going to come from
Line 4. So our first three lines are still going to be
producing the Gen 1 product, if you will. So that would
give you a sense of what ratio will come from efficiency,
but mostly from polysilicon and scale is what is going to
get us to the 30%.
Jesse Pichel: Do you go back and upgrade Lines 1 and 2, and 3?
Thomas Werner: Yes, Jesse, this is Tom.
CYPRESS SEMICONDUCTOR
Moderator: Debbie Blasquez
10-19-06/12:30 pm CT
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Yes, we will upgrade those lines. We're still determining
what the schedule will be for the first three lines
conversion. So for planning purposes, we currently don't
have those lines shipping 22%. So...
Jesse Pichel: Great. Solid quarter. Thanks.
Thomas Werner: Okay.
Coordinator: Thank you.
(Tim Luke), you may ask your question. Please state your
company name.
(Tim Luke): Thanks very much. Congratulations on your execution.
I was just wondering, just to follow up on your offer,
like some commentary with respect to the trends that
you've seen in some of those key regions and how you've
seen particularly the trends in like Northern Europe and
then the opportunities developing in Southern Europe and
how you see the mix and the outlook in North America or
you alluded to this California sort of initiative.
Thank you.
Thomas Werner: We'll let Peter answer that. But I do have to comment,
(Tim) you get the Iron Man Award for consecutive
earnings calls.
(Tim Luke): Thanks. That's quite a cool, that one.
Thomas Werner: Okay. Peter?
Peter
Aschenbrenner: Okay.
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(Tim), let's start in Northern Europe which, of course, is
dominated by the German market. So the policy environment
in Germany has been relatively stable for a period of
time, and I think reflects something of a gold standard
certainly on the policy side.
The current feed-in tariff was structured so that there's
a built-in reduction each year between 5% and 6.5% of the
feed-in tariff, depending on the specific application
type. And so that will kick in to place, again, in January
of 2007, and customers will receive a 5% to 6.5% lower
price for the electricity they generate.
I think we can expect in Germany, or we should expect
logically, at least that type of price reduction in the
installed system price -- exactly what percentage that
comes in a solar panel versus the downstream piece, of
course, is for dynamic tension.
The current EEG law, the feed-in tariff law, is scheduled
for review...
(Tim Luke): Yes.
Peter
Aschenbrenner: In 2007. And so, I think we can expect to hear a lot about
the German market on an ongoing basis for the next year or
so.
((Crosstalk))
(Tim Luke): What's the timeline for that change to already be coming
into effect?
Peter
Aschenbrenner: There's...
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(Tim Luke): The review and...
Peter
Aschenbrenner: Excuse me?
(Tim Luke): They're going to take a year to review.
Peter
Aschenbrenner: Yes. It's going to be a long process, I think.
In Southern Europe, as you mentioned, there's a number of
market - growing number of market that are establishing
the infrastructure and the platform that's necessary. If
we look back on markets like Germany or the sort of second
explosive growth phase, and I would say that both Spain
and Italy are certainly in that stage of infrastructure
building and policy firming, and arguably, Greece and
France are slightly behind that but still in the pipeline.
There's been a minor change in the Spanish feed-in tariff
as well in that the rate that customers receive for
electricity generated by solar systems was pegged as a
multiple of retail electricity rates -- standard retail
electricity rates. And as those rates went up, the policy
makers decided to decouple those two so that the solar
rates weren't continuing to be pushed up by increasing
retail rate.
And we believe that there'll be also a review in Spain and
potentially, a change in feed-in tariff sometime late in
2007 according to what we hear from our customers.
So what we're seeing, I think, is a very natural evolution
in a variety of policy-driven markets. They're going
through phases. As the market mature, rules get adjusted.
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I think the important thing is that these are generally
being driven still by, you know, popular opinion which is
strongly in favor of renewable energy. And we think the
key for a company like ours is to have a long-term
strategy that rides through these things, strong
partnerships locally, and a diversified base both in terms
of application and geography.
(Tim Luke): Could you...
((Crosstalk))
(Tim Luke): Extend this into that - this comment on there has
been this, maybe is somewhat dated, but there was this
concern about inventory level and then also, perhaps just
allude to any changes that you may have perceived in the
competitive positioning of players in the different
markets?
Peter
Aschenbrenner: I can talk to inventory levels directly since we've been
meeting with most of our European customers here in the
last few days. And so, what we've heard is that there are
- they do have - they do see inventory in Germany in
particular but not of our products was the exact quote
that we heard.
(Tim Luke): Okay. So how do you expect that to impact you guys or do
you not?
Peter
Aschenbrenner: Well, as I said earlier, we don't expect that to impact us
in terms of our average ASP, at least for the foreseeable
future.
Thomas Warner: Yes. (Tim), this is Tom.
(Tim Luke): Yes?
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Thomas Warner: A comment on both. The efficiency advantage or the
power density advantage we have and the aesthetic
advantage are two things that have real benefit in the
marketplace. And there has been inadequate supply to
satisfy the demand for those benefits.
So, you know, what we experience, market may be a little
bit different. And we're also, in terms of size, you have
to take that into consideration as well.
In terms of relative to competition, you know, I just say
that you can kind of - we see the (landscape) group by
efficiency or power output in a form factor, and there's a
one or two that have a high power density, only one that
has the aesthetics as well, that being us. And then
there's a group of other folks that have materially
similar outputs. And then, I would put, in terms of power
density, I'd put things like thin film on a lower chair.
So I'd group it like that and there're different
advantages. But we're really - we're feeling pretty good
about both of our advantages.
(Tim Luke): Just as we model, we should think about the geographic mix
and what sort of things for '07?
Peter
Aschenbrenner: Well, historically, we've - our product has been about 60
- 50% to 60% varying by quarter in Europe. We would expect
to see that continue next year. We would see a gradual
ongoing shift from Germany to rest of Europe, and then,
the North American market growing from 20% to 30% say, and
the balance in Asia and other regions.
(Tim Luke): Very helpful. Thank you, guys.
Thomas Werner: Thank you, (Tim).
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Coordinator: Thank you.
Rob Stone, you may ask your question and please state your
company name.
Robert Stone: It's Cowen and Company.
I wonder Tom, if you could just put a little more color on
your comments about downstream expansion, how that's to be
implemented, you know, whether that involves brining in,
in some formal way, partnerships with folks who are
already active downstream or if this is, you know,
essentially a start-up activity for SunPower?
Thomas Warner: Sure. I'll make a couple of broad comments briefly and
hand it to Peter, and he can cover any details on
this.
We've talked about making both an organic investment, i.e.
adding headcount and expertise, we've been - and looking
opportunistically at potential mergers and acquisitions or
partnerships. And we continue to work on both of those.
I'll speak to the latter first.
Everybody knows that we have an announcement, the M&A
activity, and I would just tell you that we continue to
look at options there.
On the organic side, we've been investing for 18 months at
least and we've added expertise in the areas that I've
mentioned during my earlier remarks in terms of financing
programs and logistics programs, marketing, and things of
that nature.
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And so, what we're doing is we're partnering with
dealers/installers primarily in new markets and helping
them scale -- and that's why I say "broadly". Do you want
to add any - I think that basically covers it.
Robert Stone: Okay. A follow-up question in your press release,
your comment about gaining significant market share in the
North American market and some may interpret the absence
of commentary about market share and other markets as
having some hidden meaning. I suspect that maybe that it's
more difficult to measure share in other markets. Can you
put some color on that?
Thomas Warner: No, that's exactly right, Rob. One of the attributes of
the California market is that there's a very detailed and
open and transparent tracking mechanism that - where you
can go in on the California Energy Commission Web site and
sort by a variety of filters and really get a good
real-time view of market share pricing and a variety of
other market dynamics.
Many of the other markets lack that kind of tracking
mechanism.
So we think we're gaining share in all of the major
markets where we're active. But numerically, it's most
directly provable in California.
Robert Stone: Great. Thanks very much.
Coordinator: Thank you.
(Shannon Micas), you may ask your question. Please state
your company name.
(Shannon Micas): Hi, Credit Suisse.
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My question is on SG&A. It looks like it was higher than
what you had anticipated. I think you said $4.5 million
during the Q2 call. Can you talk about why that was? And
was that $4.5 million a GAAP or a non-GAAP number?
Thomas Werner: Yes. So Manny Hernandez will take that question.
Emmanuel Hernandez: Hi (Shannon).
(Shannon Micas): Hi.
Emmanuel Hernandez: Yes. The third quarter's SG&A expenses were abnormally
high due to some non-recurring legal expenses related to
transactions that we processed or completed during the
quarter, including finalization of the DC Chemical
contract, the Woongjin contract, and other similar
transactions. We have also increased our base spending on
sales and marketing in pursuit of the downstream strategy
that Tom just went over.
So our guidance for Q4 `06 is actually lower G&A spend -
SG&A spending, so around $5 million, down from the $5.5
million that you now see there on the non-GAAP statement,
(Shannon). And the $5 million spending for SG&A in the
fourth quarter will also include continued investment in
the downstream channel.
(Shannon Micas): Okay. So where do you expect that to go to in `07?
Emmanuel Hernandez: Our target or model for SG&A combined is 6% of sales.
We're higher than that now; so consistent with our outlook
of achieving our model by the second half, we should get
around 6% by the second half.
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(Shannon Micas): Great. And that's non-GAAP?
Emmanuel Hernandez: That's non-GAAP. Yes.
(Shannon Micas): Okay. Thanks Manny.
Coordinator: Thank you.
David Edwards, you may ask your question and please state
your company name.
David Edwards: Hi. Dave Edwards from ThinkEquity.
I wanted to continue on the downstream side, you talked a
little bit about customer financing and I know there's
some talk about that at the conference this week. Can you
talk a little bit about the partnerships there and also
how the customer will access the product?
Peter
Aschenbrenner: Sure, Dave. So we've just announced a customer financing
package that we just rolled out actually last week at our
- the Solar Partner Conference here in San Jose. This will
be accessed through the installer. There'll be a
standardized application and approval process and it will
allow customers to finance their systems and improve the
cash flow-carrying capacity of the dealers which is
typically one of the bottlenecks in growing a network like
this.
David Edwards: That's great, thanks.
And just one other question, if I could, you talked a bit
about the expansion of the automated panel manufacturing
in terms of megawatts. How should we think about that
capacity in comparison to your overall cell manufacturing
capacity?
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Thomas Warner: This is Tom. So our automated panel line started
production units over the last few weeks. And I want to
mention as well that we have a partner in China and we
will continue to have a partner in China. So they'll
continue to run at the rate that they essentially where
all of our capacity in Q3.
So going forward, we'll expand with the automated lines
and it will become an increasing percentage of the mix
between our partner in China and our internal capability
throughout `07. We'll probably add, and it's depending on
how fast the lines ramp and the overall capacity of those
lines, we will probably ramp at least one more if not two
more, so that you could roughly think of it as Q3 run-rate
for our partner in China and the balance increasing
through our automated line.
David Edwards: Great. Thanks a lot.
Thomas Warner: You bet.
Coordinator: Thank you.
David Smith, you may ask your question and please state
your company name.
David Smith: Citigroup.
Hi guys.
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On the price per kilowatt, can you give us a sense of what
you are paying today and where you kind of see that moving
- going forward on per - on silicon?
Thomas Werner: Okay. So what I'll - let me just address that in terms of
how we think of cost of silicon...
((Crosstalk))
Thomas Werner: Just broadly speaking, we buy ingot - what I'd talk to is
trends, and it's materially consistent with what we said
on previous earnings call. We're seeing the cost of
silicon go up by single digits within the 10% that we
previously talked about and that's through the 2007
timeframe.
I should also, before someone asks, I'll comment that in
2007, we now have contracts for the number of megawatts
that we've communicated that we would ship, the 110, and
that those contracts have pricing in them as well for all
of 2007.
David Smith: Okay. Can you give us maybe a sense - you cannot, you
know, I know you might - you're probably reluctant to talk
about an actual dollar value per kilogram but maybe an
index basis of today say 100, you know, in `07 would it be
like 70 `08, would it be like 50 -- just an idea of where
silicon price is going?
Thomas Werner: Yes. Why don't I do an educated guess, just a rough index
and then Manny will be calculating a way to - if I got it
off too badly.
So, if you said `06 is 100, `07 be 110, maybe 115, I don't
have the exact number, but 110 to 115.
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And '08, now this is an educated guess, I'll call it - `08
would be a less than 100, `08 is probably going to be 80
to 90. And again, if I'm off my module, we'll re-answer
that question later.
David Smith: Okay. Well, that's good. That's helpful.
Can you maybe talk about - in Europe, we talked about a
bit about Spain, Italy, France, and Greece coming on, but
if we do see a bit of a slowdown, that's natural to expect
in Germany given the growth that we've seen there. But how
long do you think it takes for the rest of Europe to maybe
absorb some of that follow-up in terms of market growth
that we've seen in Germany?
Thomas Werner: Okay. Let me just say a couple of things broadly and I'll
turn it over to Peter if he wants to add.
You know, the German dynamic is something that is very
consistent with what we, SunPower, have been communicating
really since we went public and it's simply because the
feed-in tariff reduces by 5% a year and next year will be
0.95 raised to the power of three, it'll be the third 5%
reduction.
So the point is that in order for the economics to work,
eventually the price of the product has to come down.
So the dynamic we're seeing is the ability of
manufacturers or the choice of manufacturers to lower
price that will cause that market to either stabilize or
continue to grow but perhaps less of a rate.
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So from a big picture, I'm not quite sure Germany will -
it'll slow in terms of growth but maybe not flatten.
The country that certainly has the capacity, as you start
expanding really rapidly, is Spain. And Peter mentioned
earlier that there are some modifications going on there,
but among those is the system that Spain uses is starting
to get mature and get more effective for people to get the
feed-in or the feed-in rebate.
So Spain specifically, and then Peter, if you want to add
a little bit.
Peter
Aschenbrenner: Sure. David, this is Peter.
I think what we're seeing in Europe on a pan-European
basis is supply and demand that have come roughly back
into balance -- a situation six to twelve months ago when
they were, I guess, I'd characterize it as wildly out of
balance in terms of not having anywhere near enough
supply.
So we see, you know, as I said, some inventory in Germany
that can easily or quickly get absorbed as the Southern
European markets come on stream a little bit more rapidly
and that's something that I think most people are
expecting to happen in the next couple of quarters.
David Smith: Okay. That sounds great. Thank you.
Coordinator: Thank you.
Stuart Bush, you may ask your question. Please state your
company name.
Stuart Bush: Yes. RBC Capital Markets. Good morning.
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Thomas Werner: Good morning.
Stuart Bush: You talked about how bringing in the panel production
in-house will eventually provide some supply chain
benefits. Can you give us some more color on how large
that incremental impact will be, the gross margins, and
when should - we should expect to see some of those
benefits?
Thomas Werner: Yes. Let me just talk a little bit about strategy and
maybe Manny, you could comment on impact.
The automated line will happen in two steps. The first
step is what we call islands of automation where the
entire panel assembly is done in say, two or three steps.
Some of you will see that when you go to your factory.
And then the second phase would be that it - there are no
steps, it's just the cells in and panels out. And it's
when we accomplish that it will start materially moving
panel assembly to end-markets and that's either outside of
`07 or the very end of `07. It's really scheduled for the
first part of `08 that we'll actually start to be able to
do that.
So the impact of `07 is going to be minimal. But in terms
of the potential impact, I'll turn that to Manny.
Emmanuel Hernandez: Hi Stuart.
Stuart Bush: Hi.
Emmanuel Hernandez: Let me give you a couple of data points that might help
you get there.
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Just for reference, conversion cost of a typical module
represents about 25% to 30% of the cost of the product.
And going to internal fully automated manufacturing, we
expect to realize 20% to 30% cost reduction from that
piece.
So the impact is fairly significant, particularly as the
percentage of our business gets bigger from a module
standpoint compared to today where we have a certain mix
of cells and modules, the module content's going to get
higher.
So, as we do more ourselves in an automated way, expect a
25% to 30% cost reduction on that piece.
Stuart Bush: So we're talking about 7% or so incremental growth margin
possibly in the `08 timeframe?
Emmanuel Hernandez: Yes.
Stuart Bush: Okay. Thanks a lot.
Coordinator: Thank you.
Pearce Hammond, you may ask your question. Please state
your company name.
(Brian Gamble): Yes. This is (Brian Gamble) sitting in for Pearce, from
Simmons & Company.
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Just a couple of quick follow-ups on some previously asked
questions. Number one, I know you guys talked about some
of the shorter term issues to keeping your prices up. I
was wondering if you could provide any detail around the
variance that you are seeing in the higher ASP versus the
lower ASP markets as far as the pricing goes. Is there any
percentage you can put on those as far as with the ranges?
Peter
Aschenbrenner: Sure. Pearce, this is Peter Aschenbrenner.
In rough terms, you'd be looking at something in the
neighborhood of $1 a watt delta between the highest and
lowest solar panel ASP opportunities with roughly
equivalent scale and conditions worldwide. So there's a
very large difference.
(Brian Gamble): Thank you.
And then, secondly, what types of policy reviews are being
looked at for the German market? Are they giving any
specifics on what they plan to do on the cost feed-in
decline or are they going to change up the policy
completely?
And then how do you see that influencing any changes Spain
might make towards the later half of `07 or beginning of
`08?
Julie Blunden: Hi (Brian). Julie Blunden.
In Germany, there's actually a requirement for a review
report, an actual physical report delivered by the end of
next year that reviews the entire EEG not just the solar
portion of it. So the components or the elements that they
would consider changing should they find any issues that
require adjustment, will be developed in the course of the
review of that document.
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What we know today is that the solar program in Germany is
very popular. It's popular with customers. It's popular
politically. It's created a lot of investment in Eastern
Germany. It's certainly one of the bright spots in new
industrial development in the country.
So we don't see the report as a major threat to the
overall German market. We do think that there's a decent
chance that there'll be some fine tuning of the program.
But the scale of the German market, which is twice the
size of any other market in the world, is such that it's
now created its own political momentum and we feel good
about the prospects of the German market going forward.
With regard to the Spanish market, we definitely see the
Spanish market going through the same kind of process that
we've seen in many other markets that are scaling up
rapidly where policy makers take a look at the kind of
market dynamics that have developed as a result of the
policies put in place and consider whether or not all the
market segments are being adequately addressed, et cetera,
and make adjustments to those as part of the natural
evolution of market development. And, we expect that that
we will end up with constructive outcome in Spain as well.
(Brian Gamble): Thank you very much.
Coordinator: Thank you.
Steve O'Rourke, you may ask your question and please state
your company name.
Steve O'Rourke: Thank you. This is Steve O'Rourke from Deutsche Bank.
Good morning.
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Can you comment on how thin will production wafers go over
the next couple of quarters and what wafer thickness? Is
factory automation necessary due to yield loss from
breakage, that is, could a manual operation handle say
190-micron thick wafers?
Thomas Warner: Steve, this is Tom.
So let me deal with manual versus automation. I think it's
a really good question. There's really two dynamics here
-- manual versus automated and then there's really
architecture, ours being of that contact cell.
And so, I think it is - and clearly more challenging to go
thin with manual operations simply because you have
variability between operators. And as we scale companies,
they get pretty significant so you can have quite a few
operators.
So I think you start transitioning as you get below 190.
There's also another dynamic and that is multicrystalline
wafers versus monocrystalline wafers.
So I think as you get below 190, maybe 180, it gets very
difficult to handle multicrystalline wafers manually and I
think you need to automate.
For us, we are actually doing some trial runs on wafers
that are thinner than that. And I should mention as well
that our subsequent lines 5 and 6 and beyond that are Gen
2 lines, they're actually more automated Gen 2 lines. So
we're bringing on lines in that timeframe that can handle
thinner wafers and we're already starting to run trials
for those thinner wafers.
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I don't want to speculate as to where that's going to
land. We've built modules with thinner wafers and we have
them in (qual), and so you have to get adequate yield and
you have to also pass (qual). But suffice it to say, that
it would be significantly south of 190, assuming that
works, and that will be done via automation.
Steve O'Rourke: I see. And one other question, what will it cost to
upgrade a line to Gen 2?
Thomas Warner: I don't have the exact CAPEX number for you, but it's less
than - significantly less than 20% of the cost of a line.
Steve O'Rourke: Thank you.
Coordinator: Thank you.
Tom Astle, you may ask your question and please state your
company name.
Thomas Astle: Yes, National Bank Financial. Good morning.
First question, just Tom made some comment about ASP
eventually being to a level that would support grid
parity. Can you sort of talk about what level you think
that is for your product maybe versus the peers and what
you're using as a grid or parity?
Thomas Werner: Sure. And Julie, you may want to add my question. This is
Tom answering.
We've spent quite a bit of time on this for various
reasons. It's what the market - solar market needs to get
eventually is to not needing incentives. And that varies
by market because the electricity rates, the rates that
people pay, the retail electricity rates vary by market.
Not surprisingly, some of those markets are the biggest
solar power markets, that being Germany, Japan, and
California.
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So the target cost per kilowatt hour varies by market and
what you have to do is convert capital cost for a solar
system to kilowatt-hour cost. So it also varies by how
much sunlight you have.
And so, to answer your question, I would say, we think we
started addressing incentive-less markets, the top tier of
those markets when we get to afford 450 installed solar
products. And then of course, as you go down further to
say 200 to 250, then you're almost addressing the entire
retail electric market.
And we have the things that I talked about that we're
driving to get to that number. As we have subsequent
earnings calls, we'll talk about progress on those fronts
and how they get to first 400 to 450 and then eventually
to 200 to 250.
Julie, do you want to add anything or is that okay?
Julie Blunden: Okay.
Thomas Werner: Okay.
Thomas Astle: Okay. And just - would you care to throw a number where
you think you get your wafer thickness down to over the
next couple of years?
Thomas Werner: I'll say you, it's certainly probable we'll get below 170
and much below that would be educated speculation.
Thomas Astle: Right. And that drives better grams per watt obviously.
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Thomas Werner: Absolutely. And we're also, by the way, improving the
(curve loss). And the sum of (curve loss) and wafer
thickness is called (pitch) and both numbers are improving
and both of those drive polygrams per watt.
Thomas Astle: Okay. Thank you.
Coordinator: Thank you.
(Alan Koscheck), you may ask your question. Please state
your company name.
(Alan Koscheck): Wedbush Morgan.
Tom, my first 15 questions have been answered so I'll
throw a softball out here for you. In terms of other
income, if I heard earlier from Manny correctly, we should
be trending towards $5 million non-GAAP SG&A?
Thomas Werner: Yes. Your question is SG&A trend?
(Alan Koscheck): Well, the previous question was it was much higher than
commented and I think there were some fees involved there.
So just in terms of a run-rate, I just wanted to make sure
that I heard correctly. Six percent of sale long term and
5.5% would be kind of non-GAAP number moving forward.
Emmanuel Hernandez: That's correct, (Alan). The guidance or the 5.5% that I
mentioned earlier is the actual non-GAAP Q3 that included
those extraordinary charges. The guidance for Q4 for SG&A
is $5 million.
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(Alan Koscheck): Okay. And then, just on the tax rate, given the NOL, I
assume, we should be looking at provisions in the 8% to
10% range for some time and what about on the cash flow?
Emmanuel Hernandez: Tax rate for the year 2006, we're still good at 5% which
is what we've been using all year for non-GAAP.
And for 2007, our new guidance now is 15%. We've begun
straddling 10% to 20%, we now know or at least have a
better sense that's it's going to be 15% for us in 2007.
(Alan Koscheck): Is that an assumption of getting better certainty on where
the face of revenue is going to be or income in terms of
country?
Emmanuel Hernandez: Exactly. We have a better sense of the North America mix,
which is really what driving the tax rate for us,
considering how we're structured. So that's already
factored in the growth that we expect in North America in
2007.
(Alan Koscheck): Okay. Thanks.
Coordinator: Thank you.
Laurence Alexander, you may ask your question and please
state your company name.
Laurence Alexander: Jefferies & Company.
Just one question on the polysilicon supply, is DC
Chemical supply on tack for the first quarter of 2008?
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Thomas Werner: Laurence, this is Tom. The team here is going to attempt
to answer your questions quickly and we'll target say one
question or so from the balance of questioners and try to
get you guys out of here in a reasonable period of time.
The short answer to your question is absolutely, yes. And
the indicators, we just have to review it. The indicators
are -- the land is being prepped, the equipment's being
bought -- and you can imagine that they've expanded
previously, so they have people that know how to do the
project management and they've got a whole project
management spreadsheet and they are on plan.
Laurence Alexander: Perfect. Thank you.
Coordinator: Thank you.
Michael Horwitz, you may ask your question and please
state your company name.
Michael Horwitz: Pacific Growth.
Wow, these calls are a lot longer.
Can you describe how your relationships with PowerLight
and any other sales relationships you have might allow you
to have a more smooth transition when some of the markets
might be - have some bumps on the road over the next few
quarters? And how much comfort level it gives you and
visibility it gives you into 2007-2008 revenue numbers
because of some of these arrangements? And what risks may
be involved in those contracts or relationships if markets
truly do slow or as subsidy programs change dramatically?
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Thomas Werner: Let me just say a couple of real quick things.
There are at least three people on the outbound side that
we have agreement - long-term agreements with and close
cooperation, PowerLight is one of those companies. And of
course, we try to match up the product attributes of high
efficiency and superior aesthetics to companies that can
exploit those most effectively.
In PowerLight's case, they can exploit high efficiency as
effectively as anybody in the world.
And with that, I'll turn it to Peter and see if he wants
to comment.
Peter
Aschenbrenner: Hi Michael.
One of the things I mentioned earlier is that as you look
at this shifting pattern of regional policies going
forward, one of the things you'd like to have is strong
global partnerships. And I think we have that with our
current customer base and PowerLight is an important part
of that. As you may know, they are active not only in
North America, but increasingly in Europe and also Korea.
So I think all of our major partners have footprints
around the world and are able to access most of the
emerging markets. And so, I think we're well-diversified
currently through this customer base.
Thomas Werner: And Michael, to your point, our customers do change mix.
I'd say it takes the better part of the year for that mix
to change significantly. But the incentive environment
does change the mix of products that they offer, but, you
know, the amount of time for that to go through the system
is long enough for us to adjust.
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Michael Horwitz: Okay, great. Thanks.
Thomas Werner: You bet.
Coordinator: Thank you.
(Steve Webber), you may ask your question and please state
your company name.
(Steve Webber): Hi, (Aphis) Capital.
I just wanted to ask on respect to - if we assume Germany
is - maybe if it's lower the next two or three quarters
for some of the reasons you noted, how large is the
Spanish market relative to Germany and can it absorb, you
know, the inventories that might be building, you know, in
the German market?
Peter
Aschenbrenner: Sure. I'll answer that question.
The Spanish market, we believe, based on conversations
with our customers, this year can come in something in the
neighborhood of 100 megawatts, maybe a little bit less and
certainly has the potential, we believe, to be twice that
big next year. A lot of it hinges on, I guess I would say,
bureaucratic de-bottlenecking, which, we believe, is
proceeding reasonably well.
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These markets tend to be that when the rules get worked
out properly, the resistance level goes way down and
product kind of floods in. There're a variety of - or a
large number of projects queued up and even undergoing
installation which are subject to this de-bottlenecking
process.
But also, I think it's important to note that there are a
number of smaller but also very rapidly growing markets in
other countries in Southern Europe, as I mentioned,
Greece, Portugal, France now, and Italy.
And another major factor of course is the California
market. One of the things we saw the show here in San Jose
this week is a large presence from many of the important
German players who are setting up shop and see the
California market as a highly attractive, future growth
market.
So I guess your - my answer would be - I think there's a
good chance that over a multi-corner pine scale that the
emerging growth markets are able to balance - I don't see
as a weakness in Germany, but more of kind of a flat spot
in the growth of that market.
(Steve Webber): And then, I just wanted to ask if, just so I'm clear on a
comment you made earlier, if - I know you've had stable
ASPs, should we assume for these price changes, you know,
downward price movements that need to occur in a market
like Germany to accept the feed-in tariff, et cetera, are
you suggesting - were you inferring that it will be the
distributors sort of people, the very - the end of the
food chain who are going to have shoulder that burden or
will it also potentially pass up the supply chain?
Peter
Aschenbrenner: I didn't mean to infer one way or another. I guess the
bottom line is that system prices, we should model -- we
should all model system price reductions of 5% to 6.5% per
year in Germany going forward. And I think all parts of
the value chain need to get more efficient.
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(Steve Webber): Okay. Thank you very much.
Coordinator: Thank you. Pierre Maccagno, you may ask your question and
please state your company name.
Pierre Maccagno: Needham. Congratulations on the quarter. I have a question
regarding your competitors that use polycrystalline
wafers. They're migrating to larger wafers to reduce cost,
and are you planning to do similar?
Thomas Werner: Sure. Let me say a couple of housekeeping things. After
this caller, there's two more that we show and then we'll
wrap up the call.
The question was multicrystalline wafer companies,
companies that use multicrystalline wafers are going to
larger diameters and are we going to do that with our
monocrystalline wafers. The answer is yes, during the
first half of next year, we'll go to a larger diameter.
Pierre Maccagno: So in '07?
Thomas Werner: Right.
Pierre Maccagno: Okay.
Peter
Aschenbrenner: Yes, the product that we just announced this week has a
slightly larger wafer size than our current product.
Pierre Maccagno: Okay. A quick follow-up, if you let me do this, in terms
of your joint venture, where you're fabricating the
ingots, long term, what percentage of your wafer do you
expect to come from this joint venture?
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Thomas Werner: This is - the question was - in case people can't hear,
the question was what percentage of our longer term -
we've come up of our joint venture and it's significantly
(unintelligible) so that our current partners would
continue to grow with us substantially, it - are getting
exact number here in a minute, but it's substantially less
than half.
Pierre Maccagno: Okay. Thanks.
Coordinator: Thank you. Rob Stone, you may ask your question. Please
state your company name.
Robert Stone: Cowen & Company.
Tom, in the past, there really hasn't been any evidence of
seasonality for solar module makers because the market's
been growing so fast and supply constrained. Given the
commentary about Germany, and I know you guys haven't
given Q1 guidance, but should we be thinking about a
seasonal pattern potentially for 2007 given these market
conditions within the context of your full-year revenue
figure?
Thomas Werner: Rob, this is Tom, I'll take the question. I don't think -
because I think that Peter said earlier in terms of we're
still in the early stages of bringing our product to
market and there is preferential demand for our product
and we're changing the product mix, we're adding products
that have a great deal of appeal to our installer
partners.
We're not really going to see something that we can
attribute to seasonality. What we will see is a back-end
loaded year because both our line capacity and our silicon
availability is back-end loaded to a degree.
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And as long as I have the microphone, I wanted to correct
myself on Pierre's question. The joint venture will be
less than - I said substantially less than 20%, it's
really more like - I'm sorry, it's substantially less than
50%, it's in the 20% or below rate.
Robert Stone: So with respect to the seasonal - my question on
seasonality, that implies not a sequential down Q4 to Q1,
but sequentially up quarters through the year of capacity
growth?
Peter
Aschenbrenner: That's correct, Rob. And bear in mind that there are
counter-cyclical markets. Even as the inherent seasonality
of the market starts to show up, I think over time - or
particularly in Germany where it's difficult to install
modules in Q1 because of snow in certain regions, there
are other markets that are counter-cyclical. Japan has
always been one of those with kind of strong finish to
their fiscal year in Q1.
So it really depends also on your geographic
diversification.
Robert Stone: Great. Thanks very much.
Thomas Werner: Okay. Last two questions, last two callers.
Coordinator: Thank you. (Michael Carboy), you may ask your question and
please state your company name.
(Michael Carboy): Thank you, (Michael Carboy) at Signal Hill Capital.
You know, you folks are pushing the edge here on the
efficiency front and you're also driving some innovations
in manufacturing. I was hoping you might elaborate a
little bit about on how you think about your R&D spend and
what proportion of your R&D spend going forward here you
think is going to be more process-based rather than tied
to specific targeted advances and sell efficiencies.
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Thank you.
Thomas Werner: Sure. Let me - this is Tom, I'll say a few words, and
Manny could maybe put numbers to it or at least attempt
to.
The way it to works organizationally is we're increasing
our engineering workforce in the Philippines and the mix
of what they do is predominantly process work, process
improvement, equipment improvements, and then there's some
degree of research that we do in the Philippines, I'll
just throw out 90/10 -- 90% process and manufacturing
improvements and equipment.
Of course in the States, we do more of the research and
development and it's probably 50/50 because we still do
quite a bit of equipment development. So in terms of
resource loading, that's what it looks like in terms of
spend.
Manny, could you take a pass at it or...
Emmanuel Hernandez: Yes. Hi (Michael). R&D for us, just as a baseline in the
quarter just ended was 3.4% of sale. In our financial
model, we've budgeted R&D to be 4% of sales. So we're
obviously below that right now.
We see the percentage of R&D easing towards 4% next year.
There's a possibility we'll be still a little of 4% by
2007, but our budget is 4%.
(Michael Carboy): All right. Thank you very much.
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Thomas Werner: Okay. And Jesse, we'll wrap up with you.
Coordinator: And Jesse, you may go ahead.
Jesse Pichel: I'm sorry. Is your ASP up 4% sequentially due to a higher
mix of modules or price? And are you going to follow the
price increases taken by (Cueser) and (Sharp) on
October 1?
And then lastly, could you talk a little bit about the
shift to performance-based incentive next year and how you
see your market positioning changing based on the
different payoff structure?
Thanks.
Thomas Werner: Okay, Jesse, we'll start with Peter and then Julie will
answer the second question, and then I'll wrap up the
call.
Peter
Aschenbrenner: So Jesse, the ASP questions. Our sequential improvement in
ASP in Q3 was not the product of any significant mix
shift. We don't plan on near-term price changes to match
anything that's going on.
I think you may have been referring to changes in the
North American market.
Our prices have been going up fairly steadily over the
course of the year. We try not to do anything dramatic in
terms of price changes. So we've implemented a policy of
relatively gradual price increases continuously over the
course of this year, and our prices are already
significantly higher than other products in the market.
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Jesse Pichel: We don't necessarily see that when we're looking at your
average ASP compared to the other public companies.
Peter Aschenbrenner: Bear in mind that the average ASP takes into account all
regions and cell-module mix. If you go do research on the
CEC Web site, for instance, you can see the type of price
premium that SunPower systems are commanding at the system
level certainly.
Jesse Pichel: Sure, at the system level, okay.
Thomas Werner: Yes. And the short answer to your question was: are we
going to respond to these price changes? And the answer
was no. Essentially, we've got a plan that we're sticking
to.
Julie, do you want to take the second one?
Julie Blunden: Sure. With regard to the question of how California's move
to a performance-based incentive with respect to
SunPower's positioning, I think what I'd point out is that
the majority of SunPower's products have historically gone
to European markets, which are performance-based given the
policy framework being feed-in tariff.
So I don't think that the change in the California market
has any substantial impact on SunPower's positioning.
Clearly, we are in an excellent position to start out with
because of our high efficiency situation and also the
benefit that we have from an overall performance
perspective -- kilowatt hours per kilowatt -- which was
discussed in a technical paper in Hawaii in May.
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Thomas Werner: So just to cap off that question and cap the call, Julie
is an expert in that area because she works on policy and
has been a significant contributor to California policy.
And as SunPower exploits its efficiency advantage, we'll
also do that in combination with where the markets are
heading and we think we'll have an advantage as
performance-based incentives go into place.
And thanks for the question, Jesse.
So let me wrap up the call. I'd like to reiterate that
SunPower is executing on our plan and meeting or exceeding
our operating expansion goals. We guided revenue for Q4
2006, $70 million to $72 million and full year 2007
revenue to greater than $360 million.
We really appreciate you joining us. We appreciate the
support of our stockholders and employees. And we're
pleased to report our success in a rapidly growing -
turning SunPower into a rapidly growing market leader.
Thank you very much.
Coordinator: Thank you. That does conclude today's SunPower conference
call. Have a nice day. And, you may go ahead and
disconnect at this time. Thank you for participating.
END
Note: Please see the disclosure regarding non-GAAP measures, and the
reconciliation of GAAP measures to non-GAAP measures, contained in Exhibit
99.1 to the Current Report on Form 8-K to which this transcript is
attached as Exhibit 99.2.
Exhibit 99.2
SUNPOWER REPORTS THIRD QUARTER 2006 RESULTS
SAN JOSE, Calif., Oct. 19 /PRNewswire-FirstCall/ -- SunPower Corporation
(Nasdaq: SPWR) today announced that revenue for the third quarter ended
September 30, 2006 was $65.3 million, up 19% from the prior quarter's revenue of
$54.7 million and up 198% from the third quarter 2005 revenue of $21.9 million.
GAAP net income for the quarter was $9.6 million, or $0.13 diluted earnings
per share, compared to last quarter's net income of $5.4 million or $0.08 per
share and the third quarter 2005 net loss of $1.6 million.
On a non-GAAP basis, excluding amortization of intangible assets,
stock-based compensation and the related tax effects, third quarter net income
was $12.1 million or $0.16 diluted earnings per share, compared to the prior
quarter's non-GAAP net income of $7.5 million and the third quarter 2005
non-GAAP net loss of $0.1 million.
Tom Werner, SunPower's CEO, said, "We posted another strong quarter with
operating results that exceeded our announced objectives. We saw excellent
execution across the company, with significant progress on a number of fronts.
Our plans for rapid growth continue on track: SunPower has tripled solar cell
manufacturing capacity over the past year and we plan to more than double that
capacity by the end of next year while rapidly expanding our panel manufacturing
in parallel. We have entered into a joint venture to construct and operate a new
silicon ingot manufacturing facility in Korea. Our R&D group is establishing a
formidable intellectual property position. Our marketing team is leveraging
SunPower's industry-leading technology to deliver our customers highly
differentiated products that combine superior performance with a more attractive
appearance.
"We are particularly excited about the announcement of our new SPR-315
solar panel earlier this week," continued Werner. "This groundbreaking product
incorporates our new 22% efficient Gen 2 solar cells and is rated at 315 watts
- -- about twice the power of conventional solar panels. Gen 2 technology is an
important element in our roadmap to drive down the installed cost of solar
systems to be competitive with retail electric rates in five to ten years."
Highlights for the quarter included:
-- CTO wins Becquerel Prize: SunPower's founder and Chief Technology
Officer, Richard Swanson, received the 2006 Becquerel Prize for his
outstanding contributions to the development of high-efficiency solar
cells. Dr. Swanson is the second American, and the 14th recipient, to
receive this honor bestowed by the Commission of the European
Communities. Dr. Swanson is one of only two solar scientists to win
both the Becquerel Prize and the William R. Cherry Award, which he
received in 2002 from the IEEE for outstanding contributions to the
photovoltaic field.
-- Production of 22% Gen 2 solar cells: The production ramp of Gen 2
solar cells on Line 4 at Fab 1 is on schedule and on budget.
SunPower's 22% efficient Gen 2 technology has been manufactured in
volume on existing equipment and will begin volume production over the
next two quarters. Our Gen 2 solar cells will be a full 2 percentage
points higher in efficiency than the minimum 20% rating of SunPower's
A-300 solar cells. Gen 2 cells will extend SunPower's efficiency
advantage compared to conventional cell technology with efficiencies
in the 14-15% range.
-- Improved silicon utilization: SunPower has completed its transition to
190 micron thick wafers on all manufacturing lines. This achievement
improved silicon utilization in the third quarter to under 7.5
grams/watt. Gen 2 technology, with a rated solar cell efficiency 10%
higher than SunPower's current A-300 cells, is expected to drive
further silicon utilization improvements to approximately 7 grams/Watt
on Line 4.
-- Build-out of Fab 2: Engineering and site preparation at SunPower's
second solar cell manufacturing facility is now complete. Equipment
has been ordered for the first two out of ten planned cell
manufacturing lines in this new facility, with equipment deliveries
expected to begin in early 2007. These new manufacturing lines are
designed to produce 22% efficient Gen 2 solar cells and have a
nameplate capacity of 33 MW each. Three lines are planned to begin
production in 2007 and five additional lines are planned to begin
production for 2008. Adding these eight lines to the four lines at Fab
1 would bring total solar cell production capacity to approximately
372 megawatts.
-- Start-up of in-house panel production: SunPower began solar panel
production at its new highly automated panel assembly factory located
near Fab 1 in the Philippines. The new factory is designed to allow
for future transition to significantly thinner wafers, and is tooled
to manufacture SunPower's recently announced higher efficiency 315
watt solar panels as well as our current solar panel products.
-- Creation of a JV ingot manufacturing company: SunPower signed an
agreement with Woongjin Coway, a leading Korean manufacturer of
environmental products, to create a joint venture to manufacture
silicon ingots. The joint venture is intended to produce ingots for
SunPower using polysilicon sourced under a previously announced supply
agreement with DC Chemical. The joint venture plans to begin ordering
ingot pulling equipment in the fourth quarter 2006 with a goal of
initial production in the second half of 2007.
-- Increased market share: Over the past four quarters SunPower increased
by a factor of seven its share of the California residential solar
retrofit market as measured by kilowatts installed. During the third
quarter, as reported by the California Energy Commission, SunPower
captured a 14% share of this market. Domestically, SunPower's high
efficiency solar systems are sold through a network of 56 dealers in
thirteen states, and sold internationally through selected systems
integrators.
"Procuring silicon to fuel our rapid growth continues to be a primary focus
for SunPower," said Werner. We have had considerable success in obtaining both
raw polysilicon and silicon ingots for our current and future needs."
SunPower's silicon position has remained stable over the last quarter.
-- Polysilicon supply: SunPower currently has contracts with the top
three incumbent polysilicon manufacturers. SunPower is also working in
partnership with two new entrants in the polysilicon market, M.Setek
and DC Chemical, who are also building new polysilicon capacity to
support SunPower's growth.
-- Ingot supply: SunPower buys polysilicon and supplies it to its ingot
manufacturers. SunPower recently signed a supply agreement with REC
SiTech, adding to its roster of contracted ingot suppliers. SunPower's
newly announced joint venture with Woongjin Coway will expand its
ingot supply base.
-- Overall Silicon Supply Position: The table below shows how SunPower's
current Silicon supply positions support its announced capacity ramp
plan.
2006 2007 2008
------ ------ ------
Expected January 1 Nameplate
Capacity (megawatts) 50 108 207
Production Capacity Supported by
Silicon Contracted to date (megawatts) 65 110 250
Annual Cash Required for Silicon prepayments
in Advance of Delivery ($ millions) $ 47.6* $ 48.3 $ 18.3
* Fourth quarter of 2006 only.
"Our strong execution in the third quarter allowed SunPower to grow its
revenue by 19% over the previous quarter and improve non-GAAP gross margin from
24% in the second quarter 2006 to 25% in the third quarter 2006," continued
Werner. During the next two quarters we plan to further reduce wafer thickness
and demonstrate our ability to mass produce 22% efficient Gen 2 solar cells. We
expect stable to slightly increasing silicon prices and stable ASPs during this
period. We will mitigate these effects through better silicon utilization,
improved economies of scale and incremental manufacturing process improvements.
"Our execution track record and increased visibility with respect to
silicon supply allow us to provide revenue guidance for the fourth quarter of
2006 of between $70 to $72 million with expected non-GAAP gross margin of 25% to
26% and diluted non-GAAP net income per of share of $0.16 to $0.17," Werner
said.(1) "We reiterate our 2007 revenue guidance of greater than $360 million
and expect to hit our non-GAAP target model as a percentage of revenue of 30%
gross margin, 10% operating expenses and 20% operating income in the second half
of 2007."(2)
About SunPower
SunPower Corp. designs and manufactures high efficiency silicon solar cells
and solar panels based on an all-back contact cell design. SunPower's solar
cells and panels generate up to 50 percent more power per unit area than
conventional solar technologies and have a uniquely attractive, all-black
appearance. For more information on SunPower or solar technology, please visit
the SunPower website at http://www.sunpowercorp.com. SunPower is a majority
owned subsidiary of Cypress Semiconductor Corp. (NYSE: CY).
Forward Looking Statements
Statements herein that are not historical facts and that refer to
SunPower's plans and expectations for revenue, gross margin and net income for
the fourth quarter and the full year of 2006 and the full year of 2007,
SunPower's and expectations for gross margin in the second half of 2007;
expected expenditures and deliveries under SunPower's supply contracts; the
future construction and operation of SunPower's manufacturing facilities,
including with respect to new products; the timing of future manufacturing
capacity increases; the future operations of the Woongnjin Coway joint venture;
future technological advancements and the performance of new products; trends in
SunPower's ASPs and in polysilicon prices; SunPower's ability to achieve greater
manufacturing efficiency; and the future supply of polysilicon and ingots, are
forward-looking statements made pursuant to the Private Securities Litigation
Reform Act of 1995. We use words such as "believes," "plans" and "expects" and
similar expressions to identify forward-looking statements. Such statements are
based on our current expectations as of the date of the release, which could
change or not materialize as expected. Our actual results may differ materially
due to a variety of uncertainties and risk factors, including but not limited to
business and economic conditions and growth trends in the solar power industry,
our ability to obtain adequate supply of polysilicon and silicon ingots to
manufacture our products and the price we pay for such material, our ability to
ramp new production lines, the potential renegotiation of or non-performance by
parties to our supply contracts, our ability to realize expected manufacturing
efficiencies, production difficulties that could arise, the success of our
ongoing research and development efforts, and other risks described in our
Annual Report on Form 10-K and other filings with the Securities and Exchange
Commission. Except as required by law, we assume no obligation to update any
such forward-looking statements.
To supplement the consolidated financial results prepared under GAAP,
SunPower uses non-GAAP measures which are adjusted from the most directly
comparable GAAP results to exclude items related to amortization of intangible
assets, stock-based compensation and the related tax effects. Management does
not consider these charges in evaluating the core operational activities of the
Company. Management uses these non-GAAP measures internally to make strategic
decisions, forecast future results and evaluate the Company's current
performance. Most analysts covering SunPower use the non-GAAP measures as well.
Given management's use of these non-GAAP measures, SunPower believes these
measures are important to investors in understanding the Company's current and
future operating results as seen through the eyes of management. In addition,
management believes these non-GAAP measures are useful to investors in enabling
them to better assess changes in SunPower's core business across different time
periods. These non-GAAP measures are not in accordance with or an alternative
for GAAP financial data and may be different from non-GAAP measures used by
other companies.
Fiscal Periods
The company operates on a fiscal calendar comprised of four thirteen-week
quarters that end at midnight Pacific Time on the Sunday nearest the calendar
quarter-end. For simplicity, the company labels its fiscal quarters as ending on
the calendar quarter date.
SunPower is a registered trademark of SunPower Corp. Cypress is a
registered trademark of Cypress Semiconductor Corp. All other trademarks are the
property of their respective owners.
(1) The estimated GAAP gross margin in the fourth quarter of 2006 is
approximately 24%. The estimated GAAP diluted net income per share in
the fourth quarter of 2006 is approximately $0.12 to $0.13.
(2) Anticipated GAAP gross margin, operating expenses and operating income
as a percentage of revenue are approximately 29%, 11% and 18%,
respectively.
SUNPOWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Sep. 30, Dec. 31,
2006 2005
---------- ----------
ASSETS
Cash and cash equivalents $ 253,735 $ 143,592
Short-term investments 19,897 --
Accounts receivable, net 47,067 25,498
Inventories 26,069 13,147
Prepaid expenses and other assets 36,051 3,236
Property and equipment, net 163,455 110,559
Goodwill and other intangible assets, net 18,096 21,622
Total assets $ 564,370 $ 317,654
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 47,246 $ 21,604
Customer advances 40,497 37,400
Total liabilities 87,743 59,004
Stockholders' equity 476,627 258,650
Total liabilities and stockholders' equity $ 564,370 $ 317,654
SUNPOWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(On a GAAP basis)
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -----------------------
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2006 2006 2005 2006 2005
---------- ---------- ---------- ---------- ----------
Revenues $ 65,348 $ 54,695 $ 21,903 $ 162,001 $ 49,395
Cost of revenues 50,164 43,248 18,953 129,678 49,631
Gross margin 15,184 11,447 2,950 32,323 (236)
Operating expenses:
Research and development 2,536 2,588 1,481 7,120 4,508
Selling, general and
administrative 6,206 4,985 2,877 15,572 6,880
Total operating expenses 8,742 7,573 4,358 22,692 11,388
Operating income (loss) 6,442 3,874 (1,408) 9,631 (11,624)
Interest and other income
(expense), net 3,958 1,922 (222) 6,851 (3,579)
Income (loss) before
income tax provision 10,400 5,796 (1,630) 16,482 (15,203)
Income tax provision 832 412 -- 1,275 --
Net income (loss) $ 9,568 $ 5,384 $ (1,630) $ 15,207 $ (15,203)
Net income per share:
- Basic $ 0.14 $ 0.08 $ 0.24
- Diluted $ 0.13 $ 0.08 $ 0.22
Shares used in calculation of
net income per share:
- Basic 68,947 64,040 64,704
- Diluted 73,899 69,408 70,080
Reconciliation of net income
(loss) to non-GAAP net income
(loss):
Net income (loss) before
income taxes $ 9,568 $ 5,384 $ (1,630) $ 15,207 $ (15,203)
Reconciling items:
Stock-based compensation
expenses 1,157 1,137 326 3,706 510
Amortization of intangible assets 1,176 1,175 1,176 3,526 3,529
Tax effect 195 (162) -- 33 --
Non-GAAP net income (loss) $ 12,096 $ 7,534 $ (128) $ 22,472 $ (11,164)
Non-GAAP:
Basic net income per share $ 0.18 $ 0.12 $ 0.35
Diluted net income per share $ 0.16 $ 0.11 $ 0.32
Shares used in calculation of
non-GAAP net income per share:
Basic 68,947 64,040 64,704
Diluted 73,899 69,408 70,080
SUNPOWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(On a non-GAAP basis)
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -----------------------
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2006 2006 2005 2006 2005
---------- ---------- ---------- ---------- ----------
Revenues $ 65,348 $ 54,695 $ 21,903 $ 162,001 $ 49,395
Cost of revenues 48,788 41,839 17,614 125,524 45,847
Gross margin 16,560 12,856 4,289 36,477 3,548
Operating expenses:
Research and development 2,200 2,324 1,359 6,101 4,317
Selling, general and
administrative 5,585 4,346 2,836 13,513 6,816
Total operating expenses 7,785 6,670 4,195 19,614 11,133
Operating income (loss) 8,775 6,186 94 16,863 (7,585)
Interest and other income
(expense), net 3,958 1,922 (222) 6,851 (3,579)
Income (loss) before
income tax provision 12,733 8,108 (128) 23,714 (11,164)
Income tax provision 637 574 -- 1,242 --
Net income (loss) $ 12,096 $ 7,534 $ (128) $ 22,472 $ (11,164)
Basic net income per share $ 0.18 $ 0.12 $ 0.35
Diluted net income per share $ 0.16 $ 0.11 $ 0.32
Shares used in calculation of
non-GAAP net income per share:
Basic 68,947 64,040 64,704
Diluted 73,899 69,408 70,080
SUNPOWER CORPORATION
RECONCILIATIONS OF GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited)
(In thousands, except per share data)
NET INCOME PER SHARE:
THREE MONTHS ENDED NINE MOS.
------------------- ENDED
Sep. 30, Jun. 30, Sep. 30,
2006 2006 2006
-------- -------- ---------
Basic:
GAAP net income per share $ 0.14 $ 0.08 $ 0.24
Reconciling items:
Amortization of intangible assets 0.02 0.02 0.06
Stock-based compensation expense 0.02 0.02 0.05
Non-GAAP net income per share $ 0.18 $ 0.12 $ 0.35
Diluted:
GAAP net income per share $ 0.13 $ 0.08 $ 0.22
Reconciling items:
Amortization of intangible assets 0.02 0.02 0.05
Stock-based compensation expense 0.01 0.01 0.05
Non-GAAP net income per share $ 0.16 $ 0.11 $ 0.32
STATEMENT OF OPERATIONS DATA:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -----------------------
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2006 2006 2005 2006 2005
---------- ---------- ---------- ---------- ----------
GAAP cost of revenue $ 50,164 $ 43,248 $ 18,953 $ 129,678 $ 49,631
Amortization of intangible
assets (1,176) (1,175) (1,176) (3,526) (3,529)
Stock-based compensation (200) (234) (163) (628) (255)
Non-GAAP cost of revenue $ 48,788 $ 41,839 $ 17,614 $ 125,524 $ 45,847
GAAP research and
development expense $ 2,536 $ 2,588 $ 1,481 $ 7,120 $ 4,508
Stock-based compensation (336) (264) (122) (1,019) (191)
Non-GAAP research and
development expense $ 2,200 $ 2,324 $ 1,359 $ 6,101 $ 4,317
GAAP selling, general and
administrative expense $ 6,206 $ 4,985 $ 2,877 $ 15,572 $ 6,880
Stock-based compensation (621) (639) (41) (2,059) (64)
Non-GAAP selling, general
and administrative expense $ 5,585 $ 4,346 $ 2,836 $ 13,513 $ 6,816
GAAP operating income
(loss) $ 6,442 $ 3,874 $ (1,408) $ 9,631 $ (11,624)
Amortization of intangible
assets 1,176 1,175 1,176 3,526 3,529
Stock-based compensation 1,157 1,137 326 3,706 510
Non-GAAP operating income
(loss) $ 8,775 $ 6,186 $ 94 $ 16,863 $ (7,585)
GAAP income (loss) before
income tax provision $ 10,400 $ 5,796 $ (1,630) $ 16,482 $ (15,203)
Amortization of
intangible assets 1,176 1,175 1,176 3,526 3,529
Stock-based compensation 1,157 1,137 326 3,706 510
Non-GAAP income (loss)
before income tax provision $ 12,733 $ 8,108 $ (128) $ 23,714 $ (11,164)
GAAP net income (loss) $ 9,568 $ 5,384 $ (1,630) $ 15,207 $ (15,203)
Amortization of intangible
assets 1,176 1,175 1,176 3,526 3,529
Stock-based compensation 1,157 1,137 326 3,706 510
Tax effect 195 (162) -- 33 --
Non-GAAP net income
(loss) $ 12,096 $ 7,534 $ (128) $ 22,472 $ (11,164)
SOURCE SunPower Corporation
-0- 10/19/2006
/CONTACT: Julie Blunden, +1-408-240-5577, or Manny Hernandez,
+1-408-240-5574, both of SunPower Corporation/
/First Call Analyst: /
/FCMN Contact: /
/Web site: http://www.sunpowercorp.com /
(SPWR CY)
