SunPower: Mr. Heat Miser (Part 2)

This is Part 2 of a two-part story about SunPower. Part 2 focuses on SunPower's shift to the large-scale solar project business. Part 1 focuses on SunPower's challenges among its existing dealer network in the U.S. market.

Other concerns have beset SunPower(SPWRA) as well. In its May 11 earnings report, for instance, the company showed no improvement on the cost side of the equation.

SunPower noted that it might lessen its costs to the equivalent of $1.60 per watt, as opposed to an originally projected $1.80 per watt, by year-end.

Nevertheless, the company had to reduce its GAAP EPS forecast to a potential loss of 20 cents a share in fiscal 2010. (It had earlier thought it could break even.) SunPower's GAAP-based earnings of 13 cents in the first quarter also included a 33 cent one-time tax benefit.

SunPower is taking steps to reduce costs in its manufacturing process.

SunPower announced recently that it would shift some module manufacturing to a new facility run by Flextronics(FLEX) in Milpitas, California.

Governor Arnold Schwarzenegger showed up for the ribbon-cutting, but several analysts reacted to the Flextronics announcement with a yawn, citing the plant's relatively small capacity of 75 megawatts.

Further, the actual high-tech work of fabricating solar cells -- and the higher-paying skilled labor that goes along with it -- will remain overseas. (Countries like Malaysia entice manufacturers with 14-year tax holidays.) In effect, then, the Flextronics plant will serve as a module-assembly facility.

The main benefit of the Flextronics deal is that it will help SunPower save on shipping costs, analysts say. It will allow SunPower to import cells that are still cheaper to manufacture in Asia, and assemble them into modules in California -- thus, it won't have to ship the larger end-product. Though the savings aren't insignificant, analysts say, they won't be a difference maker in terms of SunPower's roadmap to a lower cost structure.

SunPower spokesperson Julie Blunden, who serves as vice president of communications, told TheStreet that the company won't quantify the cost-savings from the Flextronics outsourcing deal because it would then run the risk of being like other solar companies that make claims that aren't valid, which could run up red flags with the Securities and Exchange Commission.

Yet many other solar companies report their cost reductions and average sales prices on a regular basis without running afoul of the SEC, so the comment from SunPower was hard to understand.