SunPower to Cut Costs in Industry Downturn

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- SunPower ( SPWR) announced that it would be taking steps to lower its manufacturing costs and improve supply chain efficiency.

The company said it was going ahead with plans to implement certain changes to its manufacturing lines and shift production to new lines to lower costs. The changes are expected to help the company cut production costs to $0.86/watt by the end of 2012.

The company will also look to reduce its capacity by "repurposing" one of its fabrication facilities in the Philippines. With panel prices falling, SunPower will have to reduce costs to compete with low-cost Chinese players like Suntech ( STP) and Trina Solar ( TSL).

We have a $12.74 price estimate for SunPower, (link: https://www.trefis.com/company?hm=SPWRA.trefis) which is more than double its current market price.

Click here for our full analysis of SunPower.

Cost Control

With the solar industry struggling to come to terms with falling demand and excess production capacity, companies are being forced to compete on price. SunPower's latest steps to cut down on costs are expected to help the company to fight off competition from Chinese panel manufacturers.

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According to SunPower's president and CEO Tom Werner, the program being undertaken could help reduce the number of steps in their manufacturing process by 15%. SunPower expects to convert all its production lines in its Fab 2 plant in the Philippines to the new process by the end of this year. Production for its Fab 1 plant located in the same country will be shifted to Fab 2 to reduce manufacturing costs and to improve supply chain efficiency.

The Fab 1 plant will be repurposed to suit other companies. The reduction in the production capacity for SunPower will be partially offset by higher efficiency and yield in the other fabrication facilities. SunPower will be taking a charge of $51 million to $69 million related to these changes. However the restructuring will help the company reduce manufacturing costs as well as the capital expenditures outlays.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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