SunPower cuts production expansion plans as module inventory rises and sales fall

SunPower would seem to have been hit by the ‘perfect storm,’ judging by its recent release of quarterly financial results. The company cited that the impact of the harsh winter in Germany, the collapse of the Spanish market, by far its biggest revenue generator in 2008 (74%), and continued constraints of project finance and overall tight credit environment.

The result was a significant decline in revenue for the first quarter, coming in at US$214 million, compared to US$401 million in the fourth quarter of 2008. However, inventory levels also mushroomed, increasing by 37% to US$343 million in the first quarter of 2009.

In response, Tom Werner (pictured) and other SunPower management said in a recent conference call that the company would delay capital expenditures on previously announced production expansions in the Philippines. Executives said that the last three lines at Fab 2 though installed would not be ramped in the current demand environment. SunPower would also push back part of its Fab 3 ramp in Malaysia until 2010.

Capital expenditure would therefore be lower than previously guided. SunPower now expects spending in the range of US$250 million to US$300 million, down approximately US$100 million for 2009.

However, the company said that it was working closely with equipment and materials suppliers to reduce the lead time required to place and receive capital equipment orders, to allow it to react quickly to changes in the demand environment and therefore not miss out on future market opportunities.

Furthermore, SunPower was in discussions with vendors to change the terms and conditions of existing contracts to reduce its cost structure and improve cash flow.