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Cypress Semi sees SunPower solar segment soar, but margin questions remain |
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Oct 19, 2007 at 10:59 AM |
Where would Cypress Semiconductor be without its majority-owned SunPower solar manufacturing unit? As of the parent company's third quarter ended Sept.
30, about $234 million lower in revenues, that's where. The photovoltaically focused subsidiary's sales topped its semiconductor sibling by about $19 million in the quarter (which brought in a bit more than $215 million), thus accounting for more than half of T.J. and Co.'s cash flow.
SunPower's year-to-year growth---258.6%---boggles, but its quarter-to-quarters ain't bad neither: 3Q07 bested its second-quarter numbers by a prodigious $60 million-plus, a reporting period when it lagged behind Cypress's semi revenues ($199 million) by about $25 million. That solar-powered sales jump represents nearly a 35% jump quarter to quarter, on par with the solar industry's compound annual growth rate numbers. The company's semi portion also saw a nice pop, but not nearly in the same league as its solar sib.
But a glance at the operating margin and profit numbers reveals a less-encouraging (and more typical of solar) picture. SunPower's sunny sales numbers only resulted in a GAAP profit of $4.6 million for the parent company, representing a paltry (by semi standards) 18.9% margin. By contrast, Cypress's semi units garnered $25.2 million in profits, which came from a much healthier 45.4% margin. After combining the two groups' numbers, the company's overall margins hover in the low 30s.
Keep in mind that SunPower's margin and profit numbers look a few million dollars to the better when standing by themselves in the publically traded company's own financial reports. The solar panel components and systems company is going gangbusters on a number of fronts---adding hundreds of megawatts capacity, boosting cell conversion efficiencies, thinning wafers, locking in polysilicon supplies, selling multi-megawatt systems. Company execs say cost efficiencies are improving, so margins should get better.
But how much better can solar-manufacturing economies of scale get? Can operating margins climb into the high 30s and even the 40s? Once SunPower's financial results filter through Cypress's totals---and are thus compared with the semi sector figures and put into a larger context---they offer a stark reminder of the crystalline-silicon PV segment's (currently) narrow windows of profitability.
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