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SunPower in 1H15: Why Its Gross Margin Dropped

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Cost of revenues

SunPower (SPWR) reported that its total cost of revenues were $660.2 million, or 80% of revenues, in 1H15. In 1H14, these costs were $943.2 million or 79% of revenues. The marginal fall in gross margins was a result of deviations in segmental performance.

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Residential segment

The residential segment reported revenue costs of $239.8 million in 1H15, the equivalent of 78% of its revenues. In 1H14, that cost was $257.7 million or 80% of the segment’s revenues. The gross margin came in at 22% in 1H15, 2 percentage points higher than in 1H14. The increase was a result of the segment’s improved performance in the US, partially offset by weaker performance in Japan.

Commercial segment

The commercial segment reported $105.7 million, or 94% of revenues, in revenue costs in 1H15. This figure was $139.3 million or 86% of revenues in 1H14. The segment’s gross margin came in at 6% in 1H15, 8 percentage points lower than in 1H14. Just like in 1H14, higher-than-expected costs and a change in project mix led to the margin drop.

Power plants

The power plants segment reported $314.7 million as costs of revenues in 1H15, or 78% of revenue. In 1H14, this cost was $546.2 million or 76%. This translates into gross margins of 22% in 1H15 and 24% in 1H14.

The company completed some large, high-margin solar (TAN) power projects by the end of fiscal 2014, which resulted in the drop. Canadian Solar (CSIQ), FirstSolar (FSLR), and SunEdison (SUNE) also develop and construct solar power plants.

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