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SunPower in 2Q15: Liquidity Shrinks on Cash Burn

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Fixed assets

SunPower (SPWR) owned total PP&E (property, plant, and equipment) worth $643.9 million as of June 28, 2015. That amount represents 14.8% of the firm’s total assets.

You should note that the company reports its earnings in a 52-week or 53-week format. As a result, the company’s fiscal 2014 ended on December 28, 2014.

About 60%, or $382.5 million, of total PP&E is located in the Philippines, where the majority of the company’s manufacturing takes place. Because most of the raw materials come from China, and to save on labor costs, most American solar (TAN) companies manufacture panels in Asia. SolarCity (SCTY) and Canadian Solar (CSIQ) have manufacturing bases in China, and FirstSolar (FSLR) manufactures thin-film solar panels in Malaysia.

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Working capital

The second quarter of 2015 saw the company’s inventory shoot up. It was worth $310.4 million as of June 29, 2015, the equivalent of 46.4 days of inventory. In comparison, the firm reported $208.6 million in inventory, good for 34.4 days, on December 28, 2014. The spike was attributed primarily to more raw materials in stock and more work-in-progress inventory. While not a major cause for concern, we’ll monitor the company’s inventory levels.

The inventory spike was more than offset by a drop in receivables and other current assets. In fact, project assets jumped to $379.9 million as of June 28, 2015, up from $101.2 million as of December 28, 2014. The company reported the Quinto Solar Project under its current assets since it’s expected to be completed this year.

Accrued liabilities rose to $551 million as of June 29, 2015, up from $331 million as of December 28, 2014. SunPower recorded warranties on yet-to-be-completed projects transferred to 8point3 Energy Partners (CAFD) under current liabilities. Accounts receivable remained around the same at $427.4 million.

Liquidity

The company reported cash and cash equivalents of $623 million as of June 29, 2015, as opposed to $956.2 as of December 28, 2014. In spite of $341.2 million in net proceeds from the asset transfer to 8point3 Energy, the firm’s cash balance dropped because it burned cash and repurchased convertible bonds in 1H15.

SunPower also has access to a $250 million revolving credit line. Having a strong parent, Total (TOT), adds to the company’s financial flexibility.

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