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Chips In The Sun


Think I can use those solar thingies to patch up my tan?


On its first quarter conference call back on April 21, Cypress Semi's (CY) management spoke at length about the prospects for its SunPower division, which manufactures solar cells for alternative power sources. CEO T.J. Rodgers has been talking up this business for a number of quarters and so far things have been progressing better than anticipated.

SunPower is now slated to become an independent company through an IPO sometime in the next few months. The stated purpose of the IPO is to provide funding for SunPower's growth, while CY will continue to report SunPower's financials on a consolidated basis. For reference sake, CY is forecasting $200M in revenues for SunPower for 2006 (25% of CY's total 2005 revenues).

I am circling back to this story three months after it came out because yesterday ran a short piece indicating that silicon and foundry outfits are beginning to shift their attention to solar cells as they see it as a fast growing new market.

Love him or hate him (he has been known to tell nuns to take a hike) T.J. Rodgers has shown longevity in a brutal business and he is generally regarded as a straight shooter. It is also refreshing that you'll hardly ever hear a "non-answer" from CY's management. One may not like the answer, and often the answer has been wrong (overly optimistic) but at least you'll get an answer.

In my humble opinion, and not to be taken as advice, several ducks are lining up here: conventional energy prices are becoming a worldwide pain in the wallet and on the environment; the efficiencies of solar cells is increasing to the point where it is becoming commercially viable; the "arms" makers are beginning to focus and shift resources to solar cells manufacturing, suggesting that the growth trajectory is probably real; SunPower is projected to turn profitable in Q4 of this year, and an IPO should catch a nice combo of profitability and fast growth prospects; CY is probably one of the few, if not only, pure plays for this technology, as the other competitors are such large conglomerates that the impact of solar cells on the top and bottom lines is not likely to become meaningful anytime soon.

A side story to this is a current shortage of polysilicon materials, the wafers needed for production of solar cells. CY noted this on the April call as a headwind, though unlike other IC's, solar cells' silicon actually increases in efficiencies as wafers get thinner and thus use less raw materials. So as the technology to make thinner solar wafers improves, shortage of polysilicon should become less of an issue. This morning the polysilicon shortage is making news again, with MEMC Electronics (WFR) noted as a potential beneficiary of the supply problems (thanks to StreetAccount's service for the heads-up)

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Position in CY
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