SunEdison's Impressive Customers Not Yet Impressing Investors
A series of acquisitions have put SunEdison, Inc. (SUNE: Nasdaq) in the business of solar energy systems. Until recently called MEMC Electronics Materials, the company had been a provider of silicon wafers to semiconductor producers and fabricators. In 2009 and 2010, MEMC acquired SunEdison and Solaicx, respectively. Besides the foundation for a new name, the SunEdison deal gave the company a line of photovoltaic energy solutions to sell to solar system developers and major end users. Solaicx acquisition gave the company access to a proprietary continuous crystal growth manufacturing technology which yields high-efficiency monocrystalline silicon wafers. Conveniently, Solaicx came with a manufacturing facility in Oregon.
SunEdison reported $2.0 billion in total revenue in the most recently reported twelve-month period ending June 2013. Historically, about two-thirds of revenue has been from the sale of solar systems and the remaining one-third from semiconductor materials sales. However, in the June 2013 quarter the value of solar systems sales slipped to just 40% of total sales, elevating semiconductors materials to the leading segment with 60% of total sales even though sales in that segment were only slightly higher than the same quarter last year. Selling prices have been pressured downward by aggressive pricing on the part of Chinese solar components companies.
What is more the company has not reported a profit since 2010. At the operating level, the semiconductor segment has been profitable most of the time. However, the solar segment has been floundering in operating losses for the past few years.
The board of directors decided last May that a name change from MEMC Electronics Materials to “SunEdison” would give the company better branding success. The name change and emphasis on better branding for the solar segment is part of an overall plan to boost sales and profits. The company refers to it as the 2011 Global Plan. Other elements include streamlining the semiconductor materials operation and improving cash flows. We note that in the June 2013 that segment was cash flow positive. The company is also taken a more protectionist stance on solar project, limiting exposure until customers have committed project financing.
What may be a bigger problem for SunEdison than the branding qualities of its name is the selling qualities of product line. Frankly, there is little that stands out in a crowded market. Acquisitions have served as the company’s ticket to the solar market. It is doing very little in-house to added nuance to its technology. Research and development spending total only 3% of sales over the last three years. It is important to consider that in the solar system design and installation business, financing can be an even bigger obstacle to getting a sale completed than being able to differentiate yourself from the next solar system peddler.
That said, we note SunEdison has been able to land solar system contracts with some of the most visible leaders in the move to solar power: Staples, Kohls, Walgreens, Albertsons and Whole Foods, among others. SunEdison claims over 550 different customers in its solar segment.
For now investors have not been impressed by the customer list. Recent trading sessions in the stock has shown clear bearish sentiment prevails. That does not prevent us from including SUNE in the Solar Group in The Atomics Index for companies in the alternative energy business.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. SUNE is included in the Solar Group of Crystal Equity Research’s The Atomics Index, composed of companies using the atom to create alternative energy sources.