The Viability of the Cost Reduction Project at SunPower

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The Viability of the Cost Reduction Project at
SunPower

• Kyle Collins
• Anthony Robibero
• Zoya Trachevskaya
• Jennifer Wilbur
• Elizabeth Yawarski
• Mark Yurkewecz

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Agenda

• SunPower and PV Industry
• Cost Reduction Strategy
• Valuation of Project

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Executive Summary
SunPower has ambitious goals of transforming the
photovoltaic market to provide clean, sustainable
energy on a global level. Strategic cost
restructuring, through the rationalization of our
value chain provides the greatest opportunity to
achieve this mission. After careful
consideration of operations, human resources and
valuation of our project, we are pleased to
present to management the profitable future of
SunPower.
Cost Reduction
Valuation of Project
SunPower and PV industry
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Industry Overview

• Small, fast growing industry at over 20
• Global Industry Revenues over 10.6B in 2006
• Production dominated by Japan and Germany

Solar Energy Industries Association
Cost Reduction
Valuation of Project
SunPower and PV industry
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Market Segmentations

• Residential Retrofit New
  Production Homes

Commercial Public Power Plants
Cost Reduction
Valuation of Project
SunPower and PV industry
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SunPower

• Leader in PV cell efficiency
• Produce up to 50 more power per square ft.
• Operations
• Design, develop, manufacture, and market solar
  power products
• Global presence
• Philippines, China, Korea

Cost Reduction
Valuation of Project
SunPower and PV industry
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Market Cap

• Less barriers to enter the PV market
• SunPower became a public corporation in 2005
• SunPower - 4.09B

Cost Reduction
Valuation of Project
SunPower and PV industry
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SunPower Strategy

• Partner with governments that provide incentives
• Duality of Efficiency
• PV cells
• Supply Chain
• Objective
• Cost Reduction

Cost Reduction
Valuation of Project
SunPower and PV industry
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Market Penetration

• Emphasize Choice in Energy Sources
• Work with Economies Offering Subsidies
• Increase Awareness
• Become Synonymous with PV Industry
• Customer Satisfaction

Cost Reduction
Valuation of Project
SunPower and PV industry
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Strategic Cost Restructuring

• Reducing costs throughout the supply chain
• Reduce final costs to consumers
• Sustain/increase revenues through increased
  quantity sold
• Elastic market once affordability is reached

Cost Reduction
Valuation of Project
SunPower and PV industry
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Stages in Value Chain
Cost Reduction
Valuation of Project
SunPower and PV industry
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Cost Distribution
Silicon
Ingot
Wafer
PV Cell
Panel
System
Allocation of Cost by Stage
SunPower Annual Stockholders Meeting, May 4, 2007
50
30
20
Stage 1
Stage 2
Stage 3
Cost Reduction
Valuation of Project
SunPower and PV industry
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Strategic Lack of Upward Integration

• Substantial part already controlled
• Joint Venture in South Korea
• Create efficiencies in the supply chain
• Economies of scale
• Burden of production off domestic company
• Utilize Just-In-Time Inventory Management

Ingot
Wafer
Silicon
Cost Reduction
Valuation of Project
SunPower and PV industry
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PV Cell Efficiency

• Silicon savings
• Using more efficiently
• 255 microns thick ? 165 microns thick (35)
• Increased efficiency in cells
• Improves silicon usage/watt
• Reduces panel material/watt
• Reduces installation labor costs/watt

30
Stage 2
Cost Reduction
Valuation of Project
SunPower and PV industry
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Power Plant Area Comparison
SunPower Annual Stockholders Meeting, May 4, 2007
Annual MWh simulation based in Seville, Spain
Cost Reduction
Valuation of Project
SunPower and PV industry
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Operations Efficiency

• New facility in the Philippines
• Meeting goals in overhead
• Meeting costs
• Sustaining revenue growth
• Capitalizing on lower labor costs
• Remain competitive in job market
• Maintaining infrastructure to accommodate growth
• Oracle System

Cost Reduction
Valuation of Project
SunPower and PV industry
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Systems Cost Reduction

• Panel Savings 50
• Scale
• Improvements in manufacturing process
• Learning curve
• Synergies
• PowerLight

Cost Reduction
Valuation of Project
SunPower and PV industry
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PowerLight Opportunity

• Create cross selling prospects
• Reduce overhead through reducing overlapping
  labor functions
• Eliminate intermediaries between manufacturing
  and system components
• Create synergistic relationships throughout the
  supply chain

Cost Reduction
Valuation of Project
SunPower and PV industry
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Operating Margin Projections
430M
387M
215M
Revenue 43M Revenue 215M
Cost Reduction
Valuation of Project
SunPower and PV industry
SunPower annual report 2005
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Risk Analysis

• Silicon shortage
• Forward contracts, obsolescence
• Customer concentration
• Top 3 buyers 65
• Preserving Relationships
• Customers, Suppliers, Distribution
• Growth and Sustainability Risks

Cost Reduction
Valuation of Project
SunPower and PV industry
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Scenario Analysis
Cost reduction
Demand growth
Cost Reduction
Valuation of Project
SunPower and PV industry
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Summary

• Making SunPower a cost competitive energy
  alternative
• Supply chain Integration
• Synergistic relationships
• Solar cell efficiency

Cost Reduction
Valuation of Project
SunPower and PV industry
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Q A?