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SunPower Corporation , a Silicon Valley-based manufacturer of high-efficiency solar cells, reported a third quarter 2012 adjusted loss of 5 cents per share, versus a loss of 6 cents in the year-ago quarter. Loss in the reported quarter was far narrower than the Zacks Consensus Estimate of a loss of 22 cents.

On a GAAP basis, the company posted a loss of 41 cents per share versus a loss of $3.77 in the year-ago quarter.

During the reported quarter, the variation of 36 cents between GAAP and adjusted loss came from gain on share lending arrangement of 43 cents and from Utility & power plant project of 5 cents. This was partially offset by goodwill and other intangible asset impairment charge of 50 cents, non-cash interest expense of 12 cents, charge related to restructuring plans of 9 cents, charges on manufacturing step reduction program of 6 cents, tax effects of 4 cents, amortization of intangible assets of 2 cents, and acquisition & integration costs of a penny.

Operational Results

SunPower generated revenues of $649.0 million, down 8% year over year. It was however above the Zacks Consensus Estimate of $606 million.

During the quarter under review, revenue generated in the Americas was $502.4 million compared with $368.6 million in the prior-year period. Revenues in Europe, the Middle East and Africa (EMEA) were $88.5 million versus $293.1 million in the year-ago quarter. Revenues from Asia-Pacific (APAC) were $58.0 million, up from $43.7 million in the year-ago period.

Financial Condition

At the end of the reported period, SunPower had cash and cash equivalents of $377.1 million, compared with $374.6 million at the end of the third quarter of 2011. Convertible debt decreased to $434.4 million from approximately $620.0 million at year-end 2011.

During the quarter, net cash used for operating activities was $31.7 million compared with $21.6 million generated in the prior-year period. Capital expenditures during the reported quarter was $16.4 million versus $17.4 million in the year-ago period.

Guidance

For the fourth quarter of 2012, the company expects non-GAAP revenue in the range of $700 million to $900 million, gross margin in the range of 14% to 16%, and non-GAAP earnings in the range of breakeven to 25 cents per share.

On a GAAP basis, the company expects revenue of $650 million to $850 million, gross margin in the range of 2% to 4%, and net loss per share of 75 cents to $1.00 for the fourth quarter.

Our Take

SunPower is a vertically-integrated solar manufacturer, with a presence along the entire solar value chain from cells through installation. However, in the near term, the company is witnessing cascading Average Selling Prices (“ASP”) and margins in its residential and small commercial markets segment. We expect this trend to continue in the near future with valuation further restrained by the higher cost structure of the company compared to its peers, the glut of solar panels in the market, lower ASPs and foreign exchange risk.

SunPower presently retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

SunPower mainly competes with Suntech Power Holdings Co. Ltd. and First Solar, Inc. .

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