Chron 200 - Selling people on solar cells

By that reckoning, SunPower Corp. stands at the intersection of profit and good public policy.

As its name implies, the San Jose company makes cells that turn sunlight into electricity. SunPower, which is majority-owned by Cypress Semiconductor Corp., went public in November 2005 in time to capitalize on the greening of Silicon Valley.

"This is a very attractive sector for both short and long term,'' said analyst David Edwards, who follows the company for ThinkEquity Partners in San Francisco.

Edwards said SunPower makes what are arguably the world's most-efficient solar cells -- as measured by the percentage of sunlight captured and converted into electricity. Typical solar cells convert about 14 to 16 percent of sunlight into electricity. SunPower cells achieve efficiencies more in the 20 to 22 percent range.

SunPower also recently acquired PowerLight, a company that installs solar panels. In so doing it created what Edwards calls a one-stop shop for businesses and homeowners looking to install a solar power system.

"In my mind this is a very smart strategic move," he said. "This gives SunPower the ability to control the process from beginning to end."

Although its future seems bright today, SunPower co-founder and Chief Technology Officer Richard Swanson remembers many dark days in the 20-plus years that it took to turn the company into an overnight sensation.

"I'm glad I didn't know long it would take," Swanson said during a recent interview at the company's San Jose headquarters. "If I had, I don't know that'd I'd have stuck it out."

As Swanson recalls, SunPower spent years wandering in the desert -- pursuing what turned out to be the false notion that the best way to make solar power more efficient was to put large groups of cells in hot, sunny places and then use lenses to concentrate the light.

That didn't pan out, said Swanson, adding that nowadays the "killer app" is putting solar arrays right on homes and businesses rather than in centralized sun-powered plants.

But those years in the desert weren't entirely wasted. In the course of trying to figure out how to maximize the light-to-energy ratio, SunPower came up with a new twist on solar cell design.

"The art and science of designing an efficient solar cell is to coax as large a fraction of photons as possible to become electrons," he said.

To understand Swanson's innovation, realize that the electronic components of a typical solar cell resemble a sandwich -- with a slice of silicon between thin ribbons of metal. Sunlight striking the silicon creates a flow of electrons from the positive metal foil to the negative metal foil, generating electricity.

What SunPower discovered is that the metal foil on the top of the solar cell reflected some part of the photons before they had a chance to strike the silicon layer. To improve efficiency, SunPower put both layers of metal on the bottom of the cell and made other changes to improve the capture of electrons, Swanson said.

By the mid- to late 1990s, this high-efficiency design had caught the attention of NASA, which used solar cells to power an experimental aircraft called Helios. The aircraft, designed for pollution-free, long-endurance missions, was powered by 62,000 solar cells atop its wings.

But the cells used on Helios cost about $200 each -- easily a hundred times what a business or homeowner would be willing to pay for a solar power system today. And in any event it was a limited contract.

By late 1999, when SunPower was running out of money, a mutual acquaintance got Swanson an audience with T.J. Rodgers, whose company, Cypress Semiconductor, has long been one of Silicon Valley's leading chipmakers.

Rodgers quickly grasped the notion that the SunPower design could be a market leader if only the company could reduce its manufacturing costs. "We had never made anything in volume before," said Swanson, a Stanford-trained electrical engineer. "Many scientists tend to think of manufacturing in a dismissive sort of way."

So in 1999, with SunPower about to run out of money, Rodgers wrote a personal check for $750,000 to keep the company afloat. Rodgers also sought to persuade the Cypress board of directors to adopt SunPower and give it the resources to build a manufacturing line capable of mass-producing Swanson's design.

By that time, though, the dot-com bubble had exploded and the entire tech industry pulled in its horns.

"It was a very hard sell," Swanson recalled.

By 2003, however, Cypress had officially taken over SunPower and put its financial and manufacturing muscle behind the struggling solar-cell manufacturer.

"When I started in June 2003 the company had about 45 people," said SunPower Chief Executive Officer Thomas Werner, a Cypress transplant who spearheaded the solar manufacturing effort.

This included creating pilot batches of SunPower cells on Cypress' own chip-making assembly lines. At the same time, Werner was asking Cypress' board to build a complete solar manufacturing line in the Philippines, about 30 miles south of Manila.

"Before we had demonstrated that we could mass-produce cells for (the target price) we were into this thing for nearly $200 million," Werner said, adding, "That is what Silicon Valley is all about."

Hiccups on the Philippine assembly line caused anxiety in late 2004 and early 2005, but Werner said people from his manufacturing team camped out at the plant until they had ironed out the kinks. Cells that Swanson had made for $200 per unit of electricity back in the mid-1990s started rolling off the assembly line at closer to $2.

Wall Street analysts started inquiring about SunPower and expressing interest in spinning it off as an initial public offering.

"The wind was at our backs," Werner said.

Today, Cypress owns about 65 percent of SunPower, he said. Public shareholders own an additional 30 percent and employees hold 5 percent. Werner said revenue has gone from $4 million in 2003 to $11 million in 2004 to $80 million in 2005 and $236.5 million last year.

Numbers like that helped SunPower stock rise 7.2 percent during the past 12 months to $46.50, its March 30 closing price.

Analyst Jesse Pichel, who follows the solar industry for PiperJaffray, said he believes SunPower has the most efficient solar systems on the market but worries that it will have higher costs than competitors. "It's the Mercedes of solar, but we're looking for the Toyota,'' he said.

This year SunPower acquired PowerLight, a Berkeley installer of solar power systems. Installation accounts for roughly half the cost of a solar system. By bringing installation in-house, SunPower hopes to control system costs and give customers a single party to thank -- or blame.
 

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