WPC 480.
Week 10
1
Upcoming Assignments
Quiz 5 – Chapter 8 March 26th - Due today
Quiz 6 – Chapter 9 April 2nd
Quiz 7 – Chapter 12 April 9th
SAS Paper #4 – April 16th
Quiz 8 – Chapter 10 April 23rd
Group Analysis Paper – April 23rd
Exec Interview Presentation – April 30th
Final Exam – May 7th Thursday 6 PM to 7:50 PM
2
For next week…
Topic: Corporate Strategy: Mergers & Acquisitions…
Textbook Reading: Chapter 9
Quiz #6 over Chapter 9 due April 2nd
Need volunteer for Chapter 9 mini-case presentation on Lyft.
(After tonight – 6 classes till end of semester)
3
Growth
4
Growth Options
Diversification – Increase in variety
Vertical Integration – Forward or Backward on value chain
5
Industry 1
Diversification
Industry 2
Vertical Integration
Diversification
6
7
8
Related Diversification
Firms create value by building upon or extending:
resources
capabilities
core competencies
Economies of Scope
Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses
Economies of Scope
Operational EoS: Shared activities or leveraging core competencies or transferring skills among units
Financial EoS: Internal capital markets – moving capital between units.
(The only EoS that unrelated diversification can accomplish)
Honda
11
Manufacturing Platforms
Innovation Activities
Shared Activities
Lightweight, reliable engines
Realized as Diversification
Stand alone
Marine
Vehicles
Yard Care
Generators
Boats Watercraft
Cars, SUV, Vans
Lawn mowers Snow Blowers
Core Products
Building Core Competencies
Firms can diversify to build new competencies to transform the corporation
12
Restructuring
Guide to Structure: Growth/Share Matrix
Different investment strategies
13
Firm Performance
14
Vertical Intregation
15
Growth Options
Diversification – Increase in variety
Vertical Integration – Forward or Backward on value chain
16
Industry 1
Diversification
Industry 2
Vertical Integration
Vertical Integration
17
Make or Buy?
When firms are more efficient than the market then consider vertical integration
18
Transaction Costs
External transaction costs
Searching for a firm or individual with which to contract
Negotiating, monitoring, supervising and enforcing the contract
Internal transaction costs
Recruiting and retaining employees
Paying salaries and benefits
Setting up a shop floor
Providing office space and computers, etc.
Risk of Opportunisum: greatest with asset specificity problems
Make or Buy?
20
$4.80 Foods
(Mozzarella Cheese)
Where your pizza comes from
Dairy Farmers
(milk)
Crop Farmers
(Alfalfa & Corn)
Seed Companies
(Alfalfa & Corn)
Food Distributors
Pizza Chains
End Consumer
Value Chain
21
$4.80 Foods
(Mozzarella Cheese)
Dairy Farmers
(milk)
Crop Farmers
(Alfalfa & Corn)
Seed Companies
(Alfalfa & Corn)
Food Distributors
Pizza Ch ...
1. WPC 480.
Week 10
1
Upcoming Assignments
Quiz 5 – Chapter 8 March 26th - Due today
Quiz 6 – Chapter 9 April 2nd
Quiz 7 – Chapter 12 April 9th
SAS Paper #4 – April 16th
Quiz 8 – Chapter 10 April 23rd
Group Analysis Paper – April 23rd
Exec Interview Presentation – April 30th
Final Exam – May 7th Thursday 6 PM to 7:50 PM
2
For next week…
Topic: Corporate Strategy: Mergers & Acquisitions…
Textbook Reading: Chapter 9
Quiz #6 over Chapter 9 due April 2nd
Need volunteer for Chapter 9 mini-case presentation on Lyft.
(After tonight – 6 classes till end of semester)
3
2. Growth
4
Growth Options
Diversification – Increase in variety
Vertical Integration – Forward or Backward on value chain
5
Industry 1
Diversification
Industry 2
Vertical Integration
Diversification
6
7
3. 8
Related Diversification
Firms create value by building upon or extending:
resources
capabilities
core competencies
Economies of Scope
Cost savings that occur when a firm transfers capabilities and
competencies developed in one of its businesses to another of
its businesses
Economies of Scope
4. Operational EoS: Shared activities or leveraging core
competencies or transferring skills among units
Financial EoS: Internal capital markets – moving capital
between units.
(The only EoS that unrelated diversification can accomplish)
Honda
11
Manufacturing Platforms
Innovation Activities
Shared Activities
Lightweight, reliable engines
Realized as Diversification
Stand alone
Marine
Vehicles
Yard Care
Generators
Boats Watercraft
Cars, SUV, Vans
Lawn mowers Snow Blowers
Core Products
Building Core Competencies
Firms can diversify to build new competencies to transform the
corporation
12
5. Restructuring
Guide to Structure: Growth/Share Matrix
Different investment strategies
13
Firm Performance
14
Vertical Intregation
15
Growth Options
Diversification – Increase in variety
Vertical Integration – Forward or Backward on value chain
16
Industry 1
Diversification
Industry 2
6. Vertical Integration
Vertical Integration
17
Make or Buy?
When firms are more efficient than the market then consider
vertical integration
18
Transaction Costs
External transaction costs
Searching for a firm or individual with which to contract
Negotiating, monitoring, supervising and enforcing the contract
Internal transaction costs
Recruiting and retaining employees
Paying salaries and benefits
7. Setting up a shop floor
Providing office space and computers, etc.
Risk of Opportunisum: greatest with asset specificity problems
Make or Buy?
20
$4.80 Foods
(Mozzarella Cheese)
Where your pizza comes from
Dairy Farmers
(milk)
Crop Farmers
(Alfalfa & Corn)
Seed Companies
(Alfalfa & Corn)
Food Distributors
Pizza Chains
End Consumer
10. Value Creation vs Costs
25
26
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SafeAssign Originality Report
CPSS/240: Foundations Of Criminal Behavior • Wk 1 - Opinion
Paper [due Mon]
%100Total Score: High risk
Darrin Williams
11. Submission UUID: 19cddd68-2eb4-7004-4872-614730cb961d
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CriminalLawAsignment.edi…
Average Match
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Average Word Count
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Highest: CriminalLawAsign…
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13. Source Matches (22)
CRIMINAL LAW ASSIGNMENT 1
CRIMINAL LAW ASSIGNMENT 2
Criminal Law Assignment
Darrin Williams
Professor’s Name
4/4/2020
Define crime, criminality, and criminal justice
A crime is any serious or harmful act of an individual against
the public which is punishable by law where one might be
required to pay fine or face a
jail term that is commensurable with the amount of crime
committed. Criminality is a behaviour or a condition which
constitutes a crime. Criminality
constitutes actions or behaviours which are forbidden by
criminal law. Elsewhere, criminal justice is a system used by
governments to identify
crimes and criminals in the society, apprehend, prosecute and
sentence them to a specified amount of time depending on the
gravity of the crime
committed (Cole & Smith, 2018 ). Criminal justice is comprised
of the law enforcement agents, the courts of law and the
correction facilities
What is the difference between deviance and criminality?
Deviance is the violation of social norms, while criminality is
the violation of the law of the
land which is punishable by fines or imprisonment. Deviant
14. behaviours are controlled by social pressures and the fear of
God, whereas the judiciary
and the policies control criminality in the judicial system.
Moreover, the society lacks coercive powers to deal with
deviance within its midst, whereas
the governments have powers to punish and control criminality
(Winfree & Abadinsky, 2016). Define the deterrence theory.
Deterrence theory is a
criminal justice theory which states that people get discouraged
from committing a crime based on the severity of punishment
associated with
crime. Therefore, the theory opines that people do not associate
with criminal activities because they are afraid of being caught
and subjected to se-
vere punishment. People are motivated by a deep moral sense to
avoid committing crimes (Cole & Smith, 2018).
Define the Age of Enlightenment. The age of enlightenment is
an eighteenth-century period which reoriented European
politics, science, communi-
cation, and philosophy which contributed directly to the
American Revolution. It is also referred to as the age of reason
because new ideas emerged
that influenced people in making personal decisions. Briefly
describe the Classical School of Criminology. It is the school of
thought that came out in
the course of the enlightenment period following the cruel
punishment melted on people. It believed that the society
required new forms of le-
gal regulation which are predictable and would guarantee legal
protection as well as a commensurable punishment. The
classicals believe that crim-
inals commit crime due to maximum pleasure obtained and the
minimum pain they receive and thus the need to create
deterrents which out-
weighed the benefit gained from the criminal behaviours
15. (Winfree & Abadinsky, 2016). Identify the three characteristics
of punishment. The
three characteristics of punishment include consistency,
sufficiency, and swiftness. Briefly describe the Neoclassical
School of Criminology. This
school of thought places criminal blame on individuals as
opposed to the environmental factors that would have
contributed to the causation of
crime. The neoclassicals believes that criminal behaviours can
be deterred by parents practising strictness in rearing their
children and enhance
punishment for any wrongdoings. The theory advocates for zero
tolerance to crime and an increased prison sentence for crimes
committed (Cole &
Smith, 2018).
List and define four theories of victimization. The theories of
victimization include the lifestyle theory, the precipitation
theory, routine activity
theory and the deviant place theory. According to lifestyle
theory, individuals get targeted or attacked because their
lifestyles like going out
alone at night, expose them to criminals. The precipitation
theory claims that the victims consciously or unconsciously
exhibits behaviours that en-
courage and promotes an attach. On the other hand, routine
activity theory holds that the presence of such factors like
motivated offenders,
suitable targets and the absence of protectors increases the
vulnerability of individuals becoming victims of criminal
activities. Finally, the deviant
place theory holds that the greater and prolonged subjection to
threatening settings increases the individuals' susceptibility to
becoming victims of
criminal activities (LaineHarper, 2016). Define the "Stand Your
Ground" law
16. Stand your ground law is a justification for a criminal activity
where the defendant uses force to protect himself and his
property or family
members against imminent threats from aggressors. This law
removes the requirements of the common law to retreat and
allow people to use
force to protect themselves. In your opinion, which is the best
way to mitigate crime, using the justice system or social
control? I believe a mar-
riage of two systems would work the best. There needs to be
stringent laws and measures as well as social involvement in
guiding and regulating in-
dividual behaviour.
1
2
3
3
3
4
3
3
3
3
5
17. References
Cole, G., & Smith, C. (2018). The American system of criminal
justice. Cengage Learning. LaineHarper. (2016, August 22). The
four theo-
ries of victimization. Retrieved from
https://soapboxie.com/government/The-Four-Theories-of-
Victimization
Winfree, L. T., & Abadinsky, H. (2016). Essentials of
Criminological theory (4th ed.). Waveland Press.
3 6 7
8
3 3
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3/5
completemyassignment 76%
Student paper 63%
Student paper 93%
Student paper 91%
Student paper 92%
18. Student paper 96%
Student paper 100%
Student paper 79%
1
Student paper
CRIMINAL LAW ASSIGNMENT 1
CRIMINAL LAW ASSIGNMENT 2 Crim-
inal Law Assignment
Original source
Criminal Law Assignment Help Crimi-
nal Law Assignment Help Criminal
Law Assignment Help
2
Student paper
4/4/2020
Original source
5/4/2020
3
Student paper
Define crime, criminality, and crimi-
nal justice A crime is any serious or
19. harmful act of an individual against
the public which is punishable by
law where one might be required to
pay fine or face a jail term that is
commensurable with the amount of
crime committed. Criminality is a be-
haviour or a condition which consti-
tutes a crime. Criminality constitutes
actions or behaviours which are for-
bidden by criminal law.
Original source
Define crime, criminality, and crimi-
nal justice A crime is any serious or
harmful act of an individual against
the public which is punishable by
law where one might be required to
pay fine or face a jail term that is
commensurable with the amount of
crime committed Criminality is a be-
havior or a condition which consti-
tutes a crime Criminality constitutes
actions or behaviors which are for-
bidden by criminal law
3
Student paper
Elsewhere, criminal justice is a sys-
tem used by governments to identify
crimes and criminals in the society,
apprehend, prosecute and sentence
them to a specified amount of time
depending on the gravity of the
20. crime committed (Cole & Smith,
2018 ). Criminal justice is comprised
of the law enforcement agents, the
courts of law and the correction fa-
cilities What is the difference be-
tween deviance and criminality? De-
viance is the violation of social
norms, while criminality is the viola-
tion of the law of the land which is
punishable by fines or
imprisonment.
Original source
Elsewhere, criminal justice is a sys-
tem used by governments to identify
crimes and criminals in the society,
apprehend, prosecute and sentence
them to a specified amount of time
depending on the gravity of the
crime committed (Cole, Smith & De-
Jong, 2018) Criminal justice is com-
prised of the law enforcement
agents, the courts of law and the
correction facilities What is the dif-
ference between deviance and crimi-
nality The difference between de-
viance and criminality is that de-
viance violates social norms whereas
criminality violates the law of the
land and is punishable by fines or
imprisonment
3
Student paper
21. Deviant behaviours are controlled by
social pressures and the fear of God,
whereas the judiciary and the poli-
cies control criminality in the judicial
system. Moreover, the society lacks
coercive powers to deal with de-
viance within its midst, whereas the
governments have powers to punish
and control criminality (Winfree &
Abadinsky, 2016). Define the deter-
rence theory. Deterrence theory is a
criminal justice theory which states
that people get discouraged from
committing a crime based on the
severity of punishment associated
with crime.
Original source
Deviant behaviors are controlled by
the pressure from the society as well
as the fear of God whereas the judi-
ciary and the policies control crimi-
nality in the judicial system More-
over, the society lacks coercive pow-
ers to deal with deviance within its
midst whereas the governments
have powers to punish and control
criminality Define deterrence theory
Deterrence theory is a criminal jus-
tice theory which states that people
get discouraged from committing a
crime based on the severity of pun-
ishment associated with crime
22. 3
Student paper
Therefore, the theory opines that
people do not associate with crimi-
nal activities because they are afraid
of being caught and subjected to se-
vere punishment. People are moti-
vated by a deep moral sense to
avoid committing crimes (Cole &
Smith, 2018). Define the Age of En-
lightenment. The age of enlighten-
ment is an eighteenth-century peri-
od which reoriented European poli-
tics, science, communication, and
philosophy which contributed direct-
ly to the American Revolution.
Original source
Therefore, the theory opines that
people do not associate with crimi-
nal activities because they are afraid
of being caught and subjected to se-
vere punishment People are moti-
vated by deep moral sense to avoid
committing crimes Define the Age of
Enlightenment The age of enlighten-
ment is an eighteenth-century peri-
od which reoriented the European
politics, science, communication,
and philosophy which contributed
directly to the American Revolution
3
23. Student paper
It is also referred to as the age of
reason because new ideas emerged
that influenced people in making
personal decisions. Briefly describe
the Classical School of Criminology.
Original source
It is also referred to as the age of
reason because new ideas emerged
that influenced people in making
personal decisions Briefly describe
the Classical School of Criminology
3
Student paper
It believed that the society required
new forms of legal regulation which
are predictable and would guaran-
tee legal protection as well as a com-
mensurable punishment.
Original source
Moreover, the classical school of
criminology was influenced by the
fact that the society required new
forms of legal regulation which are
predictable and would guarantee le-
gal protection as well as commensu-
rable punishment
25. Student paper
Identify the three characteristics of
punishment. The three characteris-
tics of punishment include consis-
tency, sufficiency, and swiftness.
Briefly describe the Neoclassical
School of Criminology. This school of
thought places criminal blame on in-
dividuals as opposed to the environ-
mental factors that would have con-
tributed to the causation of crime.
Original source
Identify the three characteristics of
punishment The three characteris-
tics of punishment include consis-
tency, sufficiency, and swiftness
Briefly describe the Neoclassical
School of Criminology Neoclassical
theory of criminology is a theory that
places blame on individuals as op-
posed to the environmental factors
that would have contributed to the
causation of crime
3
Student paper
The neoclassicals believes that crimi-
nal behaviours can be deterred by
parents practising strictness in rear-
ing their children and enhance pun-
ishment for any wrongdoings. The
26. theory advocates for zero tolerance
to crime and an increased prison
sentence for crimes committed (Cole
& Smith, 2018). List and define four
theories of victimization.
Original source
Furthermore, the theory opines that
criminal behaviors can be deterred
by parents practicing strictness in
rearing their children and enhance
punishment for any wrongdoings
The theory advocates for zero toler-
ance to crime and an increased
prison sentence for crimes commit-
ted List and define four theories of
victimization
4
Student paper
The theories of victimization include
the lifestyle theory, the precipitation
theory, routine activity theory and
the deviant place theory.
Original source
Lifestyle theory, victim precipitation
theory, routine activity theory and
the deviant place theory is one of
the victimization theories
3
27. Student paper
According to lifestyle theory, individ-
uals get targeted or attacked be-
cause their lifestyles like going out
alone at night, expose them to
criminals.
Original source
The lifestyle theory asserts that indi-
viduals are attacked or targeted be-
cause their lifestyles which expose
them to criminals
3
Student paper
On the other hand, routine activity
theory holds that the presence of
such factors like motivated offend-
ers, suitable targets and the absence
of protectors increases the vulnera-
bility of individuals becoming victims
of criminal activities.
Original source
The routine activity theory holds that
the presence of such factors as the
absence of protectors increases the
vulnerability of one becoming a vic-
tim of criminal activities
28. 3
Student paper
Define the "Stand Your Ground"
Original source
Define the "Stand Your Ground"
3
Student paper
Stand your ground law is a justifica-
tion for a criminal activity where the
defendant uses force to protect him-
self and his property or family mem-
bers against imminent threats from
aggressors. This law removes the re-
quirements of the common law to
retreat and allow people to use force
to protect themselves.
Original source
Stand your ground law is a justifica-
tion for a criminal activity where the
defendant uses force to protect him-
self and his property or family mem-
bers against imminent threats from
aggressors This law removes the re-
quirements of the common law to
retreat and allow people to use force
to protect themselves
29. 5
Student paper
In your opinion, which is the best
way to mitigate crime, using the jus-
tice system or social control?
Original source
In your opinion, which is the best
way to mitigate crime, using the jus-
tice system or social control
3
Student paper
The American system of criminal
justice.
Original source
The American system of criminal
justice
6
Student paper
(2016, August 22).
Original source
2016, July 22)
30. 7
Student paper
The four theories of victimization.
Original source
The Four Theories of Victimization
8
Student paper
Retrieved from https://soapboxie.-
com/government/The-Four-Theo-
ries-of-Victimization
Original source
Retrieved from https://soapboxie.-
com/government/The-Four-Theo-
ries-of-Victimization
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5/5
Student paper 100%
Student paper 74%
31. 3
Student paper
T., & Abadinsky, H.
Original source
T., & Abadinsky, H
3
Student paper
Essentials of Criminological theory
(4th ed.).
Original source
Essentials of Criminological Theory
WPC 480.
Week 7
1
For next week…
Topic: Differentiation & Niches based on readings below…
Textbook Reading:
Chapter 6, Chapter 5 (pgs 165 – 171)
32. Submit an article on a corporate merger or acquisition that’s not
completed yet if you haven’t.
(After tonight – 1 class till Spring Break)
2
Team Presentation
Strategy
Mission: A firm’s long term purpose – what it aspires to be and
what it will avoid in the meantime.
Objectives: Specific measurable targets a firm can use to
evaluate the extent to which it is realizing its mission.
Strategy
What is strategy?
Your strategy is your theory of how to excel at the game you are
playing
A firm’s strategy is its theory of how to achieve high levels of
performance in the markets and industries within which it is
operating.
Strategy is a position:
Combine resources & capabilities that ‘position’ your firm in
the industry
Different positions in the industry are subject to distinct 5-
forces
33. Generic strategies:
Differentiation – design strategies with core competencies to
increase willingness to pay for target customers more than it
increase costs for the firm
Cost-leadership – design strategies with core competencies to
lower costs for the firm by more than it decreases willingness to
pay for target customers
Strategy
Blue Ocean Strategy
7
Blue Ocean Strategy
Value Innovation: Aligning consumer utility, price and cost for
maximizing value to company and consumer – product
differentiation and low cost.
8
Business-level Strategies
Customer Focus
34. Key Issues in Business-level Strategy
Who will be served?
What needs will be satisfied?
How will those needs be satisfied?
Tradeoffs (stop imitators)
Triad necessary for successful strategy
Strong Positioning (competitive strategy) creates guides for
making tradeoffs and creating organizations that fit
Consistent tradeoffs create an organization that fits a
competitive strategy and helps create barriers to competition
Fit creates capabilities and resources that can be a guide to
creating a strategy and making tradeoffs.
Positioning (vs competitors)
Fit (inside & outside)
The Triad
Cost leadership
Confusing name – it really is about having the lowest price in
your industry
Generally low price requires lowest costs everywhere, but
lowest prices are relative to competitors (so could be high
absolute costs in some cases)
35. Sources of keeping costs down and prices low
Cost of input factors (supplier power matters here)
Economies of scale
Employing specialized systems and equipment
Minimum efficient scale – increases in volume do not lead to
further cost reductions
Implies large market share almost always to get the best
economies of scale
8
Cost leadership:
It takes time to reduce costs
Learning Curve Effects – price drops (and quality increases) as
volume increases over time
Versus Economy of Scales: Economy of Scales are a specific
points in time versus accumulation over time
Differences in Complexity: Depending on product/service EoS
may have stronger impacts than learning curves
Experience Curve Effects – price drops (and quality increases)
with changes in technology of production
Process Innovation: changes in technology allow increased
efficiency with same output volume.
Technology can be changes in methods or machinery
9
Cost leadership:
It takes time to reduce costs
Cost Leadership requires optimization of value chain overall,
not just single steps
Supplier/buyer relationships matter
May increase costs in one step to lower them overall
36. Ex: a costly automated packaging line lowers costs when
demand is variable/grows
Cost reductions must not threaten to impact product or service
quality – they should increase or maintain quality
9
Cost leadership:
Discipline in managing growth
Growth can cause diseconomies of scale also
Example: increasing layers of hierarchy as firm grows if it
doesn’t decentralize
Success does not, generally, lead to people being “tighter” with
money
Have to fight the impulse to start adding extra costs because
doing well
Success can lead to a sense of higher status which can lead to
increased spending to match new status
Discipline includes unchanging rules about what to NOT to do
Example: never increase profits when costs go down; keep
margins the same
Prohibitions on specific actions are easier to follow and
communicate than abstract goals
10
Cost Leadership: Requires a culture of discipline and long view
of time
Needs to be a value everyone agrees upon to keep prices and
costs low
Continuous improvement only comes from a long-term
commitment
Top management has to keep focus to avoid growth traps and
37. getting “stuck in the middle”
11
Cost Leadership Strategy
Product Characteristics
Relatively standardized (commoditized) products
Features broadly acceptable to many customers
Lowest competitive price
Goal
Reduce the firm’s cost below its competitors
Offer adequate value
38. Resources are focused on
Reducing cost/ exploiting efficiencies
Reducing prices for customers
Activity
18
Create a 2x2 with the company and the competitors – Value on
one axis and your choice on the other axis
Tell us the factors aligned with the Cost Leadership Strategy.
Supported with examples with activities, resources or
capabilities
How did they build or acquire these?
19
Activity
39. Auto Industry – Hynduai, Kia
Hotels – MicroTel, Motel 6
Mattresses – Casper, Tuft&Needle
Real Estate Listings – Redfin
Car Care – JiffyLube
Personal Care Products – Razors
Car Rentals – Budget
20
Cost Response to Five Forces
Threat of Rivalry
rivals hesitate to compete on basis of price
lack of price competition leads to greater profits
Power of Buyers
drives prices far below competitors, causing them to exit, thus
shifting power with buyers (customers) back to the firm
increase switching costs
Power of Suppliers
40. able to absorb cost increases due to low cost position.
able to make very large purchases, reducing chance of supplier
using power
Cost Response to Five Forces
Threat of New Entrants
enter on a large scale in order to be cost competitive
increase the time it takes to move down the industry learning
curve
Threat of Substitutes
lower prices in order to maintain its value position
make investments to add features unavailable in substitutes
Risks of Cost Leadership Strategy
Processes used may become obsolete
42. 300, San Francisco, California, 94105, USA.
SunPower: Focused on the Future of Solar Power
Rebecca M. Henderson, Joel Conkling and Scott Roberts
It was December 2006. Tom Werner, CEO of SunPower, glanced
down at his watch and shook his
head in dismay. His run was not going well, despite the sounds
of John Lee Hooker’s “Boogie
Chillen” coming through his earphones. He blamed the board
meeting later that afternoon.
Given SunPower’s position as the producer of the world’s most
efficient solar cells, also known as
photovoltaics or PV, and recent forecasts that solar power might
be on the edge of explosive growth,
he knew that he’d be asked some tough questions. Werner
wondered how fast the solar power
industry was likely to grow and how long SunPower’s
advantage was likely to last. How could
SunPower compete with much larger companies like Sharp and
Q-Cells? Or with the niche
“technology play” firms that were springing up? How could
SunPower’s current advantage be turned
into an enduring competitive edge?
As the sun began to rise, Werner picked up the pace again, and
began jogging home.
Environmental Issues
One of the most important drivers of the world’s renewed
43. interest in solar power was its ability to
offer energy independence in combination with significant
environmental benefits. After all, the earth
received more energy from the sun than humans consumed
throughout an entire year. Since the
burning of fossil fuels generated a number of noxious
substances including SO2, NO, NO2, and
particulates, concerns for human and environmental health had
driven interest in solar power from its
earliest days. But evidence that rising concentrations of CO2 in
the earth’s atmosphere could pose
large long-term environmental risks had significantly increased
interest in the technology.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 2
For over a century, scientists had observed the “greenhouse
effect,” the warming of the earth caused
by the atmosphere’s increased absorption of infrared radiation
resulting from increased concentrations
of CO2 and other greenhouse gases in the atmosphere.
Levels of CO2 had risen from around 280 parts per million
volume (ppmv) before the industrial
revolution to 380ppmv in 2006 higher than at any point in more
than half a million years. Data
presented in the Intergovernmental Panel on Climate Change’s
(IPCC) 4th Assessment Report, a 6-
year study on global warming involving 2,500 leading scientists
44. from 100 countries, provided even
more alarming statistics. For example:
• Greenhouse gases rose 70% between 1970 and 2004 (28.7 to
49 billion tones per year in
carbon dioxide).
• CO2, which accounted for more than 75% of emissions,
increased by 80% between 1970 and
2004.
• Developed countries while accounting for 20% of the global
population, contributed 46% of
global greenhouse gas emissions.
• Greenhouse gases were projected to increase between 20% and
90% by 2030 unless
significant changes in global energy policies were made.
Looking longer-term, many studies suggested that increasing
concentrations of green house gases
greatly increased the odds of catastrophic climate change. One
study published in the journal Nature
predicted that temperature increases of 3.24–3.6°F and CO2
increases to 500–550 ppmv would result
in the extinction of 1,000,000 terrestrial species (25% of all
land animals and plants) by 2050.1
Meanwhile, average global temperatures had already risen
1.33°F since 1906—and polar
temperatures were rising faster still.
Most scientists believed that the stabilization of CO2 levels was
urgently required, but just what
concentration constituted a “sustainable” CO2 level was a
matter of some uncertainty. The IPCC
45. report suggested three scenarios (Table A) for emission
stabilization by 2030 and the impact such
cuts would have on global warming and world GDP growth.
Table A Stabilization Scenarios
Emission Output Rise in Global
Warming
Cost to Annual GDP
Growth in 2030
Scenario A 445-535 parts per million (ppm) 3.6 - 5.0°F 0.12%
Scenario B 535-590 ppm 5.0 - 5.8°F 0.1%
Scenario C 590-710 ppm 5.8 - 7.2°F 0.06%
31 Marinez Ferreira de Siqueira, Alan Grainger, et al.,
“Extinction Risk from Climate Change,” Nature, January 8,
2004,
427, p. 145-148.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 3
Scenario A, involving the most aggressive action, would result
in a 3% cumulative cost to annual
world GDP growth by 2030. At 2006 growth rates, however,
global concentrations would reach 800
ppmv by the end of the 21st century.
46. A sense of urgency about global warming had prompted many
countries to search for aggressive,
coordinated strategies to reduce CO2 emissions. (Table B gives
CO2 emissions for electricity
production by fuel type.) The most far-reaching attempt, the
Kyoto Protocol, committed a number of
countries to modest CO2 reductions by a 2012 deadline. As part
of this “emission cap” approach,
some signatories allocated CO2 emissions allowances to
individual firms. The Kyoto Protocol
permitted these allowances to be traded across borders, creating
a “carbon market.” For example, a
Spanish factory might find it profitable to reduce its emissions
by a given amount and sell the
allowances to another factory in Italy that planned to exceed its
own quota. Even signatories that had
not committed to emissions cuts could participate. These
countries—mainly large developing
countries such as China and India—could forgo emissions and
sell them as credits to customers in
other countries.
Table B CO2 Emissions for Electricity Production
Generation Type Tons CO2 per MWh
Nuclear 0
Hydro power 0
Coal 0.999
Oil 0.942
Gas 0.439
Geothermal, Solar, Tide, Wave,
Ocean, Wind, Waste and other
0
47. Source: CANMET Energy Technologie Centre 2
The advent of carbon trading in Europe had generated a large
market. In the first half of 2006, over
US$15 billion worth of carbon emissions were traded, five times
more than the amount the year
before,3 and CO2 trading schemes in the United States were
being developed at the state level. As of
2006, renewable sources provided 13% of the world’s energy
needs,4 while photovoltaic systems
provided a mere .04% of the world’s electricity. The U.S.
Department of Energy estimated that the
country could supply its entire energy needs by covering .5% of
its land area with solar cells.5
2 Cited in B. Gaiddon, M. Jedliczka, Environmental Benefits of
PV Systems in OECD Cities, September 2006.
3 Economist, “Selling Hot Air”, September 7, 2006.
4 “Sunlit Uplands,” The Economist, June 2, 2007.
5 “Sunlit Uplands,” The Economist, June 2, 2007.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 4
Solar Power Industry
Solar cell, or photovoltaic (PV) systems converted energy from
the sun into electric current. Solar
48. cell performance was measured in terms of conversion
efficiency, the proportion of solar energy
converted to electricity. The first commercial solar cells were
introduced in the 1950s by Bell Labs,
and had efficiencies below 4%.6 In 2006, PV efficiencies
ranged from 10%-20% and some scientists
believed that further research, combined with advances in
installation methods, could push
conversion efficiencies well over 20%, with 50% seen as the
long-term “holy grail.”7
A typical solar cell produced about 0.5V — roughly one-third of
a regular AA battery, far too small
to be of any practical use by itself — and cells were thus
combined in larger blocks, called modules.
Although modules varied in size, they typically included 72
cells, and yielded between 30-45V.
Once constructed, modules were typically combined in arrays or
panels which were then integrated
with “inverters” – sophisticated devices that converted the DC
power output of the solar panels or
arrays into the AC power used in conventional electrical
appliances.
While solar power was two to three times as expensive as the
retail cost of electricity,8 the market
continued to grow at a steep upward trajectory. As Figure 1
shows, module manufacturing began to
ramp up a few years after module prices hit a plateau. (Exhibit 1
provides yearly production and
price data spanning 1975 to 2005.) Solar photovoltaic power
grew an average of 41% each year
between 2003 and 2006,9 and was expected to grow 40%
annually through 2011. Industry profits
were expected to top $7.7 billion in 2007 and $11.5 billion by
49. 2011.10 Roughly $1.7 billion in
private equity and venture capital funds went into the industry
in 2006 and another $4.5 billion was
invested in publicly traded solar companies, most of it going
toward expanding manufacturing
capacity.11
6 http://www.nrel.gov/learning/re_photovoltaics.html
7 Vaclav Smil, 2003. Energy at the Crossroads, Cambridge:
MIT Press, p. 288.
8 “Bright Prospects,” The Economist, March 8, 2007.
9 “Sunlit Uplands,” The Economist, June 2, 2007.
10 Liz Skinner, “Sun Will Shine on Solar-Energy Investing,
Report Says,” Investment News, June 18, 2007.
11 Cassidy Flanagan, “New Light on Solar Energy,” Business
Week, May 17, 2007.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
Figure 1 PV Module Price and Production History, 1975-2005
PV Module Price History
$0.00
54. Source: Maycock.
July 25, 2007 5
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
Producers and Consumers
Japan was the world’s PV shipment leader, shipping more than
five times the volume of the United
States (Figure 2). Since 2002, Europe had held the number two
position after it passed the United
States and by 2005, Europe was shipping three times the volume
of the United States. Analysts
blamed the erosion of U.S. PV market share to a lack of
manufacturing incentives and high
manufacturing costs.
Figure 2 Global PV Shipments, 2000-2005
Global PV Shipments
0
100
200
56. Source: Paula Mints, “PV in the U.S.: Where is the market
going and how will it get there?”, Renewable Energy Watch,
September 2006.
Analysts’ expectations that China was the market to watch due
to its growing energy needs, large
work force and strong industrial base were proven correct in
2006 when China surpassed the United
States as the world’s third largest producer of PV cells, behind
Germany and Japan. Lacking any kind
of domestic incentive/subsidy policy, more than 90% of China’s
PV products were exported. Chinese
PV producers raised billions of dollars in international IPOs in
2005 and 2006 to build capacity and
increase scale with the goal of driving down costs.12
On the consumer side, global PV demand had grown from 114
MWp in 1997 to 505 MWp in 2002 to
1,408MWp in 2005 and 2,500MWp in 2006 and demand was
accelerating rapidly particularly in
Europe (most especially Germany) and Japan as shown in
Figure 3. One prominent analysis of
12 Gail Roberts, “Production Trends and New Technologies
Could Push Solar Energy into Mainstream,” Electric Utility
Weekly, May 28, 2007.
July 25, 2007 6
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
57. POWER
Rebecca M. Henderson, Joel Conkling and Scott Roberts
potential demand at 2006module prices—i.e., around $3.50-
$4.50/W with policy support—estimated
that there was potential worldwide demand of approximately
5,000MWp, or double 2006 industry
sales. Meanwhile, global grid-connected solar capacity was
about 5,000MWp. In contrast, installed
wind capacity in the United States alone was 9,149MWp.13
Figure 3 Global PV Demand, 2000-2005
Global PV Demand
0
100
200
300
400
500
600
700
800
M
W
58. p
U.S.
Japan
Europe
ROW
U.S. 34.7 43.8 60.8 76 101.8 137.3
Japan 77.9 109.8 176.2 243.8 295.9 392.4
Europe 74.1 120 172.6 232.6 472.4 676.1
ROW 65.3 79.2 95.3 122.9 179.7 202
2000 2001 2002 2003 2004 2005
Source: Paula Mints, “PV in the U.S.: Where is the market
going and how will it get there?”, Renewable Energy Watch,
September 2006.
The Solar Value Chain
There were five key stages in solar power’s value chain: silicon
production, ingot/wafer manufacture,
solar cell manufacture, solar module manufacture, and system
installation. Firms in the industry
differed dramatically in the degree to which they participated in
each stage. (Table C shows
revenues and profits across the chain.)
Table C PV Industry Value Chain Snapshot
59. Year: 2006 Silicon Ingots/Wafers Cells Modules Installatio
n
# of players 20 40 100 500 5,000
Revenues ($m) 1,400 4,500 7,700 10,200 3,200
Pre-tax margin (%) 53 36 21 5 20
Capital costs ($/w/year) 0.65 0.50 0.05
Source: Solar Annual 2006
13 Gail Roberts, “Production Trends and New Technologies
Could Push Solar Energy into Mainstream,” Electric Utility
Week, May 28, 2007.
July 25, 2007 7
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 8
Silicon The key feedstock in the PV industry was high-purity
silicon, which was the basis for
more than 90% of solar modules. Silicon was obtained from
sand through a complex process using
numerous purification steps and temperatures up to 1,100ºC
which would turn sand into the high
purity silicon known as polysilicon.14
As recently as the early 2000s, solar cell producers sourced
silicon feedstock mainly from waste
60. silicon discarded during semiconductor manufacturing. This
“leftover” silicon supply included high-
purity silicon that was slightly above or below the quality
specified for semiconductor production, or
off-cuts (tops or tails) of monocrystalline ingots. For their part,
silicon producers had historically
considered solar cell makers a market of last resort, useful for
stabilizing fluctuations in the overall
semiconductor market but unlikely to amount to meaningful
scale.
The explosive growth of PV cell manufacturing, however, had
transformed the role of solar power in
the silicon business. In 2005, the solar industry used
approximately 47% of available silicon, and in
2006 it would likely account for the majority share. These fast
growing needs had stretched global
silicon supply and prices had risen dramatically from
$32/kilogram in 2004 under a long-term
contract, to $45/kg in 2005, to a predicted $55/kg in 2006 with
short-term contracts exceeding
$200/kg. However, current investment plans would triple
capacity, from 31,000 tons per year in 2005
to 100,000 tons or more by 2010,15 despite the fact that a 5,000
tons/year expansion cost roughly $300
million. The silicon shortage was expected to end around 2008
when supply was estimated to grow
70%.16
Ingots / Wafers Many large solar cell manufacturers had in-
house ingot production and wafer
sawing capabilities, including REC, SolarWorld, Kyocera, and
BP Solar. Dedicated ingot and wafer
manufacturers supplied wafers to the solar cell manufacturers
that did not have their own ingot and
wafer capabilities. Technical progress in the industry had been
61. rapid. In 2004 typical wafers were
250-300 microns thick, and by 2006 they were around 190
microns. However over the same period
prices had risen dramatically. In 2004 wafers were sold for
around $1.00/watt, while in 2005 the
average price was $1.25/watt and in 2006 it was expected to be
$1.90/watt.
Cells and Modules Solar cell manufacturing was a widely
understood process that involved less
than ten steps. The largest producers, which included Sharp
Solar (Japan), Q-Cells (Germany),
Kyocera (Japan), Sanyo (Japan), and Mitsubishi Electric
(Japan), together accounted for roughly 58%
of the market. Sharp was the clear market leader, with 427.5
MW of production in 2005, nearly three
times that of its nearest competitor. Between 50 and 100
manufacturers made up the rest of the
industry’s production capacity.
14 Million Roofs handout
15 Policysilicon: Supply, Demand, & Implications for the PV
Industry, Prometheus Institute, 2006.
16 Brian Womack, “Alternative Energy Sun Shines on Clean
Energy,” Investor’s Business Daily, May 21, 2007.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 9
62. Due to the global silicon shortage, solar cell prices rose from
$2.70/watt in 2004 to $2.50/watt in
2005, and were forecast by Photon Consulting to rise to
$3.25/watt in 2006. At expected 2006 prices,
pre-tax cell manufacturing profit margins were expected by
Photon Consulting to be 21%. While
there were roughly 500 smaller module manufacturers in
operation in 2006, most of the top cell
manufacturers made modules as well. In parallel with increases
in PV cell prices, average module
prices had also risen from $3.20/watt in 2004 to $3.75/watt in
2005, and were expected to reach
$4.30/watt in 2006.
System Installation / Integration The most advanced systems
integrators had expertise
in installing megawatt-scale solar systems at low costs in fields
and on large commercial roofs.
Competition for these large projects was fierce, and margins
were tight even for the best integrators.
On the other side of the installation spectrum, small residential
installers made up the majority of the
5,000+ solar installers and integrators in operation. In general
costs and prices varied widely,
depending on the application and geographical region. Total
installation costs ranged from $1/watt to
$3/watt, and consumer prices ranged from $1.25/watt to
$4/watt. For dual-axis trackers in large field
installations, area-related costs could reach $1.50-$2.00 per
watt, while commercial flat roofs, where
aesthetics were less important, were usually around $0.60 per
watt. Residential roof installations cost
approximately $1.00 per watt for area related costs.
While solar installation was fairly simple at a very basic level
63. (one secured racks to the roof and then
attached modules to the racks and plugged them in), there could
be meaningful first mover advantage
for installers that developed expertise in an end-consumer
market. For example, the installer that put
a system in for a Best Buy could be rewarded with lower costs
selling to other ‘big box’ retailers
because it understood both the sales process and the needs of
that type of customer. Similarly an
installer that developed expertise in, for example, residential
installations in San Diego, could develop
lower costs in residential installation in San Diego than
potential entrants.
Pricing
Deriving an exact price for solar generated electricity was
tricky. While conventional power was sold
as a flow of power from the grid in units of $/kWhr, solar power
was typically sold as an installed
system with an upfront capital cost measured in units of $/peak
watt. Deriving a flow cost — how
much the user would actually pay for kWhrs and how much they
would pay per installed watt of
generating capacity — depended on a wide range of factors
including the life of the system, interest
rates, subsidies (if any), hours of sunshine and so on. Hours of
sunshine, for example, ranged from
nearly six per day in parts of Southern California to 2.5 hours
per day in parts of Northern Europe,
with important seasonal variation – and both interest rates and
the subsidies given to solar power
varied widely across the world.
64. SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
In general, however, the average price of solar power ranged
from US 25-50¢ per kWh. For example,
as Exhibit 2 suggests, the average cost of a residential PV
system in California translated into an
electricity price, without subsidies, of roughly 31¢/kWh. In
contrast, one could generate electricity
using conventional power sources for between 4¢/kWh and
6¢/kWh (Exhibit 3). Final prices to the
consumer could be significantly higher because electricity was
expensive to distribute, but on average
conventionally generated electricity was still significantly
cheaper than solar power. According to the
Organization for Economic Cooperation and Development
(OECD), prices for household customers
started at just several cents per kWh in areas of Scandinavia and
rose to over 25¢/kWh in the highest-
priced markets such as Japan. The U.S. average was 9.6¢/kWh
in early 2006, with California prices
averaging over 13¢/kWh.
As Exhibit 4 suggests, however, the average price of electricity
told only part of the story. In
markets around the world, some customers paid significantly
more than the average price of
electricity. In California, for example, commercial customers
paid 24% more per kWh than
residential customers. Meanwhile, the state further stratified
prices into five tiers based on total
electricity usage per month. As Figure 4 shows, a California
customer that consumed more than 34
65. kWh per day would pay 37¢, Tier 5 prices, for every kWh over
the 34 kWh/day limit of Tier 4.
Figure 4 California Residential Power Pricing Structure,
September 2006
-
0.0 5
0.1 0
0.1 5
0.2 0
0.2 5
0.3 0
0.3 5
0.4 0
- 5 1 0 14 19 24 29 34 38 43 48
k W h p e r d a y
A ve ra g e
H o u se h o ld
C o n su m p tio n
T ier 1 T ier 2
66. T ier 3
T ie r 4
T ier 5
cen ts
p e r
kW h
Source: Pacific Gas and Electric.
Given its high cost, up until the late 1990s, most PV power was
used to meet the demands of “off the
grid” users. Since that time, however, more solar panels had
been sold to residential customers than
any other single segment. Panels, attached to the roof of a house
or apartment building, could in many
cases give households full or near self-sufficiency in power
supply. In markets that permitted net
metering, households also had the option to sell their excess
power to the grid. Under favorable
July 25, 2007 10
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 11
pricing (“feed-in tariffs”), this option could dramatically
improve the economics of a home PV
67. system.
Increasingly, solar systems were also finding a market among
large commercial facilities such as big
box retail stores, shopping malls, hospitals, and airports. In
most cases, solar cells were not
substituted completely for grid-based electricity, and customers
continued to purchase from the
commercial grid. Some commercial customers installed PV
systems as a hedge against high
electricity prices while others recognized the potential public
relations benefits of a “green power”
investment. Utility-scale applications were once regarded as
the main potential market for solar
power. Until the late 1990s, for example, parabolic
concentrators at three sites in California’s Mojave
Desert accounted for more than 90% of the world’s installed
solar capacity.17 However operational
and financial challenges had made this vision obsolete. The
firm that built the Mojave facilities, Luz
International, went out of business. Solar towers were also slow
to take off and only a few
experimental facilities, mostly under 1 MW, had opened in
California, Spain, Israel, Germany, and
Australia.18
Policy Support
Solar power’s potential to increase energy independence and
reduce carbon emissions had led to a
wide variety of public subsidies. Around the world, there were
more than 1,000 various pro-solar
policies put in place by international, national, and local
authorities. California’s “Million Solar
Roofs” initiative, for example, had allocated $3.2 billion for
68. solar power “buy-downs” through 2016.
(A buy-down reduced the upfront capital expenditure required
to install a solar system.) In some
jurisdictions, customers could sell excess solar power back to
their utility at favorable prices. Some
governments had set specific targets for the number of
households with PV systems, or renewable
portfolio standards (RPS) which required utilities to derive a
targeted percentage of power from
renewable sources and/or solar power. In South Korea, for
example, government mandated a target
of 1,300 MW of solar power installations by 2012 and in the
United States, 24 states had
implemented their own RPS. (See Exhibit 5 for list of standards
by state.)
The U.S. solar market was highly diverse. State regulations and
policies toward solar power ranged
from the supportive to the non-existent, and power prices, the
availability of solar radiation, and
public attitudes toward the environment also varied dramatically
across states. Exhibit 6 compares
the costs and savings for a solar system installed in California,
Texas and Massachusetts based on the
same monthly electric usage. While a California resident’s
estimated net cost would be roughly
$17,480, a Massachusetts resident would likely pay nearly twice
that amount. Meanwhile, rebates and
credits in the state of California ($18,250) equaled half of the
installation price. In Texas they were
38% and in Massachusetts 23%.
17 Smil, p.285
69. 18 Ibid.
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July 25, 2007 12
Quantifying public subsidy policies into a global total of pro-
solar spending was difficult, but one
analysis estimated that a total of $1.7 billion was spent by
governments worldwide in 2005 in
supporting solar power, and that this figure would surpass $3
billion in 2006.19 For companies like
SunPower subsidy programs were critical in generating demand.
But analysts believed that the
industry would be able to prop itself up without subsidies by
2012.20 Of course the key to doing so
was lowering costs and scaling up production.
SunPower
SunPower was founded in 1987 by Dr. Richard Swanson, a
professor of electrical engineering at
Stanford University. At the time it closed its Series A round of
VC financing in 1989, SunPower’s
goal was to commercialize solar concentrator21 technology.
However, according to Swanson, the
company ended up going in a different direction:
We realized that solar concentrators were a bad idea.
Conceivably, someday concentrator systems
could be a lower-cost PV alternative, but they are not now and
70. they have a long way to catch up
with continually improving flat-plate systems. Moreover,
concentrators are not well suited for
many small distributed, remote applications. We wrestled with
whether we should give the
money back to the VCs or not. Ultimately, we chose not to.
Starting in about 1991, SunPower
went through a long period of trying to find its way.
In the early 1990s, the Honda Motor Company approached
SunPower asking if the company, known
for its efficient solar cells, could make cells big enough to
cover Honda’s solar powered race car.
After agreeing to Honda’s request, Swanson realized there was
one barrier standing in the way of
SunPower’s ability to deliver: “We were all from academia. We
argued for about four hours one day
about whether we needed two shifts or one shift and realized
after a while we had no idea how to
figure out whether we needed two shifts or one shift.”
After hearing about SunPower’s dilemma, Swanson’s friend T.J.
Rodgers had the answer. Rodgers,
founder and CEO of Cypress Semiconductors, suggested that
SunPower tap into some of his
company’s talent that had been recently laid off, particularly his
former VP of operations. “He’s kind
of a drill sergeant,” Rodgers warned Swanson, “but that’s what
you academic types need.”
Within three weeks SunPower had been transformed from an
R&D fab into a full-blown solar cell
manufacturer operating 24-hours a day. Powered by
SunPower’s cells, Honda went on to win the
71. race across Australia by more than a day over the second place
car.
19 Simil, p. 47.
20 Brian Womack, “Alternative Energy Sun Shines on Clean
Energy,” Investor’s Business Daily, May 21, 2007.
21 Solar concentrators use optics, such as mirrors or lenses, to
focus sunlight onto the solar cells that convert light to
electricity. By magnifying light, designers can generate more
power from solar cells made of silicon and other expensive
materials.
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 13
After the Honda experience, NASA approached SunPower to
provide cells for a solar powered
airplane. The plane was called Helios, and it had set a record
for highest sustained level flight, at
96,500 feet. SunPower provided a 35 kW array of hand-made
solar cells at $200/watt. NASA wanted
to order more, but asked SunPower to try to reduce the cost.
Based on NASA’s request, it became obvious to Swanson that in
order to survive, SunPower would
have scale up its production. “We decided that the secret was to
do what we know best, and that was
calculating things,” Swanson recalled. “We built a factory
model, and tried to figure out how much it
72. would really cost us if we made solar cells in volume. Because
of the efficiency of our cells which
allow us to get more watts for each process step and more watts
for each gram of silicon, we believed
that we could compete.”
While SunPower was unable to convince many investors about
its potential, T.J. Rodgers believed
that Cypress and SunPower were a match made in heaven, and
proposed a partnership to Swanson:
“We’ll marry our expertise in semiconductor manufacturing that
we have honed over 25 years of
world class competition, our understanding of how to run a fab,
and our knowledge of how to transfer
products from R&D into manufacturing with your technology.
Together we’ll create a great solar
company.”
The partnership with Cypress, which began in 2001, allowed
SunPower to begin solar cell
commercial production in late 2004, and in November 2005, the
company went public on the
NASDAQ stock exchange. Resulting from a large investment by
T.J Rodgers, Cypress retained a
majority stake.
Within one year, SunPower produced approximately 20 MW of
solar power, and in 2006 the
company expected to produce around 65 MW (Figure 5).
Revenues rose from $6 million in 2004 to
$78.8 million in 2005, and were projected to surpass $220
million in 2006. The second quarter of
2006 was the first profitable quarter in company history. (See
Exhibit 7 for financials.)
73. SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
Figure 5 SunPower Production Volume
July 25, 2007 14
SunPower Production Volume
0
100
200
300
400
500
600
700
74. M
W
SunPower
Production Volume
20.5 65 125 250 400 600
2005 2006 2007 2008 2009 2010
Source: SunPower, Photon Consulting
While SunPower initially focused on the production of solar
cells, the firm soon integrated into the
manufacture of modules, followed by a move into wafer
manufacturing. In July 2006, SunPower
signed an agreement with the South Korean company, DC
Chemical, to support the construction of
DC’s first silicon production facility. In return, SunPower
gained a substantial, long-term source of
silicon supply, at a time when there was a shortage of silicon. In
September 2006, SunPower invested
in a joint venture with a Chinese company to manufacture ingots
and in December 2006 it acquired
PowerLight, a California-based installer that specialized in
large installations over 100 kWp, for $335
million.
SunPower’s Core Capability
75. SunPower produced the highest efficiency solar cells
commercially available in 2006. By focusing
early on developing cells for solar concentrator technology,
SunPower was able to create a
differentiated type of solar cell in which the metal contacts and
grids were located on the back side of
the cell. This design improved efficiency by allowing more
sunlight to hit the silicon material in the
cell rather than bouncing off the metal grids, and also allowed
for a more uniform all black
appearance which some customers found aesthetically
preferable.
Higher efficiency and improved aesthetics, however, came at a
cost. SunPower’s manufacturing
process required approximately twice as many steps as the
typical solar cell manufacturing process.
Meanwhile, some of these steps were unique to SunPower,
raising capital expenditure per watt. The
firm estimated capital expenditure per watt was around $1.00,
while the cost of manufacturing a cell
was roughly $2/watt. Of that cost, $1.20 was for the silicon
wafer, while the remaining $0.80 covered
the cost of processing the wafer into a cell. A good portion of
SunPower’s process development was
carried out in the Philippines in order to take advantage of the
increased technical capabilities and low
cost of Filipino engineers. Manufacturing, meanwhile, was done
in the United States.
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76. Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 15
To the extent that SunPower’s processes mirrored the typical
production process, the company
benefited from manufacturing equipment innovations. Many
industry players believed that
crystalline manufacturing costs could see cost reductions of
25% by 2010. (See Exhibit 8.) As
Werner explained:
Generic advances move quite rapidly across the industry as they
do in all industries now. We use
approximately 2/3 of the same equipment vendors as our
competitors. So inevitably vendors sell
improvements that we give them to our competition, and vice
versa. Manufacturing excellence is
partially about how quickly you adapt those advances, and how
aggressively you try to find out
about the advances.
SunPower’s high efficiency cells also gave it a competitive
advantage in the systems installation
segment of the value chain due to the fact that higher efficiency
cells and modules packed more
power production capacity into a given space. Therefore a house
with limited roof space could install
more solar capacity. Fewer modules and less covered area also
meant less installation cost, and
SunPower’s customers, the installers, were reportedly willing to
pay a higher price for the panels.
“Our channel checks tell us that [the premium] is at least 10%,”
Werner stated.
77. SunPower had publicly committed to increasing the average
efficiency of its solar cells from its 2005
level of 20.7% to at least 22% by the first quarter of 2007.
Some of these efficiencies, it was hoped,
would come from reducing the grams of silicon per watt from
its 2005 level of 7.5 grams per watt
(the industry average was approximately 10 grams per watt) and
reducing wafer thickness from 190
microns to 170 microns or below. But, as Werner noted, it
would not be an easy goal to achieve: “I
think it’s like losing weight. Those last two pounds are really
tough. That could stretch out over a
number of years.”
Speaking about SunPower’s technology advantage, Werner
commented:
The great internal debate is how long SunPower's lead is. Are
we Intel where we can focus on
this and drive this for 10 years or more, much like they did for
decades in the microprocessor
industry, or are we like many other industries where you have
an advantage that is perishable in a
timeframe such that you had better find a new innovation
plane….
Downstream, SunPower intended to help squeeze costs out of
the residential retrofit installation and
integration business, which accounted for around half of the
final selling price of an installed system.
SunPower believed that the installation segment of the value
chain was underscaled, and intended to
78. help its installer partners scale the fixed cost aspects of their
businesses. In the industry as a whole,
the final assembly and installation of solar systems (the so-
called “Balance of System”) had seen
dramatic cost reductions. Standardization via the emergence of
“cookie cutter” applications, such as a
2 kW standard roof-mounted system, had brought some
consistency to planning, mounting, and
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 16
materials use. Improvements in other installation costs was
difficult to document, but some solar
analysts believed that costs had fallen by at least the same
amount as PV modules.
The Competition
SunPower’s competition consisted of 15-20 established cell
manufacturers, a handful of silicon-based
cell manufacturing upstarts, and a number of thin film solar
companies offering potentially disruptive
technologies.
Sharp Solar Headquartered in Japan and with significant
operations and market share in Germany
and California, Sharp Solar was the industry market leader with
a 26% market share—427.5 MW of
cell and module production in 2005—, and 32% year-on-year
growth over 2004. Its cell production
79. processes, based on standard technology, were the result of over
40 years of research and
development. Sharp operations spanned wafer, cell and module
production, and it was pursuing
R&D in thin films, concentrator technology, and solar
integrated products. Its modules had been
characterized as reliable, workhorse solar modules, “the Chevy
of the solar industry.”
Sharp solar modules were primarily based on multicrystalline
solar cells22 with efficiencies of 14-
15%. Due to standard module efficiency losses, the modules
were approximately 13% efficient.
While Sharp derived the majority of its revenue from basic
modules, it had also introduced a range of
low volume, innovative products, including triangular modules
to fit in tight corners and translucent
solar window glass with integrated LED lights. Sharp had also
researched back contact solar cells,
similar in nature to the cells produced by SunPower.
Q-Cells Germany-based Q-Cells was the industry’s second
largest player by market share,
producing 165.7 MW of solar cells in 2005, good for 118%
year-on-year growth. As the industry’s
fastest growing company, Q-Cells primarily produced
multicrystalline solar cells with efficiencies of
14.5%-15.5%, as well as monocrystalline cells23 with
efficiencies of 16%-17%. The company had
developed large format cells (8” square instead of the standard
5” or 6” squares) in order to reduce
processing cost per watt, but, as of 2006, these cells were not in
large scale production.
Q-Cells had taken a portfolio approach to emerging solar
80. technologies with minority investments in a
range of potentially disruptive companies, including a joint
venture Evergreen Solar and investments
in a number of thin film solar companies.
22 Multicrystalline cells are produced using numerous grains of
monocrystalline silicon. While multicrystalline cells are
cheaper to produce than monocrystalline ones, due to the
simpler manufacturing process, they tend to be slightly less
efficient, with average efficiencies of around
12%.(http://www.flasolar.com/pv_cells_arrays.htm)
23 These cells are made from very pure monocrystalline silicon
which has a single and continuous crystal lattice structure
with almost no defects or impurities. The principle advantage of
monocrystalline cells are their high efficiencies, typically
around 15%, although the manufacturing process required to
produce monocrystalline silicon is complicated, resulting in
slightly higher costs than other technologies.
(http://www.flasolar.com/pv_cells_arrays.htm)
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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July 25, 2007 17
REC Group Renewable Energy Corporation (“REC Group”) was
the only fully-integrated solar
company, with production along the entire value chain from
silicon production to module
manufacturing. The company’s silicon and wafer manufacturing
volumes placed it among the
81. industry leaders, while its cell and module production was still
developing. REC Group was also the
only major silicon manufacturer which produced silicon only for
the solar industry.
REC Group began operations in Norway in 1994 as ScanWafer.
Up until 2002, the company
primarily produced wafers, after which time it entered a joint
venture with a silicon manufacturer, and
eventually bought out its JV partner to fully own the silicon
plant. In 2003, REC expanded into cell
and module manufacturing and in 2005 it purchased another
silicon manufacturing facility, placing it
solidly among the top five silicon manufacturers in the world.
REC Group produced more silicon than it used to manufacture
wafers, and produced more wafers
than it used in its cell and module manufacturing, putting the
company in the unique position of both
supplying and competing with its customers at the wafer, cell
and module level. The company
intended to reduce the cost of producing a solar module 50% by
2010.
First Solar Based in Arizona, First Solar was one of the more
mature thin film solar
manufacturers in the industry. The company relied on a
compound of Cadmium Telluride (CdTe)
instead of silicon to produce its modules, and as a result its
modules were 8%-10% efficient instead of
the 13%-18% efficiencies found in silicon-based modules. In an
IPO registration statement filed in
the summer of 2006, the company reported module
82. manufacturing COGS of $1.59/watt.
Industry watchers and competitors expressed concern over the
toxicity of the cadmium contained in
its modules. First Solar contended that the concerns were
exaggerated, given that the amounts were so
small and so unlikely to enter the environment.
SunTech In 2005, China-based SunTech was the world’s 8th
largest PV producer and by
the end of 2006 the company had moved into 4th place with 240
MW of photovoltaic cell capacity.
Meanwhile, SunTech’s production topped 160.1 MW in 2006
and was estimated to more than double
in 2007 to 325 MW.24 While the company exported more than
90% of its products, mainly to
Germany and Spain, it hoped that by 2015, 20% of its products
would be sold in China. SunTech’s
CEO was pressing the Chinese government to start offering
incentives for the photovoltaic cell
industry.
Citizenre Industry newcomer Citizenre, based in Delaware, was
attempting to disrupt the
industry by offering a new business model by which the
company would manufacture, pay for,
install, own, maintain and operate the solar PV system
installation while homeowners would be
required to pay for the electricity generated by the PV panels at
a fixed rate for a set period of time.
24 J.R. Wu, “China SunTech Ups Output, but Prices Pressured,”
Dow Jones Interantional News, June 19, 2007.
83. SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
July 25, 2007 18
Many industry veterans were skeptical about Citizenre’s ability
to deliver as the company did not yet
have a product to sell nor had it disclosed information on those
investors who had purportedly
committed $650 million to the company.25
Conclusion
SunPower had come a long way from the days when it was
making solar cells that powered Honda’s
solar powered race car to victory. In 2006, the company found
itself competing in an industry
experiencing tremendous growth and increasing public and
private sector support whether in the form
of subsidies or direct investment. However, in light of the
varied and continually evolving
competitive scenario that SunPower had become a part of,
company CEO Tom Werner was aware
that the road ahead would likely be a challenging one.
The key was choosing and formulating the right strategy.
Should, for example, SunPower’s strategy
focus on the pricing of modules? Or should it focus more on
investing in process improvements? Or
should the strategy be some combination of the two? If so,
what was the right formula based on the
multitude of variables that solar cell producers like SunPower
faced?
84. 25 Martin LaMonica, “Start-up Citizenre Thinks the Solar
Power Industry Is Ready for a Radical New Way of Doing
Business,” CNET News.com, February 21, 2007.
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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July 25, 2007 19
Exhibit 1 PV Module Manufacturing Volume and Price
History
Annual Production Cumulative Production Average Price*
(MW) Growth (%) (MW) Growth (%) (US$/watt) Growth (%)
1975 2 $30.00
1976 2 4 100% $25.00 -17%
1977 2 13% 6.25 56% $20.00 -20%
1978 3 11% 8.75 40% $15.00 -25%
1979 4 60% 12.75 46% $13.00 -13%
1980 7 63% 19.25 51% $12.00 -8%
86. 1999 201 31% 1179 21% $3.50 -13%
2000 288 43% 1467 24% $3.50 0%
2001 399 39% 1866 27% $3.50 0%
2002 560 40% 2426 30% $3.25 -7%
2003 759 36% 3185 31% $3.00 -8%
2004 1195 57% 4380 38% $3.25 8%
2005 1727 45% 6107 39% $3.50 8%
Source: Maycock
SUNPOWER: FOCUSED ON THE FUTURE OF SOLAR
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
Exhibit 2 Breakdown of Typical Average System Price in
California
K e y F i n a n c i a l / O p e r a t i n g A s s u m p t i o n s
• S iz e o f u n i t: 3 . 0 k W D C
• A v e r a g e h o u r s o f s u n : 5 . 2 5
• R e a l i n t e r e s t r a t e : 3 . 5 0 %
• I n v e r t e r r e p l a c e m e n t c o s t : $ 0 . 5 0 / w a t t
• I n v e r t e r r e p l a c e m e n t r a t e : 1 0 y e a r s
• A n n u a l o u t p u t d e g r e d a t i o n : 0 . 2 5 %
87. • A n n u a l O & M c o s t s : 0 . 1 0 % o f i n s t a l l e d c o
s t s
• A C / D C c o n v e r s i o n f a c t o r : 8 0 %
• S u b s id y : $ 2 . 6 0 / w a t t c r e d i t
$ 2 , 0 0 0 t a x c r e d i t
L e v e l i z e d c o s t f o r p o w e r $ 0 . 3 1 / k W h u n s
u b s i d iz e d
$ 0 . 1 9 / k W h s u b s i d i z e d
0 . 7 8
1 . 1 2
1 . 3 5
1 . 0 5
0 . 4 5
0 . 4 5
1 . 3 5
1 . 3 5
4 . 9
3 . 0
0
1
2
88. 3
4
5
6
7
8
9
S i l i c o n W a f e r C e l l M o d u l e I n v e r t e r O t h e r
c o m p o n e n t s
I n s t a l l a t i o n O t h e r
s e r v i c e s
S u b s i d i e s T o t a l
$ / w a t t
Source: Pacific Gas & Electric.
July 25, 2007 20
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Rebecca M. Henderson, Joel Conkling and Scott Roberts
Exhibit 3 Power Generation Cost by Technology
90. Dollars
per
kW h
Source: Cambridge Energy Research Associates
Exhibit 4 California Average Retail Electricity Prices by Sector
(US cents/kWh)
0
2
4
6
8
10
12
14
16
$/kWh Industrial
Residential
Commercial
Industrial 4.84 7.7 6.89 6.93 7.77 10.67 10.49 11.32 11.67
10.49
91. Residential 5.61 8.08 10.28 11.55 11.25 12.3 12.56 12.78 12.53
12.89
Commercial 6.12 8.8 9.61 10.09 10.76 14.99 14.86 14.87 13.47
13.75
1980 1985 1990 1995 2000 2001 2002 2003 2004 2005
Source: California Energy Commission (
http://www.energy.ca.gov/electricity/statewide_weightavg_sect
or.html)
July 25, 2007 21
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July 25, 2007 22
Exhibit 5 Renewable Portfolio Standards
State % from Renewed Source Year
Arizona 15% 2025
California 20% 2010
Colorado 20% 2020
Connecticut 10% 2010
Delaware 10% 2019
Hawaii 20% 2020
Illinois 8% 2013
Iowa 105 MW
Maine 20% 2000
Maryland 9.5% (at least 2% from solar) 2022
92. Massachusetts 4% new 2009
Montana 15% 2015
Nevada 20% 2015
New Hampshire 25% 2025
New Jersey 20% 2020
New Mexico 20% 2020
New York 25% 2013
Oregon 25% 2025
Pennsylvania 18% 2020
Rhode Island 16% 2020
Texas 5,880 MW 2015
Vermont Equal to load growth 2005-2012
Washington 15% 2020
Washington D.C. 11% 2022
Wisconsin 10% 2015
Source: The Pew Center on Global Climate Change.
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July 25, 2007 23
Exhibit 6 Solar Electric Estimates for California, Texas and
Massachusetts
California Texas Massachusetts
Building Type Residential Residential Residential
State & County CA, Los Angeles TX, Austin MA, Middlesex
Utility City of Los
Angeles
93. Austin Energy NSTAR
Utility Type Municipal Utility Municipal Utility Investor-owned
Utility
Assumed Average Electric
Rate
$0.11 $0.09 $0.08
Assumed Average Monthly
Electric Usage
983 983 983
Average Monthly Electricity
Bill
$110 $92 $80
Solar Rating Great (5.996
kWh/sq-m/day
Great (5.192 kWh/sq-
m/day)
Good (4.311 kWh/sq-
m/day)
Solar System Capacity
Required
4.00 kW of peak
power (DC watts)
4.50 kW of peak power
94. (DC watts)
5.50 kW of peak power
(DC watts)
Roof Area Needed 400 sq-ft 450 sq-ft 550 sq-ft
Estimated Installation Cost
(before rebates, incentives,
tax credits)
$36,000 ($9/watt) $40,500 ($9/watt) $49,500 ($9/watt)
Expected Utility Rebate $16,250 $13,500 ($4.5/watt
installed, maxiumum
$13,500, limited to 80%
of cost)
$0
Expected State Rebate $0 (state incentive
does not apply to
this utility)
$0 (state incentive does
not apply to this utility)
$8,910 ($2/watt
installed, maximum:
$20,000)
State Tax Credit/Deduction $0 $0 $1,000 (15% of net
system cost, maximum:
$1000)
Federal Tax Credit $2,000 $2,000 $2,000
95. Income Tax on Tax Credit $0 $0 $280
Estimated Net Cost $17,480 $25,000 $37,870
Monthly Payment (6.5%
apr, 30 years)
$110 $158 $239
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Exhibit 6 (con’t) Solar Electric Estimates for California, Texas
and Massachusetts
Califonia Texas Massachusetts
Savings and Benefits
Increase in Property Value $11,460-$22,341 $9,480-$17,770
$8,200-$14,973
First-year Utility Savings $573-$1,117 $474-$889 $410-$749
Average Monthly Utility Savings
(over 25-year expected life of
system)
$80-$156 $66-$124 $57-$105
Average Annual Utility Savings
(over 25-year expected life of
96. system)
$962-$1,875 $796-$1,491 $688-$1,257
25-year Utility Savings $24,044-$46,874 $19,890-$37,283
$17,204-$31,420
Return on Investment (with solar
system average cost set as asset
value)
338% 191% 107%
Years to Break Even (includes
property value appreciation)
<1 to 4 years 3 to 12 years 11 to 33 years
Greenhouse Gas (C02) Saved
(over 25-year system life)
121.0 tons
(242,000 auto
miles)
121.0 tons
(242,000 auto
miles)
121.0 tons (242,000
auto miles)
Source: Findsolar.com
Findsolar.com is a joint partnership between the American Solar
Energy Society, Solar Electric Power Association, Energy
97. Matters LLC, and the U.S. Department of Energy.
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Exhibit 7 SunPower Financial Statements
SunPower Corp. Balance Sheet
30-Jun-06 31-Dec-05
Assets
Current assets
Cash and cash equivalents $277,493 $143,592
Short-term investments 19,900
Accounts receivable, net 34,263 25,498
Inventories 21,566 13,147
Prepaid expenses, net of current portion 19,888 3,236
Total current assets 373,110 185,473
Property and equipment, net 136,436 110,559
Goodwill 2,883 2,883
Intangible assets, net 16,389 18,739
Advances to suppliers, net of current
portion 13,429
98. Total assets $542,247 $317,654
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $22,173 $14,194
Accounts payable to Cypress 3,262 2,533
Accrued liabilities 10,878 4,541
Current portion of customer advances 11,504 8,962
Total current liabilities 47,817 30,230
Deferred tax liability 336
Customer advances, net of current portion 30,609 28,438
Total liabilities 78,426 59,004
Total stockholders' equity 463,821 258,650
Total liabilities and stockholders' equity $542,247 $317,654
Source: Edgar Online.
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Exhibit 7 (con’t) SunPower Financial Statements
SunPower Corp. Income Statement
(in thousands, except per share
data)
99. Three months ended,
June 30,
Six months ended
June 30,
2006 2005 2006 2005
Revenue $54,695 $16,400 $96,653 $27,492
Costs and expenses
Cost of revenue 43,248 17,585 79,514 30,678
Research and development 2,588 1,360 4,584 3,027
Sales, general and administrative 4,985 2,203 9,366 4,003
Total costs and expenses 50,821 21,148 93,464 37,708
Operating income (loss) 3,874 (4,748) 3,189 (10,216)
Interest income (expense), net 1,569 (1,398) 2,403 (3,184)
Other income (expense), net 353 (190) 490 (173)
Income (loss) before income tax
provision 5,796 (6,336) 6,082 (13,573)
Income tax provision 412 443
Net income (loss) $5,384 ($6,336) $5,639 ($13,573)
Net income (loss) per share:
Basic $0.08 ($0.36) $0.09 ($1.29)
Diluted $0.08 ($0.36) $0.08 ($1.29)
Weighted-average shares:
Basic 64,040 17,614 62,583 10,508
Diluted 69,408 17,614 68,172 10,508
100. Source: Edgar Online.
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Exhibit 8 Key Drivers of Crystalline Module Cost Reductions
Driver of cost savings
Economies of scale Gains in purchasing, efficiency
improvements and reduction of overall
breakage/downtime due to economies of scale (often >3
cents/watt/year
for largest players)
Module efficiency
improvements
Slow but steady reduction of ~1/2 kilogram of silicon per watt
each year
as module efficiency increases and wafers get thinner (1-2
cents/watt/year in cost savings).
Lower cost materials Shifts to lower cost materials for
stringing, framing, backing, and
101. packaging (1-2 cents/watt/year)
Lower depreciation Lower depreciation expenses with lower
capital costs for manufacturing
equipment (varies by company and by accounting standards;
often >2
cents/watt difference depreciation expense for new, lower
cost/watt
manufacturing equipment and previously purchased equipment)
Lower wages Move to lower wage locations such as China or
India (cost reduction >2
cents/watt for some manufacturers)
Narrower range of
technologies/customer
s
Standardization of process by focusing on narrow range of
technology
(e.g. "we want to be the lowest cost producer of multicrystalline
cells
anywhere in the world") or focusing on specific customers when
manufacturing/delivery logistics are easier
Source: Michael Rogol, SunScreen.
Solar Power IndustryProducers and ConsumersThe Solar Value
Chain Cells and Modules Solar cell manufacturing was a widely
understood process that involved less than ten steps. The largest
producers, which included Sharp Solar (Japan), Q-Cells
(Germany), Kyocera (Japan), Sanyo (Japan), and Mitsubishi
Electric (Japan), together accounted for roughly 58% of the
market. Sharp was the clear market leader, with 427.5 MW of
production in 2005, nearly three times that of its nearest
102. competitor. Between 50 and 100 manufacturers made up the
rest of the industry’s production capacity.Pricing Policy
SupportSunPowerSunPower’s Core CapabilityThe
CompetitionConclusion