867773--3/24/2006--SUNPOWER

related topics

{customer, product, revenue}

{property, intellectual, protect}

{interest, director, officer}

{cost, operation, labor}

{stock, price, share}

{stock, price, operating}

{regulation, change, law}

{control, financial, internal}

{product, market, service}

{operation, international, foreign}

{acquisition, growth, future}

{regulation, government, change}

{cost, regulation, environmental}

{provision, law, control}

{system, service, information}

{capital, credit, financial}

{tax, income, asset}

{operation, natural, condition}

{competitive, industry, competition}

{personnel, key, retain}

{product, liability, claim}

{condition, economic, financial}

{gas, price, oil}

We are operating in a market environment that involves significant risks, many of which are beyond our control. The following risk factors may adversely impact our results of operations, cash flows and the market price of our stock. Although we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our performance or financial condition. Risks Related to Our Business We are currently experiencing an industry-wide shortage of polysilicon. The prices that we pay for polysilicon have increased recently and we expect these price increases to continue, which may constrain our revenue growth and decrease our gross margins and profitability. We currently depend on four customers for a high percentage of our total revenue and the loss of, or a significant reduction in orders from, any of these customers, if not immediately replaced, would significantly reduce our revenue and harm our operating results. The reduction or elimination of government and economic incentives could cause our revenue to decline. Our quarterly revenue and operating results are difficult to predict, and if we do not meet quarterly financial expectations, our stock price will likely decline. We have incurred losses since inception and may not be able to generate sufficient revenue in the future to achieve or sustain profitability. Our dependence on a limited number of third-party suppliers for key components for our solar power products could prevent us from delivering our products to our customers within required timeframes, which could result in order cancellations and loss of market share. The steps we have taken to increase the efficiency of our polysilicon utilization are unproven at volume production levels and may not enable us to realize the cost reductions we anticipate. We depend on a combination of our own wafer-slicing operations and those of other vendors for the wafer-slicing stage of our manufacturing, and any technical problems, breakdowns, delays or cost increases could significantly delay our manufacturing operations, decrease our output and increase our costs. We obtain capital equipment used in our manufacturing process from sole suppliers and if this equipment is damaged or otherwise unavailable, our ability to deliver products on time will suffer, which in turn could result in order cancellations and loss of revenue. We have three solar cell production lines which are located in our manufacturing facility in the Philippines and if we experience interruptions in the operation of these production lines or are unable to add additional production lines, it would likely result in lower revenue and earnings than anticipated. We expect to continue to make significant capital expenditures, particularly in our manufacturing facility, and if adequate funds are not available or if the covenants in our credit agreements impair our ability to raise capital when needed, our ability to expand our manufacturing capacity and our business will suffer. Because we have fixed-price agreements with two of our largest customers and operate on a purchase order basis with our third largest customer, our financial results, including gross margin, may suffer if our manufacturing costs were to increase or purchase orders were changed or cancelled. Technological changes in the solar power industry could render our solar power products uncompetitive or obsolete, which could reduce our market share and cause our sales to decline. Evaluating our business and future prospects may be difficult due to our limited history in producing and shipping solar cells and solar panels in commercial volumes. Our reliance on government contracts to partially fund our research and development programs could impair our ability to develop and incorporate new technologies into our solar power product, and these contracts could negatively affect our intellectual property rights. Problems with product quality or product performance, including defects, in our solar cells could result in a decrease in customers and revenue, unexpected expenses and loss of market share. Product liability claims against us could result in adverse publicity and potentially significant monetary damages. Since we cannot test our solar panels for the duration of our standard 25-year warranty period, we may be subject to unexpected warranty expense. Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products. Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we may not be able to compete successfully and we may lose or be unable to gain market share. We face competition in the market for our imaging detectors and infrared detectors, and if we fail to compete effectively, we will lose or fail to gain market share. The demand for products requiring significant initial capital expenditures such as our solar power products is affected by general economic conditions. Because of the lengthy sales cycles for our imaging detectors and the relatively fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenue and may not ultimately achieve our forecasted sales for our imaging detectors. We depend on a third-party subcontractor in China to assemble our solar cells into solar panels and any failure to obtain sufficient assembly and test capacity could significantly delay our ability to ship our solar panels and damage our customer relationships. If we do not achieve satisfactory yields or quality in manufacturing our solar cells, our sales could decrease and our relationships with our customers and our reputation may be harmed. Our ability to continue to manufacture our imaging detectors and our solar cells in our current facilities with our current and planned manufacturing capacities, and therefore to maintain and increase revenue and achieve profitability, depends to a large extent upon the success of our continued relationship with Cypress. We have significant international activities and customers, and plan to continue these efforts, which subject us to additional business risks, including logistical complexity, political instability and currency fluctuations. Currency fluctuations in the Euro or the Philippine peso relative to the U.S. dollar could decrease our revenue or increase our expenses. We may not be able to prevent others from using the SunPower name or similar mark in connection with their solar power products which could adversely affect the market recognition of our name and our revenue. We rely primarily upon copyright and trade secret laws and contractual restrictions to protect our proprietary rights, and, if these rights are not sufficiently protected, our ability to compete and generate revenue could suffer. We may not obtain sufficient patent protection on the technology embodied in the solar cells we currently manufacture and market, which could harm our competitive position and increase our expenses. If the effective term of our patents is decreased due to changes in patent laws or if we need to refile some of our patent applications, the value of our patent portfolio and the revenue we derive from products protected by the patents may be decreased. Our intellectual property indemnification practices may adversely impact our business. We may face intellectual property infringement claims that could be time-consuming and costly to defend and could result in our loss of significant rights. We may file claims against other parties for infringing our intellectual property that may be very costly and may not be resolved in our favor. The current tax holidays in the Philippines will expire within the next several years. Future transactions may limit our ability to use our net operating loss carryforwards. We may not be able to increase or sustain our recent growth rate, and we may not be able to manage our future growth effectively. The success of our business depends on the continuing contributions of our key personnel. Our headquarters, research and development and manufacturing facilities, the facilities of our subcontractor upon which we rely to assemble and test our solar panels and facilities of our suppliers of silicon ingots, are located in regions that are subject to earthquakes and other natural disasters. Changes to financial accounting standards may affect our results of operations and cause us to change our business practices. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock. Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines. We may engage in acquisitions or invest in joint ventures with other companies that could adversely affect our operating results, dilute our stockholders equity, or cause us to incur additional debt or assume contingent liabilities. We maintain self-insurance for certain indemnities we have made to our officers and directors. Risks Related to Our Relationship with Cypress Semiconductor Corporation As long as Cypress controls us, your ability to influence matters requiring stockholder approval will be limited. Our historical financial information as a business segment of Cypress may not be representative of our results as an independent public company. Our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a stand-alone company after the expiration of our services agreements with Cypress. We may experience increased costs resulting from a decrease in our purchasing power and we may have difficulty obtaining new customers due to our relatively small size after our separation from Cypress. Our agreements with Cypress require us to indemnify Cypress for certain tax liabilities. These indemnification obligations may limit our ability to obtain additional financing or participate in future acquisitions for up to two years. Third parties may seek to hold us responsible for liabilities of Cypress. Our inability to resolve any disputes that arise between us and Cypress with respect to our past and ongoing relationships may result in a significant reduction of our revenue. Some of our directors and executive officers may have conflicts of interest because of their ownership of Cypress common stock, options to acquire Cypress common stock and positions with Cypress. Because Cypress is not obligated to distribute our common stock that it owns to its stockholders, we will continue to be subject to the risks described above relating to Cypress control of us if Cypress does not complete such a distribution. Through potential control of our board of directors, Cypress may cause our board to act in Cypress best interests which may diverge from the best interests of other stockholders and make it difficult for us to recruit quality independent directors. Risks Related to Our Common Stock Our stock price is volatile, and a liquid trading market for our class A common stock may not develop or be sustained. If securities or industry analysts do not publish research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline. Substantial future sales of our class A common stock or other securities in the public market could cause our stock price to fall. The difference in the voting rights of our class A and our class B common stock may harm the value and liquidity of our class A common stock. Delaware law and our corporate charter and bylaws contain anti-takeover provisions that could delay or discourage takeover attempts that stockholders may consider favorable. We incur substantial compliance costs as a public company.

Full 10-K form ▸

867773--3/24/2006--SUNPOWER_CORP