Investor Destination

Why Maxeon Solar Technologies Stock Declined Today?

What happened?

Shares of Maxeon Solar Technologies Ltd (NASDAQ: MAXN) dipped 14% today after it announced its fourth-quarter results. The company's fourth-quarter revenue declined 33% YOY, and gross margin decreased from last year's 7.5% to 3%. However, the company mentions a sequential solar demand improvement. It saw strong growth in both distributed generation and its large-scale businesses, with sequential revenue increases of 12% and 35%, respectively. However, investors are disappointed with its 2021 first-quarter guidance.

Why?

The company expects first-quarter revenue of approximately $160 million, significantly down from the first quarter of last year $248 million, and a negative gross margin. It blames its weak guidance on the seasonality and supply chain cost challenges. The company expects supply chain cost challenges to persist well into the second half of this year. For quite some time, the company has been promising improved margins, and it is yet to fulfill the promises.

For the last few months, investors' optimism about the current administration's favorable solar policies drove the solar stocks into a multi-year high. But Maxeon's guidance is reminding investors that the sun is not always shining on the solar market.

Now what?

The devil is in the details is very applicable here. The company is not able to pass on the supply chain cost to customers. So, it deferred its utility-scale sales pipeline conversion outside China for now and will resume when it can pass on the cost to customers. The company is not chasing growth at the cost of profitability, and we applaud the management's decision.

It is a small player. However, its name-brand solar panels are the most efficient in the industry. A few years ago, it introduced the Performance (P) series panels to compete against low-cost players. It manufactures P series panels through a joint venture in China that can produce up to 5GW Performance line solar panels. The joint venture is planning to expand capacity to approximately 8 GW per year in 2021.

This innovative company expands its product portfolio with its 'Beyond the Panel' initiative and introduces AC Modules with factory-integrated micro-inverter. However, the company needs to improve its profitability.

The current pandemic has reminded us of the importance of the fight against climate change. Countries worldwide are committed to reducing their carbon footprint, and solar energy is a big part of that initiative. The company has a strong balance sheet and the best technology. While short-term challenges and a bumpy ride are normal in this industry, the long-term outlook is strong.

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