Cash Problems in SunPower's Future

• The Company: SunPower Corp., a solar cell and panel maker.
• The Filing: FORM 10-Q filed with the SEC on November 7, 2008.
• The Finding: SunPower filed its third-quarter 10-Q with the Securities and Exchange Commission late Friday. In addition to new foreign exchange currency issues, a read of the report suggests the solar cell maker could face a cash shortage in coming quarters, too.

The Finding: Chief Financial Officer Manny Hernandez told analysts on the October third-quarter 2008 earnings call that the company ended the third-quarter with $431 million in cash and long-term securities. This is not quite true. At September 28, there was only $210 million in unrestricted cash on the balance sheet.

For the nine-months ended September 28, SunPower reported year-on-year gains in revenue of 88 percent. The company, however, is spending heavily for growth, with free cash flow use of $87.5 million in cash (though an improvement in the prior year’s use of $205.7 million).

The company has future commitments in place totaling $3.5 billion to suppliers for the procurement of polysilicon, ingots, and other photovoltaic materials, and contractual operating leases outstanding for $43.5 million.

Letters of credit totaling $81 million with Wells Fargo are available (but expire in April 2009).

In addition, the company said on the conference call that the 2.9 million shares lent to Lehman Brothers – with a purpose of providing a borrow capacity for one of its convertible debenture offerings last year — is now subject to bankruptcy proceedings as far as potential recovery. As such, all of these shares will be added to the outstanding share count, representing a dilution to existing stockholders of three percent.

In order to meet anticipated forward demand, the company will need to grow its manufacturing capacity. By year-end 2009, SunPower is looking to ramp-up a third solar cell fabrication facility in Malaysia — cost unknown.

The Question: Given current headwinds in the credit and stock markets, will SunPower be able to raise additional cash through sale of common stock, debentures, or from new borrowings?