SolarEdge Grows PV Inverter Margin in Volatile Market

It was a decent Valentine's Day for lovers of SolarEdge photovoltaic panel optimizers.

The firm announced its financial results yesterday afternoon for the quarter ended December 31 and although SolarEdge reported top and bottom line below street expectations, the solar electronics firm managed to post a strong gross margin of 33 percent. Last quarter, GTM Research analyst Scott Moskowitz noted SolarEdge “overachieved on margin,” hitting 32.6 percent versus a guidance of 30 percent to 32 percent.

A research note from Oppenheimer explains that “the big test for [SolarEdge] will begin later in CY17 as the impact of China-based competition is clearer and could be offset by market share gains from fading EU players. We see the potential for material operating leverage in 2018, but believe it is too early to tell whether that will play out.” The analyst adds, “We are encouraged to see SEDG picking up share in Australia, Japan, and Europe,”

GTM's Moskowitz was ready for that “China-based competition” remark.

He counters, “Analysts have maintained an obsession with the upcoming release of an MLPE product from Huawei, though GTM believes that product will not have significant impact until 2018. Either way, healthy margins are a good sign for SolarEdge —  the company must remain obsessively focused on cost reduction if it hopes to maintain its market leadership over the long term. More significant is the rapid decline of inverter ASPs and the threat of new entrants. Inverter prices fell aggressively across all market segments in 2016 and there will not be respite in 2017.”

Quarterly results

  • Revenues for the quarter was $111.5 million vs. Street estimate of $114.9 million, down 13 percent from the prior quarter
  • 413 Megawatts (AC) of inverters shipped in the quarter
  • GAAP gross margin for the quarter of 35 percent — after warranty adjustments GM was 33 percent
  • GAAP net income for the quarter of $9.8 million, down from $15.6 million in the prior quarter and from $24.1 million year over year.

“We continued our cost reduction measures yielding solid operating income and record gross margin despite lower revenues than in previous quarters,” said Guy Sella, Founder, Chairman and CEO of SolarEdge. “We remain confident in our ability to grow revenues and profitability in 2017.”

Guidance for next quarter

  • Revenues in the range of $110 million to $120 million
  • Gross margins in the range of 31 percent to 33 percent

Oppenheimer notes, “We note market dynamics are shifting quickly and believe MarQ17 guidance is reflective of solid channel inventory management.”

Moskowitz sums it up: “SolarEdge continues to lead the global residential PV inverter market. However, growth in the U.S. residential market slowed significantly in 2016 and the challenges that caused the slowdown remain in 2017. Adoption of the 2014 version of the National Electrical Code in Califronia this January will be a significantt catalyst for SolarEdge as well as for Enphase Energy and should make up for the weakness in demand.

FIGURE: U.S. Utility PV Fixed-Tilt Turnkey EPC System Pricing, H1 2016-2021E ($/Wdc)

Source: U.S. PV System Pricing H2 2016

from GTM Solar


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