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SolarEdge Shows Strong Growth In Third Quarter, But Investors Still Unhappy

Israel-based smart energy and inverter company SolarEdge announced its third-quarter financial earnings late last week, again revealing record revenues and growing the company’s market share, including shipments over 1 gigawatt (GW). 

Israel-based smart energy and inverter company SolarEdge announced its third-quarter financial earnings late last week, again revealing record revenues and growing the company’s market share, including shipments over 1 gigawatt (GW).

SolarEdge has been in the news a lot this year, and not always for the right reasons. In June, the company filed a patent infringement lawsuit against Chinese IT company Huawei, its German subsidiary, and the German distributor for Huawei WATTKRAFT Solar, claiming that Huawei made unauthorized use of patented SolarEdge technology. Unsurprisingly, Huawei returned later that month with a promise to fight the lawsuit, claiming it did not believe it had done anything wrong and that it would “defend its rights vigorously.”

However, SolarEdge has also been making waves as it continues to expand its presence in the growing sustainable marketplace. Early last month, SolarEdge announced its intention to acquire battery manufacturer Kokam in a deal expected to be worth approximately $88 million and help grow SolarEdge’s offerings, expanding on its existing battery storage product portfolio.

Announced last week, SolarEdge followed the news with its third-quarter earnings report, revealing record revenues of $236.6 million for the quarter, up an impressive 42% year-over-year and continuing the company’s strong year of growth, following as it does its second quarter which also posted record revenues of $227.1 million.

SolarEdge also reported net income on a GAAP basis of $45.6 million and earnings per share (EPS) of $0.95, which beat out the second quarter’s EPS of $0.82 and analyst consensus of $0.74.

“This quarter we continued to grow our revenues and market share,” said Guy Sella, Founder, Chairman and CEO of SolarEdge. “We shipped 1.1GW of systems and delivered over three million power optimizers, with record high shipments of commercial products.”

“While continuing to expand our existing business, we closed the asset acquisition of a new UPS division, Gamatronic. In the first weeks of October, we also signed and closed the Kokam acquisition which will expand our smart energy offerings, adding proven battery storage options to our product portfolio. These acquisitions will take us a further step toward offering full solutions that are more comprehensive, smarter and beneficial.” – Sella

“SolarEdge achieved record sales in 3Q on market-share growth, yet as expected, margin pressure emerged and is likely to endure,” wrote James Evans, Global Clean Energy Analyst with Bloomberg Intelligence recently.

“Surging shipment activity has inflated customer support costs, compressing gross margin to 33% vs. 36.1% in 2Q, with recent M&A activity and upcoming tariff costs likely to weigh on profit. The introduction of a 25% import tariff of China-produced inverter components at the start of 2019 will curb profit until SolarEdge can resupply the U.S. from European production hubs, likely in 1H19.

“SolarEdge secured record sales in 3Q of $236.6 million on surging volume supplied, in part due to growing commercial and international market share. Planned product price rises over the next two quarters may help offset some of the growing margin pressure.” – Evans

“SolarEdge continues to consolidate its position as the world’s leading supplier of solar module-level power electronics in this quarter,” added Jenny Chase, Head of Solar Analysis at Bloomberg New Energy Finance. “We believe that it is rapidly increasing its market share in Europe, probably making up for the US market which has historically been its focus and which is fairly flat. The increased share of commercial systems in SolarEdge’s sales is also interesting, as historically these have been considered mainly a residential product for irregularly shaped or partially shaded roofs.”

Looking forward, SolarEdge expects to post revenues between $245 million and $255 million in the fourth quarter, with gross margins on a GAAP basis between 30% and 32% depending on the effects of recent Mergers & Acquisitions.

kokamSolarEdge also spent the third quarter acquiring majority stakes and IP in uninterrupted power supply company Gamesa in addition to its acquisition of Kokam. However, these two moves represent contrasting levels of common sense, according to some analysts. “SolarEdge’s $88 million purchase of a 75% stake in Korean battery supplier Kokam isn’t a particularly good strategic move, in our view, in contrast with recent deals such as a move into uninterruptible power supply via its Gamatronic purchase,” wrote James Evans in October. “While Kokam only represents about 7% of combined sales, a high-cost base may impede SolarEdge’s asset-light strategy and curb margins.”

This may partly explain the Wile E. Coyote-style reaction on the share market by SolarEdge investors, which saw the company’s stock price plummet 10% off the back of the company’s results, and it remains 8% down as of writing.

 
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