The two solar inverter companies, German SMA Solar and American Enphase, recently reporting their Q1 2012 performances (with strong results for both), had radically different views about the future. We found three possible explanations:
1. SMA seems to be in a political lobbying mode as Germany adopts penalizing FIT cuts;
2. Their corporate cultures seem diametrically opposed, with SMA giving the impression of a typical quality German capital goods company pursuing a long-term sustainable growth strategy, and weaned on a degree of government support, and
3. SMA’s central inverters may be losing share to Enphase’s microinverters for some applications.
Similar to SMA’s earlier presentation (the FY2011 report), the tone was so surprisingly pessimistic, regarding the outlook for their European business and the global solar industry as a whole, that we again suspected a hidden political agenda.
While most of SMA’s 58% (!) Q1 2012 sales growth came from Germany, SMA hardly mentioned Germany’s contribution during their presentation. SMA is now hiring staff in Japan, North America, India, (though not in the EU) and stressing that the key to future growth will be export 70-80% of sales. When asked why they are so pessimistic about Q2 2012 when competitors are optimistic, they said that they expect a regional decline in sales in the EU, adding the rather ambivalent comment, “You can read between the lines in this regard” (which presumably refers to the ongoing German FIT cuts).
SMA would not specify pricing in Germany since the FIT cuts were implemented in April. (Their prices had already fallen more than we had expected in Q1)
As for the outlook for the entire solar market, SMA was downbeat. They expect the world market will grow “only single digit and even decline in 2012”, due mainly to the EU.
Enphase has a completely different agenda. Recently IPO’d, their message was optimistic about their own business and still more interesting, about the global solar market. Falling equipment prices are stimulating demand –which is a view we agree with.
Their website statement, claiming their micro inverter system is “the most important technical breakthrough solar has ever has ever seen,” is pure fantasy. As one of our experts noted, in the 1990s Shell Solar had already developed panels with microinverters.
That said, Enphase is confident its sales will be healthy into the next quarter. And they plan to take share with competitive pricing. Despite strong demand for their products, they implemented a 5% price cut in April and foresee further price cuts ahead. They don’t appear too concerned about the sustainability of such a strategy.
Their costs can fall more than prices thanks to their outsourced contract manufacturing process. Enphase has developed a semiconductor-based microinverter system. The company describes itself as a semiconductor company that adds value to inverters through integration of a larger part of the system on a chip.
When asked about their low pricing they also mentioned their teams working with OEM panel producers in China, which points to cheaper cost locations.
As for the product differences between the two inverter companies, the main one is that the microinverter system converts energy at the individual solar module level (an advantage if one module is faulty) while the central inverter converts energy of the entire array from a single electrical unit. Enphase has added proprietary networking and software technologies, for monitoring and control, to its microinverters. Having been historically more expensive, microinverters could very well steal share from central inverters, especially if companies like Enphase stay ahead of the cost curve.
While SMA offers long-term value with its rich balance sheet, attractive dividend yield and share price currently below 24€, management’s dismal spirit is enough to dampen enthusiasm. Enviably present in Japan where big solar programs are planned, SMA expects its market penetration to take some time. Prepared to enter the microinverter market with a new product developed for the US market, SMA has suddenly changed the market to ‘non-US’, a reminder of their policy to stay clear of China.
The explanation for SMA’s caution could be that German solar manufacturers are traumatized, having been let loose to survive on their own after many years of protection, which has resulted in some 6 bankruptcies in the past 12 months alone. If that is true, then it’s not surprising that a German (SolarWorld) rather than an American company is behind the Chinese solar anti-dumping duties in the US. Mid-year SolarWorld promises to bring their lobbying to the EU. Hopefully this will not slow the solar price deflation that is finally helping developers in the industry gain traction.