Solar Edge & Enphase: Where Do We Go From Here?

SolarEdge (SEDG) gave a bombshell Q3 update after the market close on Thursday. The Company announced that “During the second part of the third quarter of 2023, we experienced substantial unexpected cancellations and pushouts of existing backlog from our European distributors. We attribute these cancellations and pushouts to higher than expected inventory in the channels and slower than expected installation rates. In particular, installation rates for the third quarter were much slower at the end of the summer and in September where traditionally there is a rise in installation rates.”

As a result, Q3 revenue is now expected to be in the range of $720M to $730M, compared to the previous expectation of $880M to $920M. Non-GAAP gross margin is now expected to be within the range of 20.1% to 21.1%, compared to the previous expectation of 28% to 31%. Non-GAAP operating income* is now expected to be within the range of $12M to $31M, compared to the previous expectation of $115M to $135M.

While the preannouncement is from SolarEdge, the dynamics at play also affect Enphase (ENPH). The market is aware of the connection and there is a reason why SolarEdge stock fell about 27% on the announcement but Enphase stock fell about 15%. This article identifies the drivers of demand inflections and what the preannouncement means to SolarEdge and Enphase stockholders.