SolarEdge Management Fumbles Are Costing Investors

SolarEdge (SEDG) Q1 earnings results were mostly dour – in contrast to the more mixed results at rival Enphase (ENPH). As can be seen from the image below, revenues of $204M were off 80% from the peak of $991M from Q2 2023 – just three quarters back! Revenues from the solar business were approximately $190M, while revenues from non-solar businesses were approximately $14M.

SolarEdge Underperforming Enphase Bigly

Looking at the details, we can see that the problem is not only that SolarEdge is performing poorly but that it is dramatically underperforming rival Enphase. For reference, note that Enphase’s revenues were off by about 65% from the peak (image below).

The revenue decline somewhat understates the problem with the core business as SolarEdge (similar to Enphase) has a relatively strong battery business that has held up better through the downturn and because (unlike Enphase) gets a small amount of non-solar revenues. In the core solar segment, note that the drop-off in optimizer shipments is even worse – from 6.4Mu in Q1 2023 to about 1Mu in Q1 2024 (a staggering 83% decline). Enphase, during the same time periods saw its microinverter shipments decline from 4.8M to about 1.4M (still staggering but less bad 71%).

The inverter business fared a bit better – mainly due to the Company’s relative strength in the commercial segment (image below).

In the US residential segment, the inverter and optimizer sell-through was down 19% from Q4. The low margin (negative margin?) single phase batteries were in demand and sell-through was up 26% sequentially. The strength in batteries is mainly from NEM3 in California and full back-up requirement in Puerto Rico. The US commercial segment sell-through was down 22% from a record fourth quarter, largely due to seasonality.

Sell-through in Europe residential segment was down 19% from Q4 with inverters and optimizers down 20% and batteries down 13%. While management claimed seasonality as the reason, these results are much worse than Enphase’s results (microinverters up 3% and batteries up 28%). In commercial, sell-through was down 2% - much better than residential but still well below Enphase’s.

In the rest of world, management claimed business as usual with typical seasonality with revenues largely derived from Thailand, Taiwan, South Africa, Australia and Israel.

In aggregate, first quarter sell-through was below expectations at approximately $440M. The lower level of sell-through resulted in the Company under shipping demand by approximately $250M – at the lower end of the previously guided range.

We can see the relative strength of the commercial segment as well as the ROW market in the image below.

Management claimed that it shipped fewer optimizers per inverter (1 inverter to 16 optimizers instead of the typical 1 inverter per 24 optimizers) due to the inventory situation. However, the lower ratio is also consistent with a stronger commercial segment compared to the residential segment. Other reports suggest that SolarEdge has lost a considerable share to Enphase in the residential solar segment. While the management made no mention, all data points suggest a very weak performance in the residential segment – exacerbated by share losses.