Inverter manufacturer SolarEdge benefited from high demand for its products in Europe to increase revenues to a quarterly record while navigating a shortage of electronic components.
However the company experienced strong margin pressure throughout the quarter as it relied on air freight to sate European demand and other supply chain constraints, which it now expects to last long into the year.
Q1 revenues were US$655.1 million, up 62% on the same quarter last year, as the company shipped 2,130MW of inverters, 53% of which were for the residential segment and 47% for the commercial sector.
SolarEdge CEO Zvi Lando said the firm’s performance in Europe during Q1 tends to be lower than other quarters, but this year it saw a “significant increase in demand” as it shipped 1.1GW of inverters in the region, a 53% jump on the same quarter last year.
Speaking during a conference call with investors, Lando said that considering the current dynamics in Europe of elevated electricity prices, supportive government initiatives and the company’s historically strong position in the region, management expects “strong growth momentum in Europe to continue”.
Alongside a healthy performance in larger European markets such as the Netherlands, Germany and Italy, SolarEdge has also benefited from a drive to increase solar installations in countries such as Austria, Switzerland, Sweden and Poland, according to Lando.
He said the drive to ramp up deployment is taking place because those countries are affected by higher electricity prices, adding: “And if you assume that those electricity prices are not going to go down anytime soon, then the expectation is for this momentum to continue.”
To meet high demand in Europe, SolarEdge shipped additional products by air, which put pressure on its gross margin, which fell from 34.5% in Q1 2021 to 27.3% in the latest quarter.
Management revealed gross margins were impacted by increased shipping expenses, both on finished goods and raw materials. This trend is expected to continue into Q2 and ease from Q3 onwards as it expands manufacturing output in Mexico and decreases the portion of Chinese-made products for the US market.
According to Lando, the company is facing three main challenges as it builds its inverter, optimiser and battery capacity to meet demand: component availability, COVID-related disruptions impacting raw material and component suppliers and longer logistic routes affecting both incoming supply to manufacturing sites and finished good shipments.
He said while the company does not have clear visibility on when the shortage of components will stabilise, it is optimistic that its work in qualifying additional component suppliers and aligning short- and long-term forecasts with its suppliers will ease the constraints toward the end of the year.
Rival inverter manufacturer SMA Solar Technology warned in March that it expected a shortage of electronic components to continue in the following months after its 2021 financial results were impacted by a lack of electronic chips.
For Q2 2022, SolarEdge forecasts revenues to be within the range of US$710 – 740 million, which would represent a significant increase on the company’s performance in Q2 2021.
Conference call transcript from the Motley Fool.