Power-One, Inc. (PWER)

[eastunder]

Power-One Shares Up, Says Europe Improving
Eric Rosenbaum

05/05/11 - 05:24 PM EDT

http://www.thestreet.com/_yahoo/story/11108837/1/power-one-shares-up-says-europe-improving.html?

NEW YORK (TheStreet) -- Solar inverter maker Power-One(TSL) saw its shares turn higher after reporting an in line first quarter after the market close on Thursday.

Power-One earnings per share of 20 cents were one penny behind the average analyst estimate of 21 cents, while revenue of $245 million was slightly ahead of the average analyst net sales target of $241 million. Both figures were close to the reduced guidance that Power-One gave earlier in the year when an inventory backlog in Europe, and a slowdown in Italy, began to weigh on its sales effort. Power-One has been one of the primary inverter players in Europe, and in Italy.

Power-One shares, which are among the most heavily shorted in the green energy space, were up more than 5% after its earnings report. Power-One shares have declined 22% this year.

Power-One's outlook for the second quarter and full year was in line with the average analyst estimate. The company lowered the high-end of its full year revenue guidance slightly, taking it down from $1.3 billion to $1.25 billion, but the range of $1.1 billion to $1.25 billion was consistent with the average analyst estimate of $1.1 billion.

Power-One's second quarter forecast for revenue of $250 million to $270 million was below the average analyst estimate of $271 million in revenue. Power-One noted that second quarter revenue "is expected to be impacted by inverter inventory in the channel, albeit at lower levels than in the first quarter." The company said it expected faster growth in the string inverter market in Europe versus ground mount systems.

Net income at Power-One increased from $4 million last year to $30 million in the first quarter 2011, though Power-One's profile in the inverter market grew rapidly in the second half of 2010 as European demand aligned with the company's new inverter strategy.

Power-One CEO Richard Thomson dealt directly with the issues in the European solar market in his earnings commentary, stating, "We anticipate the solar market will begin to gain momentum as Italy recently passed its legislation and the German market is showing signs of heightened activity."
The new Italian solar policy, made official on Thursday, had both positive and negative aspects for solar installations in what had been the most explosive market globally. Yet analysts, and solar companies, have concluded that future growth has to come outside of Europe, as Germany and Italy both deliver less explosive annual growth.

The Power-One CEO alluded to this, also, stating, "We expect our focus on new geographies, particularly North America and Asia, will add revenue in renewables and lead to improving profitability."

North American sales-focused solar inverter company Advanced Energy industries(AEIS) earlier this week reported strong results from its inverter business, results which analysts read as a sign that the North American inverter market is healthy, though the results could not be extrapolated to other companies in the sector.

The U.S. market is one in which Power-One has yet to prove itself, in terms of taking market share from competitors like Advanced Energy Industries, SatCon and Germany's SMA Solar, which is also targeting North America as European demand slows.

The outlook from solar sector companies to report so far as been cautious as far as the second quarter and full year demand and pricing profile, though most companies have still reaffirmed full year guidance, like Power-One.

First Solar's cautious outlook on Tuesday, coupled with a weaker than expected second-quarter sales target, sent its shares down to their lowest level since last December, but it reaffirmed full year guidance.

Jinko Solar(JKS) earlier this week reported solid first quarter earnings, though its commentary too was cautious. Most importantly from the analyst perspective, Jinko Solar showed a movement away from Italy in its geographic diversification, from 50% to 30%.

LDK Solar kicked off the earnings trouble when it pre-reported a $100 million revenue shortfall for the first quarter, though most of the bearish analysis has assumed companies meet first quarter numbers while missing in the second. ReneSola's commentary on pricing set off alarm bells specifically about the pressure on solar industry pricing in the second half of the year.

Europe's biggest solar wafer marker, REC Solar, reported its first-quarter results on Wednesday, and while REC also benefitted from strong wafer pricing in the first quarter, it's outlook was more of the same "cautiousness" about the solar sector. REC Solar warned on Wednesday that "margin pressure on modules and wafers will remain in the second quarter, and "weak market conditions may lead to inventory buildup and REC may need to reduce capacity utilization."

Reviewing the new Italian solar policy on Thursday, Wedbush analyst Christine Hersey wrote, "If the Italian market for larger projects slows dramatically as we expect in H2:11, we would expect installers and module manufacturers to focus more on the German solar market, given the market's stability and sensitivity to price."

-- Written by Eric Rosenbaum from New York.