IHS Analysis: SMA and SolarEdge solar inverter businesses booming, on back of United States growth

Leading solar inverter suppliers SMA and SolarEdge recently reported strong profits in their latest earning calls, but the United States remains their key market and key source of recent financial success.

Leading solar inverter suppliers SMA and SolarEdge recently reported strong profits in their latest earning calls, but the United States remains their key market and key source of recent financial success.

Key Facts:
• Leading photovoltaic (PV) inverter suppliers, SMA and Solaredge, have both recently reported positive financial results, supported largely by their strength in the United States PV market.
• The United States will account for 30% of global PV inverter revenues in 2016, where both suppliers have a significant market share.
• SMA is the market leader for PV inverters to utility-scale installations in the United States, and SolarEdge is one of the leading suppliers in the residential and small-commercial segments.
• Both suppliers have updated their inverter portfolio in 2016, to protect and grow their market share in their core segments in the United States and increase market share in commercial installations and other high growth segments.
• Although both suppliers have a global footprint spanning other key markets in Europe and Asia, they are significantly dependent on the United States inverter market for a large share of their revenues.
• Average PV inverter prices in the United States will decrease by 9% per year until 2019, which will limit revenue growth in this market

IHS Analysis:
SMA and SolarEdge both reported strong revenue and profit growth in their recent earnings calls, on the back of significant success in the Unites States PV market. While both suppliers noted that they have diversified PV inverter portfolios and broad geographical presences, in reality they are quite dependent on the United States to increase growth in the next two to three years. While the United States is likely to continue to be a strong source of revenue this year, there are some strong headwinds for the these suppliers -- and the industry as a whole -- after 2016.

The success of these two companies comes despite intense price competition in the global PV inverter market, which will remain an omnipresent medium-term threat to the global industry, according to the IHS PV Inverter Intelligence Service. Despite record shipment forecasts of 65GWAC in 2016, average global prices will decrease 10% in 2016; this price pressure will remain a medium-term threat to the global industry, heavily affecting revenue growth in the total market.

Following the extension of the investment tax credit (ITC) in December 2015, IHS has significantly raised the long-term forecast for the United States: shipments in 2016 are now expected to reach more than 13 GWAC. While this situation is a huge benefit to SMA and SolarEdge, new and existing suppliers will also see the increased importance of the U.S. market as justification to further invest in entering the United States and attempt to gain market share. European suppliers will compete more aggressively in the United States in order to grow their businesses, especially because the European PV market is currently sluggish. Asian suppliers - especially in China and Japan -- will expand further in the United States, in order to broaden their geographical presences and reduce over dependence on their domestic markets. This expansion will lead to further price pressure for PV inverters across all system types in the United States through 2019.

SolarEdge recently started shipping its HD-Wave inverters and released new three-phase low power (≤99 kW) inverters, in order to remain competitive in its core residential market and grow the company's market share in commercial installations. To remain competitive in pricing and technology, SMA updated its inverter portfolio serving all segments in the United States. In its main utility-scale segment, SMA also released a higher power central inverter with 1500V capability, which should help the company maintain and win new customers seeking lower balance of system (BoS) costs. SMA's current growth trajectory in the United States is also due in part to last year's exit of Advanced Energy, one of its previous leading competitors for utility-scale projects, which allowed the company to secure a number of major new customers.

In 2016 and beyond, however, TMEIC, Power Electronics, GE, ABB and other suppliers are set to compete aggressively in this segment, particularly given the new long-term certainty of the market afforded by the extension of the ITC. SolarEdge has similarly benefitted from winning a number of key customers, including solar lease suppliers, and the success or failure of its customers could impact its U.S. business in a significant way. Maintaining its key customers and continuing to expand into new sales channels in 2016 will be crucial to its overall success. Enphase, Fronius, ABB, SMA and other key competitors will be a continuous threat in the residential market. There is also an increasingly likely possibility that highly price-competitive Chinese suppliers will establish themselves as approved vendors to leading solar lease installers.

According to the IHS North American PV Intelligence Service, the United States offers a huge long-term opportunity for PV inverter suppliers; however, competition among existing suppliers and new entrants is likely to remain intense in the next two years. The intense competition will be heightened by expected U.S. demand declines in 2017, due to a pause between the completion of the original utility-scale pipeline built up prior to the extension of the ITC and the new pipeline of projects now being established.

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