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Power inverters are in a great position in the changing electric generation landscape. Wind and solar plants need them to convert DC power to AC power, making them the lynchpin between power plants and the grid. But sometimes relying on others can come back and bite you in the end.
Right now the uncertainty in European solar subsidies is causing a slowdown in solar installations, particularly in Italy. Until large utility markets like the U.S. pick up the pace, inverter manufacturers like Satcon Technology (Nasdaq: SATC ) and Power-One (Nasdaq: PWER ) are caught in the middle. They have fast growing businesses, but investors don't know exactly how fast and how profitable they will be quarter to quarter.
That uncertainty causes disappointment -- even when a company reports that revenue jumped 321% from last year, as Satcon did yesterday. Sales of $62.0 million fell below the $62.8 million analysts had expected, and second-quarter expectations didn't help anyone feel better. Uncertainty in Italy has the company seeing revenues between $50 million and $60 million, well below analyst estimates of $73.3 million.
So with the bad news out of the way, where do we go from here? Management thinks sales and margins will pick up as we reach the third and fourth quarters, as solar panels start to be installed in North America. We might be able to read the tea leaves when solar powerhouses First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWRA ) report because both have large development backlogs in the U.S. If they're seeing panel sales move from Europe to the U.S., that could be seen as a positive for Satcon, Power-One, and inverter competitor American Superconductor (Nasdaq: AMSC ) .
By the looks of it, the next quarter will be tough for the entire solar industry. As a result, inverter manufacturers are seeing some uncertainty. I like their position long term, but it'll be a bumpy ride ramping up to their full potential.