Power Inverters Stuck in the Middle Again

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.

Interested in reading more about Satcon Technology? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. First Solar is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Power-One. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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