SEDG thoughts?

What are people thinking about SolarEdge at this point? The huge cloud of uncertainty – expiring solar credits in the U.S. – is now gone. The stock obviously isn’t at its lows anymore that it hit when that uncertainty still existed, but it’s still down significantly as it has traded with oil as an “energy” company.

The stock currently is trading at an adjusted P/E of 26, which isn’t cheap, but seems reasonable as the company grew TTM EPS last quarter over 28% sequentially (not even year over year) and is the technology leader in their industry. And in September it announced its new HD-Wave inverter technology, which seems like it should help it maintain that leadership position going forward:

Our new HD-Wave technology increases the inverter’s efficiency to 99%, reduces the size and weight of the expensive magnetics and heat dissipation components, typical in today’s inverters, and is completely electrolytic capacitor free, a breakthrough for solar inverters.

The company also just announced international availability of its StorEdge products for storing power for later use (compatible with Tesla’s Powerwall). That seems like it’d make solar installations far more practical to me. The company says in their recent shareholder letter:

As storage products become commercially available, our inverters provide a very attractive offering. Our fixed string voltage technology allows for seamless DC integration with high voltage batteries which has attracted the interest of leading battery manufacturers. Building on this and our innovative developments, gives us access what I believe will be the most exciting and promising opportunity for solar power systems in the coming year.

The company is also beginning to break into the commercial market.

TTM revenue was $373 million in a market the company believes has a current total addressable market of $7 billion, so plenty of runway.

Anyway, are people looking at this as a solid opportunity going forward? A lot less uncertainty now, new products, and a price that is still reasonable (if not cheap)?





  1. Growing revenues and earnings rapidly.

  2. Appear to be taking market share from competitor Enphase.

  3. COP21 commitments around the globe should help overall growth in this industry.


  1. For how long will gross margins be sustainable? Prices for solar equipment will probably keep falling. SEDG believe they can reduce their costs more than drop in prices. But I question for how long. Some of the recent gains in gross margins have been because of moving manufacturing to low cost countries, supply chain efficiencies, manufacturing efficiencies, and economies of scale. Perhaps going forward these cost lowering factors will decelerate the rate of cost reduction. How fast will prices for solar equipment components fall?


Perhaps the near term (1 year?) for this company looks good. Longer term one might want to be cautious.



Thanks for the thoughts, Chris. I very much appreciate them.

At the moment, management is pretty confident about overcoming ASP erosion. This is from the last call in response to an analyst question:

I am very confident that next year our cost reduction plans will overcome the ASP erosion and it will execute the plan that we described since the roadshow of improving our gross margin more or less in the same pace as we did in the last couple of quarters and we’ll reach about 30% pretty soon.

And they think the new HD-Wave inverter will help a lot:

We believe that to fully ramp it up will take three quarters. So I would expect that by the end of Q3, 80%, 90% of everything we’ll ship will be already the new HD technology inverter. We’re very mature with the production stages and I believe that the ramp-up will be quite smooth. The only thing that can in a way reduce these percentages, if we’ll see demand which is dramatically above what we are expecting, but if we estimate the demand properly, I think that we’ll be able to almost fully ramp up to 80%, 90% – we’ll be able to ramp up to 80% or 90% in three quarters. As for cost, you understand that we won’t share this in great details but I can tell you that the potential is overcoming in a big way the 7.5% to 10% ASP reduction that we believe we’ll have to offer during 2016.

The other thing, too, is that the company is taking marketshare and expects to continue doing so:

I think that I would expect that we are still taking market share in the U.S. So I think that we’ll overcome the growth of the market by probably 10% to 15%. I think that that should be something what I believe is doable when I look at our current market share and what I believe can achieve next year with the new product that we just launched.


we are active in all the European markets as well as Australia, Japan and starting in South Africa. So if you look at the European market, we are growing our market share in all the main markets.

And then there’s the question of where commercial could go:

the commercial, small, medium and large commercial probably would be the most growing segment in the coming two, three years and a big portion of our R&D activities are into developing larger three-phase inverters and we believe that we’ll be able to take bigger and bigger market share in the commercial. So this covers and it’s overcoming the way the third party ownership fleets that you mentioned.

In addition to that, we are in the final process of getting approval to a seller of three-phase inverters in Japan. That I believe will open up the commercial market in Japan. We’re entering now into Poland which is a new market in Europe, South Africa and all the storage potential. So I think that we are very much – we have great new opportunities and potential to grow into new markets and new segments and I think that this should much more than overcome any difficulty that might happen in the residential market in the U.S.

That was before the U.S. solar credits were extended, so hopefully U.S. residential will be better over the next few years too (I’ve seen one estimate from GTM Research that residential will show 35%/year additional annual growth through 2020 with the credits renewed – in fact, “more solar will be installed each year than was added to the grid cumulatively through 2014”).

So with regard to ASP erosion, it seems like management has the issue well in hand for at least the next year or two. And then, even if margins don’t really continue growing, there’s the question of extra growth through (1) taking marketshare – Management is expecting 10%-15% growth above the broader market growth rate – and (2) accelerating into commercial.

Anyway, I certainly agree with you that the business needs to be watched very closely. But solar seems like an industry that will be growing significantly over the next 4-5 years, and it seems plausible that – given its leading technology position – SolarEdge could continue to grow and do well from here even if there is eventually some small erosion of margins over that timeframe.

Does any of that change your thinking? Or do you think that margin erosion could be significant and the company could find itself in a poor position in a couple of years? You know a lot more about this industry than I do.



I was wondering if the legislation in Nevada, that lead to Solar City saying they would no longer do business in the state, has had any affect on stock price? I have read that other states may be considering the same legislation(it limits how much energy a homeowner can sell back to the grid).



What are people thinking about SolarEdge at this point? The huge cloud of uncertainty – expiring solar credits in the U.S. – is now gone. The stock obviously isn’t at its lows anymore that it hit when that uncertainty still existed, but it’s still down significantly as it has traded with oil as an “energy” company. The stock currently is trading at an adjusted P/E of 26, which isn’t cheap, but seems reasonable as the company grew TTM EPS last quarter over 28% sequentially (not even year over year) and is the technology leader in their industry.

Hi Neil, I have a substantial position (It’s my sixth biggest out of thirteen positions that are big enough to be called “positions”). In its December quarter I imagine it will show adjusted earnings at least 40 cents, up several hundred percent from 9 cents the year before. That alone will drop its PE to 19.

But I have worries about it too. I see it as benefiting from the whole move to solar power, which I think has reached the inflection point as solar has come down in price enough that it can compete with other forms of electricity production fairly well, even without subsidies, and the price is constantly falling. In addition, places like China and India need it desperately to battle air pollution and ground water pollution.

On the one hand, this means more and more business for SEDG, but on the other hand they have to keep reducing their own prices. In recent quarters they’ve reduced their costs faster than their prices and margins have continued to rise. Part of that has been because nine months ago they had many more orders than production capacity, which led to having to air ship products at the last minute, work extra shifts etc. Now they are putting in ultramodern production lines which will drop their costs more, but I’m not sure that this is a stock that I’ll still be in 5 or 10 years from now, as I’m not sure they can keep reducing the cost of their product, remain the dominant technology, and grow fast enough.

They have pretty well wiped out the competition, and Enphase, their principal competitor, which was at $15 last March, is now at $2 (!) Last March is when SEDG IPOed at about $20. SolarEdge has pretty well replaced Enphase in the biggest US solar suppliers, like Solar City, and it is also working with Tesla.

I am comfortable with it as a middle size position but I wouldn’t let it become an oversized position under any circumstances.

Hope this helps.



Sorry, but given several of the misperceptions mentioned in this thread, I thought it would be helpful to touch on a few relevant factors.

First, there continues to be an unwarranted belief that SEDG is the undisputed technological leader that will continue to grow in dominance (by displacing Enphase). Not quite true. True enough, ENPH was the dominant powerhouse for several years running, growing from a 1% market share in 2011 to ~40% market share in 2014. Last time I checked SEDG and ENPH are now running neck-to-neck with each controlling around a 30% market share. SEDG didn’t gain much market share at the expense of ENPH, rather, SEDG displaced other significant string inverters (SMA and ABB) from the market. As I explained in earlier posts, before the development of module level electronics (DC-optimizers or microinverters) there were plain vanilla sting inverter systems consisting of nothing more than central DC inverters. These systems have been disappearing. Module level electronics are simply superior.

Nor did SEDG displace ENPH as a SolarCity supplier. ENPH was never a supplier to SCTY. And that leads to the crux of this discussion: Rooftop solar systems come in two basic variants. Buy or lease. ENPH is preferred by those who buy their systems outright (about 50% of the rooftop solar market). Meanwhile, SCTY, Vivint and (to an extent) Sunrun, made a killing by offering “Power Purchase Agreements.” Under the terms of a PPA, the homeowner merely purchases electricity from the PPA-pusher, at rates lower than local utility rates. The homeowner does not own the system. The homeowner doesn’t realize maximum cost savings. Rather, the PPA-pusher gets the investment tax credit and the feed-in-tariffs, the PPA-pusher merely offers the homeowner a reduced electric bill (but hardly an optimal rate). Why would a homeowner opt for a PPA? Because many were offered at no initial cost to the homeowner. The PPA-pushers were obligated to build and maintain the system. The homeowner enjoyed lower utility bills. SCTY and Vivint literally went door-to-door offering these deals. It’s my understanding that SCTY spent hundreds of millions on marketing. Here’s the rub: SCTY has yet to turn a profit (I’m not sure of Vivint’s financials). And now, things are getting worse for the PPA-pushers: in various states, feed-in tariffs are being reduced. Any reduction in feed-in tariffs upsets the business model of a SCTY. They relied on high tariffs to offset their operating costs. Within the last year, Australia, the UK, Hawaii and Nevada have reduced, or eliminated, feed-in tariffs. In each case, SCTY announced it was curtailing marketing in those locales. Most recently, Nevada passed a particularly egregious/onerous blow against rooftop solar systems. Here’s an article that provides an overview:

What are the implications for SEDG? SEDG experienced astounding growth by serving as SCTY’s exclusive provider of DC-Optimizers and central inverters. As SCTY grew by 50+% per year, SEDG revenues kept pace (and SEDG saved enormously on marketing costs). Good for SEDG as long as SCTY and Vivint kept growing. It appears, however, that the PPA gold rush is slowly coming to an end. Even now, both SCTY and Vivint are starting to offer loans instead of lease agreements. This shift changes market dynamics. A homeowner making a purchase will want to optimize the profitability of the entire system. This was always ENPH’s strength. In fact, ENPH has devoted more than $90 Million developing whole house energy management systems to best serve the homeowner. Integral to this is a Plug-n-Play modular battery storage system.

There are those who will state: “But SEDG is allied with Tesla’s PowerWall.” True enough, but SEDG is a parts supplier, supplying optimizers and inverters. TESLA will be providing the battery (and harvesting the profits).

Here’s an article that provides an overview of evolving market prospects:

I’ve merely scratched the surface. The respective share prices of ENPH and SCTY do not reflect their true value. The true value of each company will be realized over the coming year(s). I happen to like both companies, but I invested in ENPH because it offers a better value. I have absolutely no interest in SCTY and Vivint.


Great write up, Putnid.

A lot of points I hadn’t heard from this board before regarding it’s competition with ENPH.

So you obviously don’t think SEDG is going to continue growing near to it’s recent growth rates.

Thanks, foodles.

SEDG had an impressive run in 2015. I believe that challenges await. First, let’s remember there’s a strong seasonal component in the rooftop solar space. Looking forward, FY Q1 (SEDG’s 2016 3rd quarter) has traditionally been slower for the sector as a whole. Making matters worse is the Nevada decision to drastically cut net metering (while imposing additional fees on rooftop systems). While Nevada was not a huge market for SCTY and SEDG, there will be a loss in sales.

From a big picture perspective, there have been a number of analyst reports that noted many PV system installers were disappointed that the ITC extension was passed early in the year. Installers were looking forward to a rush to install systems in fear of an ITC expiration. Don’t get me wrong, everyone’s happy with the extension, but it serves to remove any urgency for installing systems immediately. Consequently, growth in the sector will moderate…but it will continue for years longer.

As I already mentioned, there will be headwinds aplenty as the rooftop solar industry shifts pricing strategies, moves towards battery storage and grapples with margin compression as a consequence of unrelenting pricing pressures. These shifts will play out over the course of the entire year.

I’m very bullish on the sector as a whole, but I anticipate turbulence. This is not a sector suited for the squeamish investor.


Installers were looking forward to a rush to install systems in fear of an ITC expiration.

There are a couple interesting comments from an installer on this SeekingAlpha article about SEDG.…

On the ITC extension:

Having a consistent (and growing) demand that does not drop off a cliff come 1/1/17 is a good thing for everyone in the industry. Every installer I know was dreading the crunch that was going to come, and supply bottlenecks were likely to be a problem for both installers and manufacturers.

Now we don’t have to worry about any of that and can focus on growing our businesses in a rational manner.

SEDG has had margin issues in the past due to supply crunches, where they ended up having to use air freight, so lack of crunch is probably good for them.

On upstart competition:

Both Enphase and Solar Edge are making products that are viewed in the installer community as highly reliable (though we come down on the side of Enphase as it alone avoids the single point of failure).

New entrants into the industry must demonstrate similar levels of reliability to get installers to switch. Fly-by-nighters might jump on a new manufacturer to save a few cents/Watt - but if the products fail, no reputable installer will make that switch. This provides the proven players with more margin stability than you would see in the module industry.



Thanks, Neil. That was an interesting article offering various and useful points of view (including the comments).

This is not a sector suited for the squeamish investor.

Tell me about it. I had bought ENPH at around $5 after I had them installed with my solar system a few years back. Loved the technology and knew they had the first mover advantage. Watched them go up to around $15, and have ridden them back down to $2.

One of my recent lessons I hopefully will learn from, watch more closely how competitors are doing.

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