Power-One Price Falls After Sale Rumor

Power-One's (PWER $6.00) stock experienced volatile trading Thursday amid rumors that the solar technology developer is seeking a buyer for the company. The stock price climbed to $7.12 at 11:05 this morning, roughly the same time this was posted by Paul Murphy on the Financial Times' Alphaville blog. Thirty-three minutes later, the price had sunk to $5.84. It eventually recovered to $6.03 by the market's close, down $.48 from an open at $6.51. The price had been rising steadily on buyout speculation. But Murphy's report cast doubt on investors that a sale was realistic.

The company still appears on track to post good third-quarter results. Guidance suggests $270 million in revenues, though gross margins could slightly dip. We've given our earnings estimates a slight bump: we now see $1 billion in revenue for 2012, up from our previous estimate of $980 million. Our earnings per share estimate is now $.63, from $.60. Other analysts are predicting revenues slightly above our outlook, but it really depends how fourth quarter sales are impacted by European regulations. The United States' tariff on Chinese solar cells could also lessen solar demand stateside, although those tariffs have yet to be finalized. It is also concerning that the U.S. may decide to apply the tariffs retroactively.

Power-One is releasing its Aurora Ultra inverter next week, which at 1.4 MW boasts the highest capacity in the solar market. The Ultra is designed for utility-size installations. In addition to the industry-leading generating power, the inverter requires fewer wire hookups and shouldn't take as long to test as other inverters. The company is also continuing its efforts to penetrate Asia. It expects sales to India to double in 2013. Stiff competition is hindering expansion in China.

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Enphase (Nasdaq - ENPH) -- Q2 Earnings Produce Skepticism

Enphase (ENPH $4.90) posted second quarter results that indicate the company is moving along toward profitability. Revenues of $55.7 million were up 88% over $20.6 million in the second quarter of 2011, and were up 31% sequentially, from $42.6 million. Revenues for the first half of 2012 totaled $98.3 million, up 106% over $47.7 million in the same period in 2011. Loss per share was $.23. Gross margins improved to 24.4% for the quarter, up from 21.8% in Q1. Most of the increase is attributable to Enphase’s ongoing cost reductions.

Despite the improvements, investors look wary. The stock price fell from $6.70 to $4.90 the day after earnings were reported. Enphase suggested guidance for the third quarter that looks soft. Couple this with the company’s announcement that CFO Sanjeev Kumar is stepping down at the end of the year, and there is reason for some skepticism. 

The company’s market-leading microinverters continue to win favor among solar installers. The majority of the sales were made within the U.S., but Enphase is seeing increased interest in Europe. France and the Benelux region were the primary buyers, with a few sales to Italy. However, the looming regulatory adjustments in Europe will likely keep sales there scarce until the picture becomes clearer. Enphase recently opened an office in London though, and the company sees a similarity between European interest for the microinverters and the way American companies reacted when the product was first introduced, which is a good sign. An even better sign: Enphase’s microinverters were a hit at the Intersolar Europe trade show in Germany this past June. 

Sales to Canada dwindled as a result of regulations. In 2011, Canada represented 11% of sales; this past quarter the country accounted for only “low single digits.” The Ontario Power Authority is currently accepting applications for its “microFIT 2.0” program, which will award 50 MW of tariff savings to small installations (under 500 kW or less). The feed-in-tariff program for larger, commercial level installations has yet to be announced. Enphase believes it should see increased sales once the OPA resumes the tariffs. The U.S., where tariff programs and government assistance are still strong, remains Enphase’s primary focus in the short term.

Enphase announced several new offerings that will improve system integration. The Array Gun syncs up with the company’s Enlighten software to help installers and owners easily manage solar arrays. The Bluetooth-enabled device scans the barcodes on microinverters, sending the serial number and position in the array to the software. Users will know which microinverter is where, and how each is performing. The Enlighten software has also been upgraded. Energy collection output readings are now more precise both for individual panels and for the system as a whole. Also, the program records historical data for comparative use. 

Third quarter revenue might not reach its potential due to the downturns in Europe and Canada. Enphase suggests Q3 revenue between $59 million and $63 million. For the year, we think a loss per share of $1.10 is still reasonable (Note: $5.01 loss in Q1 used pre-IPO share count). 

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Advanced Energy (Nasdaq - AEIS) -- Straying From Semiconductors

Advanced Energy, Inc. (Nasdaq: AEIS $12.00) announced second quarter 2012 results that were in line with our expectations. Revenues of $115.7 million were up 9.4% sequentially, from $105.7, but dipped 16.2% year-to-year ($138.2 million). Gross margins should improve from this point, though, as the company completed a series of cost cutting measures to eliminate roughly $30 million of operating expenses annually. Advanced Energy hopes to slash another $15 million to $20 million in manufacturing costs over the next year.

The company is de-emphasizing its semiconductor segment. Thin films accounted for 70% of sales in the second quarter of 2011; in 2012, thin films comprised 56% of sales in the quarter. Thin film sales were down 33% from the previous year, from $97,331 in 2011 to $64,843 in 2012. Non-semiconductor thin film sales (architectural glass, displays) advanced. Thin film revenues were up 7% sequentially from $60.4 million in the first quarter of 2012. They were up 19% from $54.4 million in Q4 2011. Semiconductor sales suffered due to an oversaturated market. The segment will still be important, but AE thinks more opportunities exist in its solar inverters and non-semi thin films.

Solar sales improved 24% year-to-year. Revenues totaled $50.8 million for the second quarter, compared to $40.8 the year before. It was also a sequential improvement of 12% over last quarter ($45.4 million). The solar segment should continue to perform well the rest of the year, as the third and fourth quarters tend to be the strongest. Advanced Energy is trying to level out the cyclicality in its sales, but that might prove tough considering solar tends to slow in the first quarter, when winter weather limits installations in the United States and Canada, where the company primarily operates.

The company seems more concerned with reducing costs than it does with increasing sales. This is kind of concerning given the stiff competition AE faces in both thin films and solar. Their products are praised by their customers, but the company cannot rest on its meager laurels in this environment. The non-semi thin films are performing adequately, and the solar backlog is the largest in company history. One wonders if the cost reductions in manufacturing will affect the quality of the products. Obviously, that remains to be seen. The company’s backlog could be larger, but AE only goes “for the business we want to go for,” according to CEO Garry Rogerson. Other companies have begun introducing microinverters, which are generating lots of buzz and claim to be more efficient than central inverters. Advanced Energy is content (for now) to continue with central inverters. While they may be of the highest quality, it won’t matter if there’s better technology out there.

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Power-One (Nasdaq: PWER) Posts Strong Q2 Results

Power-One (Nasdaq: PWER $4.90) reported second quarter results that exceeded expectations. The company, a leading provider of inverters for photovoltaic arrays, logged revenues of $322 million, up 24% over the same period last year ($260.3 million). Renewable Energy Solutions (“RE”) accounted for $255 million; Power Solutions made up the remaining $67 million.

The majority of sales came in Germany and Italy, where solar installers are working to get as many arrays finished as possible before current feed-in-tariffs are altered or eliminated. Sales in the two countries should remain strong in July and August, but are expected to decline once the new policies take effect in September. Europe accounted for 91% of sales in the second quarter, with 5% in North America and 4% in Asia Pacific (China, India, Australia). Overall, Power-One shipped 1,263 megawatts of inverters in Q2, up 88% sequentially and 76% over last year. 

North American business was hindered by production and distribution foul-ups. The company believes it could have shipped 20% more units in North America had these interruptions not occurred. While customers were understandably upset about the delays (which CEO Richard Thompson called “embarrassing”), these customers expressed satisfaction once their inverters were received. Thompson claims the issues have been fixed, and North American sales will increase in the third and fourth quarters. 

The company is working on a line of microinverters to compete with companies such as Enphase (ENPH). The microinverters, individually attached to each PV panel, compared to a central inverter, are still in beta testing. They could be out as early as the fourth quarter of this year, though. Power-One claims the microinverters will boast an industry-leading 250-300 kW capacity. 

Power-One is still trying to penetrate Japan, but it’s a year or two away. Certification is underway and shouldn’t present problems. Once that’s done, the company will need to find a suitable partner to help generate interest in Japan, traditionally a relationship market. Power-One is currently in talks with several large corporations in Japan, though details are scarce. Sales in Australia are satisfactory, but Chinese shipments have been lower than expected, and financing issues have hindered business in India. Revenues are expected to pick up in China and India, but the company is focusing on Japan for the future. 

The company projected revenues between $240 and $260 million for the third quarter. The main reason for the sequential decline is the expected slowdown in Europe during September. It should go without saying, but economic concerns in Europe could further reduce sales. Regardless, Power-One’s strong second quarter led us to slightly alter our outlook for 2012. If the problems in North America are fixed, those sales should pick up at least some of the slack. We’ve bumped our earnings estimate for 2012 to $.60 per share. The company is anticipating a drastic reduction in sales to Italy in 2013, and reduced revenue from Europe in general. Still, an EPS of $.65 for 2013 is realistic. Power-One’s products are popular, which gives them an advantage if the industry is further impacted by outside factors. 

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Sevcon ( Nasdaq - SEV ) -- On-Road Electric Vehicles Show Spark

( Note - Previous reports about Sevcon can be found in the International Stocks section. )

Sevcon (SEV $6.00) reported Q3 (June) results that were less than our expectation.  Fully taxed earnings declined 75% to $.01 a share.  The company is based in the United Kingdom, where the standard rate is 23%.  Sevcon operates around the world, though, so its official tax rate fluctuates depending on the specific locations where it conducts business.  It also claimed some R&D credits in the latest period.  After adding all the benefits back in Sevcon reported GAAP income of $.05 a share for the June quarter.  Sales rose 8% to $8.88 million. 

Sevcon is a leading provider of computerized controls that manage the engine performance of electric vehicles.  The company had a gangbuster business going prior to the 2008 Financial Crisis, focusing on industrial and off-road vehicles.  As gasoline prices blew past $100 a barrel mining companies, forklift operators, and a wide range of other work machine users switched to electricity to save on fuel costs.  In some cases they received government subsidies or other benefits because they were fighting the good fight against global warming.  That business fell of the cliff in 2008 (see financial table below).  Sevcon has a fantastic and hard working management team, which didn't panic.  The company diversified into the on-road (motorcycles, scooters, and city cars) and ATV markets.  Recently, it signed a deal with a Chinese truck manufacturer, as well. 

Those diversification efforts restored sales growth.  The legacy industrial segment returned to life over the past two years, as well, providing further impetus.  Sevcon's newer consumer oriented markets continued to gain momentum in the June quarter.  But the industrial segment experienced some backsliding as a result of the poor worldwide economy.  Sevcon added several engineers in the quarter, boosting expenses.  The shortfall in sales combined with the higher expense level crimped income.

Sevcon is dependent on the industry's performance.  It might be counter-intuitive but history suggests demand for electric vehicles is strongest when the economy thrives.  People have money to experiment with.  The tests are successful.  They expand.  Strong economies also make it easier for governments to support emerging technologies.  The deer in the headlights approach to economics now being pursued in Europe and the United States is likely to provide a significant headwind, until it changes.  On the plus side, electric vehicle price performance is continuing to improve at a fast pace.  So even under recessionary conditions the industry is likely to keep growing.

Sevcon is a high potential speculation.  The company's market capitalization is $20 million.  Sales are approximately double that.  Margins could improve substantially if volume improves.  The age old formula of rising sales and expanding margins could drive the value of these shares substantially higher over the next 2-3 years.  We projects sales could reach $75 million to provide earnings of $1.20 a share, after allowing for the sale of an additional 1.25 million shares to support growth.  If financial results reach that level, moreover, they're probably going to keep going higher, perhaps at an explosive pace.

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Real Goods Solar (RSOL) -- Delivering the Goods

Real Goods Solar_­ (Nasdaq: RSOL $1.15) is a leader in solar energy engineering, procurement and construction (“EPC”). The company designs and installs residential and commercial solar arrays, using photovoltaic equipment from top manufacturers. This equipment is purchased directly from the manufacturers, unlike many of Real Goods’ competitors, which buy from third-party dealers at a higher cost. In addition, the company offers several other services, including obtaining permits, grid connection, and helping customers to find financing for a project.

The company’s residential and commercial installations normally generate between three kilowatts (“kW”) and one megawatt (“MW”) of electricity. If bought outright, a residential array costs between $10,000 and $30,000. It’s a substantial investment up front, but the system will generate power for 10%-30% less than what fossil fuel utilities charge. Certain customers also qualify for financing or system loans to ease the cost of installation.

Sales are hampered by the struggling economy. There is a lot of interest in solar energy, but potential customers are reluctant to carry through with a solar project because of economic uncertainty. Demand for solar looks like it should increase in the next few years, though. Half of United States power plants are 30 years or older, and many plants run at or near capacity during peak hours. The increased demand and aging infrastructure translate to higher costs for consumers. Utility companies will have to build new plants to reach the rising demand, which could further drive up prices. Coal reserves are estimated to last about another 100 years, but higher demand will burn resources more quickly. Also, coal may be the cheapest fossil fuel, but it’s also the worst for the environment. Real Goods and other solar installers can’t overlook natural gas, though, which is cheaper than solar and much cleaner than coal. 

Real Goods installs only in the United States, primarily in California and New Jersey, with the remainder in other Northeast states and Colorado. Sales are achieved through the company’s reputation and by word-of-mouth referrals from previous customers. Once a potential customer is identified, company sales representatives engage in thorough telephone interviews to decide the optimum setup for a customer. Customers range from 30 to 65 years old, and tend to be just as interested in the environmental benefits of solar power as they are in cost reduction. Once a contract is signed, the process takes 60 to 90 days to complete, with installation taking only two or three days. The rest of the time is spent obtaining buildings permits and have building sites inspected. 

Like most solar companies, Real Goods’ sales fluctuate seasonally. The first quarter is the slowest, because the systems can’t be installed in winter or other unfavorable weather conditions. Real Goods’ highest sales historically have come in quarters three and four. Revenue grew 70% from 2009 ($64.3 million) to 2011 ($109.3 million), but earnings haven’t followed suit. Shares earned $.08 in 2010, but the company has posted losses every other year. We estimate shares will lose $.05 in 2012, despite a projected 19% revenue gain to $130 million for the year. However, an EPS in the range of $.10 and revenues around $180 million seems reasonable for 2013. Tax credits in the United States were extended through 2016, and there is no longer a $2,000 credit cap. A handful of states have legislation that makes solar even more appealing, which could lead to other states adopting similar strategies and giving the company more potential customers. On June 25, Real Goods announced a deal with Canadian Solar (Nasdaq: CSIQ) for the former to use up to 40 MW worth of the latter’s PV panels in installations. Real Goods also buys panels from Kyocera, Sharp, SunTech, and SunPower. Inverters are purchased from Enphase, SMA and others.

The company’s main competition comes from smaller, privately-held installation companies. Solar City is believed to be the largest.  Others include Sungevity, REC Solar, Verengo, and Namaste Solar Electric. Some of the smaller companies can charge customers less, but Real Goods has a strong reputation and 30 years’ experience in solar installations. 

Real Goods is located in Louisville, Colorado.

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Enphase Energy (ENPH) -- Hoping Good Things Come From Small Package

Enphase Energy, Inc. (Nasdaq: ENPH $7.00) is the leading provider of microinverters for solar arrays. Unlike traditional central inverters, which collect energy from all of the panels in an array, the microinverters are attached individually to each panel. The microinverters monitor panel performance more closely and quickly than central inverters. It can take up to a month to detect issues on some central inverters. Traditional inverters also require more complex installations, and, damaged inverters not only are expensive to fix, but also can start fires due to the high voltage passing through them. 

Enphase has shipped 1.7 million units since the microinverters launched in 2008. The majority of sales have been made to the U.S., where the product is installed in some capacity in all 50 states. Canada makes up roughly 12% of sales, and Enphase’s products reached Europe in the fourth quarter 2011. The company primarily sells to distributors, who resell the microinverters to solar installation companies. However, some sales are made directly to installers; sales to OEMs and strategic partners make up the remainder.  

Revenues have soared 640% from 2009 ($20.2 million) to 2011 ($149.5 million). The increased revenues have failed to translate into earnings however, though the company has inched closer to profitability. But Enphase likely won’t turn a profit until 2013 at the earliest. The company was about $14 million in debt, with $5,437,000 short term and $8,619,000 long term. April’s IPO raised $60 million to improve the company’s financial condition.

  

Enphase has no direct competition, which should help it survive in the solar market. North American companies are beginning to embrace the technology, and the company’s penetration into Europe should yield more opportunities, even as subsidies are diminishing and disappearing. The microinverters can capture and utilize solar power more efficiently than central inverters; installing the microinverters could soften the blow of decreased government assistance. Solar energy would become viable without government assistance if prices dropped below $2 per watt peak (Wp). As of March, average prices were $2.29/Wp in the U.S., and $2.71 (€2.17)/Wp in Europe.

The company does have stiff competition from central inverter manufacturers though, so treading water in 2012 will not be easy. Central inverters have been in use for 20 years, and that technology also continues to improve. The microinverters can cost more than central inverters, but are cheaper to install, which could funnel more business their way as installers attempt to limit expenses. Each microinverter retails between $145-$200. A residential installation typically uses 5-50 inverters ($725-$10,000); a commercial operation installs 50-500 ($7,250-$100,000). The high ends of these costs would be substantially higher than central inverters, but the microinverters promise better yield and longer functionality which would make up the costs over the long term. Also, residential installation could be significantly cheaper than a central inverter. A customer could get 10 high quality microinverters for about half the price of a top of the line central inverter, and about the same price as the lowest cost central inverters. Enphase’s inverters also come with a 25 year warranty, compared to 5-10 years for central inverters. Solar arrays tend to last about 30 years before replacement is necessary.

It doesn’t appear that the stock price will change much in 2012. Despite growing revenues, margins are negative, and share losses, while expected to be less severe than in the two past years, are still losses. The high revenues come with a high cost, leaving no room for profit. Either costs must decline in total or in relation to revenue for Enphase to post earnings. Operating expenses in first quarter 2012 were 44% of revenues ($18,587). The gross margin of 22% was the second highest quarter in Enphase history.  For the full year, we project revenues of $210 million. Predicting cost of revenues of 78% and operating expenses of 44%, net loss will total -$46.2 million. In this scenario, loss per share would be $0.97 for the year, a marked improvement over losses of $15.66 per share in 2011. Revenues look ready to make another big leap in 2013, and we estimate Enphase will post earnings in 2013 of around $0.05 per share.

Enphase is located in Petaluma, CA.

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Power-One (Nasdaq - PWER) -- Trouble in Europe Looms

Power-One, Inc. (Nasdaq: PWER $4.00) is a leading designer and manufacturer of power supply solutions, including photovoltaic inverters used to gather and distribute renewable energy from solar and wind farms. The company also offers power solutions that manage traditional energy sources, allowing for higher energy conversion through what Power-One calls “Digital Power Management.” This technology provides greater power output from electronics like computers, while minimizing consumption during downtime. Digital Power Management also protects telecommunications technology from grid interruptions; these interruptions are typically short in duration, but can lead to hours in downtime as servers and routers reboot. 

Power-One is second in the world in inverter manufacture and distribution. Quickly rising above stiff competition in a crowded market (the company began offering inverters in 2007) gives the company a leg up during what’s begun as a slow year for renewable energy industries. Lesser companies could be weeded out through acquisitions or failures during 2012, giving Power-One more room to expand sales. 

First quarter 2012 earnings were down from the previous year, but that was the case with many power conversion companies. Higher than expected inverter sales in Europe during the first quarter meant results didn’t suffer as much as predicted. Still, earnings per share dropped to $0.06 from $0.32 the year before, an 81% fall. Revenues fell 7% from the year prior, to $225.7 million from $244.5 million. It was Power-One’s worst sales quarter since June 2010 ($214.5 million). 

Inverters accounted for 66% of total sales ($148.7 million) during the first quarter, with an operating margin of 12.5%. The rest was made up by power solutions, taking in $77.0 million for the quarter at a 9% margin.

Power-One isn’t subject to any risks beyond those hampering its competitors. Economic turmoil in Europe could lead to an industry-wide downturn. Governments are beginning to reconsider subsidies and feed-in tariffs for renewable energy. Some, like Germany and the U.K. have reduced them. Spain has already cut all subsidies, at least temporarily, to help control debt. If more of these are scaled back or eliminated, investors would be saddled with a higher price tag for installing and operating a solar or wind farm, and likely would be less inclined to do so. Inverter technology continues to improve, so reduced government assistance wouldn’t spell doom, but it would further inhibit renewable energy. 

The company’s second-quarter guidance suggests revenues should increase to between $240 million and $260 million. Power-One believes demand will increase in the short term as companies attempt to take advantage of government subsidies and feed-in tariffs before they are scaled back, primarily in Europe. Unless something drastic happens to improve these economies, the company could see reduced European sales beyond Q2 2012. Shipments to the United States and Asia, where government subsidies are increasing or holding steady, will have to pick up the slack.

The stock price has rebounded since falling to $3.68 on May 8. But it was trading at $9.00 a year ago, with more shares in circulation. The company authorized a stock repurchase plan of up to 10 million shares in September 2010; so far it has bought back 4.6 million. The plan expires September 21.

Like its competition, Power-One is in a tough spot. The renewable energy industry relies on government support to make it competitive with fossil fuels. Cutbacks on subsidies and tariffs in Europe seem inevitable as the economic mess is sorted out. It’s unclear how long it will take to fix, and if government support for renewable energy will be the same once that happens. The company will also have to keep up with the rapidly improving technology if it wants to remain the world’s second leading provider of inverters. 

Power-One is located in Camarillo, CA.  

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Walmart Announces Massachusetts Solar Plan

Retail juggernaut Wal-Mart disclosed plans today to outfit half of its Massachusetts stores with solar power. Twenty-seven stores would have solar panels and inverters installed, capable of generating 10.5 megawatts of electricity a year. Massachusetts aims to have a generating capacity of 250 megawatts of solar energy by 2017.

Wal-Mart's solar systems will be owned and operated by Greenskies Renewable Energy (Conn.); the company will sell generated solar power to Wal-Mart at an undisclosed rate, though it figures to be comparable, if not cheaper, than grid-based utilities. Wal-Mart says each store will generate enough power to cover 10-15% of its energy requirement. Similar deployments in California generate 20-30% of each store's needs. Each store in Massachusetts should produce about 400 kilowatts per year. The installation price is also undisclosed, as engineering planning has yet to be completed and each project still must obtain permits. This shouldn't be too hard, though, as the state strives to meet its 2017 goal. One-hundred five megawatts have already been installed in Massachusetts.

This article from the Boston Globe points out that Wal-Mart will generate enough energy to power 2,600 homes, which is all well and good, except that the energy won't be used to power homes. Wal-Mart's goal is to cut down on the cost of electricity, and by doing so cutting down on carbon emissions. It's hard to believe that the big-box king would have made the move were in not saving a significant amount of money as well.

The move does bode well for solar power in the Northeast. Wal-Mart originally went solar in sun-soaked California and Arizona. Installations in Massachusetts and New Jersey show solar can be viable even in less sunny areas, and, if Wal-Mart's solar plans succeed, will surely lead others to follow. More business would definitely be a welcome development for the hundreds upon hundreds of solar companies hunting for customers.

Satcon ( Nasdaq - SATC ) -- Hanging Tough

Satcon (SATC - 40 cents) reported dismal Q1 financial results.  But the company did book a considerable volume of new orders.  That trend has continued so far in Q2, moreover.  It also transitioned its manufacturing operations to two highly productive third party producers, ensuring that gross margins will be sustained at realistic levels no matter what sales level the company is operating at.  Engineering improvements are being achieved on a regular basis, which could enhance those margins.  Satcon lost $.08 a share in the March quarter on sales of $24.3 million.  But it signed new orders worth $45.6 million.  Most of that was for large systems aimed at utility grade projects.  But Satcon also landed a sizable amount of incoming business from rooftop projects, which probably will drive the market over the next few years.  Those designs are more economical than the ground based utility installations, at least for now.  Utilities are building systems to comply with regulations and to take advantage of expiring subsidies.  That business will continue, because the regulations aren't going anywhere.  The rooftop market is beginning to stand on its own without subsidies.  And that trend is likely to continue as price performance improvements continue to be made.  Rooftop systems have a natural advantage because they don't have to buy any land.

Satcon's financial condition is precarious.  These shares are unlikely to advance until investors become confident that cash flow will turn positive and stay that way.  Right now it's a value stock.  But the upturn in orders reduces the potential for bankruptcy.  Downside risk is modest at the stock's current level. 

The political variables are upside down.  Most people think Barack Obama is great for green energy stocks.  But look at them.  On average they are down 75%-90% over the last two years, with many on the edge of failure.  Chances are Mitt Romney, if he is elected president, will have a far more positive impact.  He's a vulture capitalist by nature.  And green energy has tremendous potential.  If he can make it happen it would be tremendous for him politically.  Plus he'd get a kick out of it.  That's what he does.

Right now Satcon remains a high risk proposition.  It has a negative net worth, it's losing money, and the political landscape is negative.  So it might be time to buy.  If you can afford to lose your entire investment these shares are a realistic speculation.  In 2-3 years the stock could appreciate by 2,000% if things pan out.

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Advanced Energy (Nasdaq - AEIS) -- Transforming Solar Energy

Advanced Energy Industries (Nasdaq: AEIS $13.00) is a leading provider of power conversion technologies. The company manufactures photovoltaic (“PV”) inverters, used to change the direct current (“DC”) power collected by solar arrays into usable alternating current (“AC”) energy. The inverters are deployed for both residential and industrial settings. Advanced Energy also produces thin film deposition power converters primarily used by original equipment manufacturers of semiconductors, flat panel displays and architectural glass. These thin film converters regulate raw energy to provide OEMs with efficient, predictable output for increased precision in their production. The company’s thermal instrumentation line is used to control temperatures during the manufacture of semiconductors and solar panels to optimize yield and performance.

Advanced Energy continues to report strong earnings even with declining government support of solar energy. Year-end 2011 revenue of $516.8 million was up 12.4% from $459.4 million the year before; sales increased 219% from $161.8 million in 2009. The reduction of solar feed-in tariffs (subsidies) in Czech Republic, Germany and Italy could decrease the profitability of investing in those countries. Most of the damage is done to large- and medium-scale installations, though, so Advanced Energy could find a footing in those regions with smaller projects, like rooftop solar farms. The tariff cuts in Germany will hurt the most this year. But supply was beginning to outgrow demand, so smaller companies will begin to fail, or merge with larger companies this year. This could thin the market and provide Advanced Energy with more opportunities in the next year or two. That is, if Advanced Energy can persist in what figures to be a year of flat or slightly declined earnings.

Other countries are now beginning to offer or increase subsidies. Advanced Energy’s inverters were chosen for six projects in Canada by Moose Power. The Ontario Power Authority will purchase electricity at a fixed rate for 20 years. Success in this partnership could lead to further opportunities. Subsidies have also led to more sales in China, India, the United Kingdom and sections of the United States. The company is adding salesmen in the U.S.

Thin film sales protected Advanced Energy in Q1, when solar revenues are typically down. Solar sales dropped 22% sequentially to $45.4 million in first quarter 2012, since winter weather restricts system installation. But quarterly revenues were up 20.9% year-to-year, from $37.6 million in 2010, driven by North American sales. The thin film segment grew 11% sequentially in Q1 to $60.4 million from $54.4 million. However, thin film sales retreated 39.7% from $100.1 million the year prior. Thin film margins slipped owing to a one-time purchase from a supplier which discontinued production on several parts; Advanced Energy made the purchase to bolster inventory. The company has repurchased 4.1 million shares ($44 million) since November, and plans to buy back more through 2012. 

Solar manufacturing costs should decrease as the company shifts production to a plant in Shenzhen, China. Inverters were assembled in plants in Washington and Oregon. The new facility is also expected to reduce shipping expenses. The trade-off is the quality of goods of the inverters produced in China. Asian suppliers now provide the bulk of materials used in the inverters, and sales could suffer if customers decide the products are not up to snuff. Cheaper parts might also lead to malfunctions, which would lead to warranty claims against Advanced Energy. So, though manufacturing costs may drop, maintenance expenses could nullify the savings. Operations in China could also be affected by unforeseen changes in economic and/or political policy. 

There are many risks. But the reward could be substantial if solar energy begins to seriously compete with traditional energy sources (oil, coal, etc.). For now, Advanced Energy’s inverters are popular, and the company should stay afloat this year because of the thin film unit. The outlook is brighter beyond this year, but it could be a hairy nine months. 

Advanced Energy is based in Fort Collins, CO.

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MIT Clean Energy Show

We attended MIT's Clean Energy Prize show on Monday, April 30th.  It was a blast.  The guy who won, we figured he had no chance.  Actually he'd already been told beforehand that his company had netted at least a $20,000 prize.  So he was in a great mood, dealing with the hoy peloi the same way we would have, toying with them and having fun.  That company is called Radiator Labs.  It operates in the green energy sweet spot -- conservation.  The guy went to Columbia University in New York City, lived in an old dorm, and  was fed up with the heating system.  Steam.  Tremendous solution.  Wireless connections to every radiator in the building.  Plus a pile of software behind the scene.  Could save tons of money.  He says New York City wastes $445 million a year on steam.  That sounds low.

There were three categories to the competition.  Conservation, obviously.  Renewables, which basically focus on delivering low cost solutions to Third World customers.  Our favorite was Solar Tri-Gen, which figured out a way to power rural villages in Africa using a simple solar technology that the villagers could manufacture and repair themselves.  (They lost that sectional to a bunch of Indians who rented out a solar generator to shopkeepers.)  And Deployment, which included SolidEnergy, probably the best company in the show.  SolidEnergy could not win the grand prize because they won last month in a different competition.  But the start-up took home $20,000 anyway as a category champ.  SolidEnergy says it has a new battery that is safer than existing electric car designs, expands driving range by 300%, and lowers cost.  Radiator Labs won this show's $200,000 grand prize. 

The biggest downer was the old hippie they brought out as the principal speaker.  That was Bill Joy, who invented Java and bunch of other things when he was younger.  Now he's a vulture capitalist at Kleiner Perkins in California focusing on green energy.  Right off the bat he put down one of MIT's current initiatives, which we totally agree with, to make natural gas a bridge to a green energy future.  MIT's theory is that natural gas delivers 50% fewer carbon emissions than coal and oil, it's cheaper than coal and oil, and that by rolling it out now the world could cut CO-2 substantially and continue to operate.  Bill Joy wants more government subsidies of uneconomic technologies like biomass and wind.  Fortunately for us it looks like the MIT approach may prevail.  CO-2 emissions should slow in the short run by converting to natural gas.  Then  the killer apps will come on line when they're ready.

Solar wasn't a big factor at this show.  That's because it's 1-2 years away from grid parity with existing technology, and yesterday's start-ups are knocking at the door with a host of improvements.  That will be the first killer app.  Natural gas prices are so low right now that solar's day in the sun has been pushed out again.  New generating capacity, they're using natural gas instead of solar or coal.  But natural gas costs $4.00 per mcf to produce, and it's selling for $2.25 today due to oversupply conditions.  That price will revert to $4.00 before long as supply and demand return to equilibrium.  When that happens solar should be golden.