Tuesday, January 22, 2013

Power One ( Nasdaq - PWER ) -- Malaise de Europe

Power One (PWER $4.00) appears on track to report lower than expected Q4 results.  The company is the second largest producer of string converters that turn DC power generated by solar panels into AC electricity.  Demand declined dramatically in Q4 following the elimination of key subsidies in Italy and Germany.  Other European nations have imposed reductions, as well.  U.S. business remains good.  Accelerated depreciation rules, federal tax credits, and a range of state and local programs have kept the residential and light commercial segments expanding at a fast pace.  But large installations, which account for half the American market, have slowed due to the recession and more efficient energy use.  Financial performance is likely to fall short of previous targets in the December quarter.  Sluggish results could persist well into 2013 as European declines erase whatever upturn Power One benefits from in the U.S.  Asian solar installations are on the rise.  But those projects are tough to crack due to protectionist schemes.

The long term outlook is uncertain.  U.S. subsidies are scheduled to end in 2016.  Tariff wars are cropping up, making it difficult to serve the entire world solar market.  Europe remains depressed, making it unlikely new government subsidies will emerge any time soon.  On the plus side inverter production costs keep coming down.  New products are in the pipeline.  And the cost of solar systems in general remains on a favorable slope, laying the groundwork for broad based adoption over the long haul.

2013 is likely to be a transition year for Power One.  The company is well financed, though.  And its new product pipeline promises to reinforce Power One's competitive position.  Earnings could rebound in 2014, perhaps bolstered by new U.S. government support.  Natural gas remains a huge challenge to the industry.  That lower cost and less polluting fossil fuel has displaced home heating oil and coal over the past five years, lowering co-2 emissions in the United States by 10% over that time.  The lack of electricity demand growth presents another obstacle.  More efficient appliances and lighting have helped keep electricity demand flat in the U.S. despite fast growth in the number of electrical devices.  If total electricity output doesn't improve solar probably will expand less rapidly than predicted.

Long term appreciation is possible in spite of the headwinds.  If the world economy returns to normal and trade obstacles are not created, Power One could rebuild earnings to the $.50-$1.00 a share range within 2-3 years.

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1 comment:

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