SolarEdge Blames Market Dynamics For 2023 Financials

• SolarEdge says its business continued to be impacted by a weaker market environment 
• High inventory levels in the channels ensured its shipments during Q4/2023 slowed down 
• It expects the inventory to normalize by the year-end, hence offering a conservative Q1/2024 guidance 

Inventory buildup due to higher interest rates and lower power prices negatively impacted SolarEdge Technologies' business as it exited 2023 with GAAP revenues of $3 billion, lower than its 2022 numbers. With inventory levels expected to normalize in Q4/2024, the management has provided a very conservative Q1/2024 guidance vis-à-vis previous year. 

Late last year, the management had said that it expects the inventory to clear up gradually within the next 2 or 3 quarters after reporting a GAAP net loss of $61.2 million in Q3/2023. Earlier this year, it followed up with an announcement of job cuts to reduce costs and deal with market dynamics (see SolarEdge Announces Restructuring Plan To Cut Costs). 

SolarEdge CEO Zvi Lando said its shipments slowed in Q4/2023 due to a weaker market with reduced demand and high inventory in the channel during H2/2023. During a call with analysts post the financial results announcement, Lando said the company continues to face challenges from the general market dynamics and continued high product availability in the channels. 

It 'undershipped' end market demand by close to $200 million with 2.2 million power optimizers, 74,000 inverters and 133 MWh of batteries during the reporting quarter. This is considerably low compared with the previous quarter, over and above the seasonal decline in Europe. 

The management expects demand to improve in the European residential market post the winter season, especially in Germany. In SolarEdge's other big market, the US, it says things are relatively unchanged from H2/2023 with California's NEM 3.0 slowing down demand. Lower electricity prices elsewhere in the country pose another challenge. 

However, it saw a sequential jump of 22% in the commercial sell-through in the US, calling it a record high for the company. 

Financials 

The annual revenues of $3 billion declined by 4%. It includes $2.8 billion from the solar PV segment that declined by 4% year-on-year (YOY). 

In Q4/2024, its revenues of $316 million reflected a sequential drop of 56% and an annual decline of 65%. Business in the solar segment dropped 58% and 66% respectively to $282.4 million. 

Gross margin was -17.9%, while GAAP net loss expanded to -$162.4 million from -$61.2 million in the previous quarter. 

Guidance 

SolarEdge's Q1/2024 guidance is really low, hinting at the challenging market conditions to continue. Lando confirmed the company will undership in this quarter as well by approximately $250 million to $300 million. 

It expects to lock in $175 million to $215 million in Q1/2024 revenues with non-GAAP gross margin of a negative 3% to a positive 1%. The solar business division is expected to bring in $160 million to $200 million along with a gross margin of 1% to 5%.  

Lando says, "Nevertheless, we believe we are well positioned for the next growth cycle in our industry due to our expanding product portfolio as well as the operational and cost reduction measures we have taken."  

The management expects the underlying demand to improve over the next 2 subsequent quarters. 

A year ago, SolarEdge had reported record GAAP revenues in Q1/2023 with $943.9 million, including $908.5 million from the solar segment (see SolarEdge Reports Record Q1/2023 Revenues).