Enphase expects weak Q4 as it cuts prices

Shares of Enphase Energy crashed Wednesday morning, falling more than 40%, after the US company said its revenue and gross margin will shrink in the fourth quarter amid heightening competition in the microinverter market.

The company’s fourth-quarter guidance – revenue of $62m-$70m and a gross margin of 23-26% – spooked investors. In the fourth quarter of 2014 the Petaluma, California-based company notched revenue of $105.2m and a gross margin of 33.3%.

Enphase shares fell 40% in early trading Wednesday, to about $2.25, a more than three-year low. The shares were worth $14.21 at the beginning of 2015.

In the third quarter, Enphase’s revenue rose 4% to $102.9m, while shipments increased 28% to 219MW(ac). Net income, however, fell 23% to $624,000.

Enphase is struggling to sell its products in the US, and it is getting less money for the product it does sell. Four weeks in, “the fourth quarter … is more challenging than expected”, says chief executive Paul Nahi.

Officials said Enphase has “several weeks” worth of excess inventory to work through in its distribution channel, and acknowledged the company faces significant pricing pressure in the US – with its average selling price down 18% in the third quarter on a per-Watt basis.

Enphase is believed by analysts to be losing share to rival SolarEdge Technologies in the US microinverter market.

Microinverters are popular in the US residential solar market because they help to maximize the output of a PV system built in a constrained space. Unlike central inverters, which tie together a series of modules, microinverters are integrated with an individual module, allowing for greater system efficiencies and reliability, albeit at greater upfront cost.

As it looks to counter its rivals, Enphase has adopted an “aggressive pricing strategy”, Nahi says. The company intends to reveal a long-term cost-reduction roadmap later this month.

“We are confident in our ability to drive our product costs down significantly over the next 24 months, improving our competitive position,” Nahi says.

Aside from competing microinverter makers like SolarEdge, Enphase faces growing competition from traditional inverter giants like Germany’s SMA Solar, which are diversifying into microinverters.