Power-One rides solar to sales growth
In the space of a month, Power-One has opened two factories in North America and become the second-largest maker of inverters for solar panels in the world.
The Camarillo firm opened factories in Ontario, Canada, and Phoenix. Canadian production has already started, and production lines in Arizona are set to fire up in October, creating an estimated 350 jobs.
For the first half of 2010, the company earned $29.8 million in profits, compared with a $67.5 million loss in the same period the year before. In the past year, Power-One’s shares have risen from a low of $1.24 to a high of $13.04 — a 952 percent difference. They have traded in the $11 range recently.
According to IMS Research, Power-One has captured 11 percent of the global market for photovoltaic inverters, catapulting it from ninth place to second place in two years.
Power-One’s inverters change the electricity produced by solar panels or wind turbines into energy that electrical grid can use.
The new factories and market gains are early sings of success for Power-One’s turnaround strategy. A darling of the dot-com era, Power-One fell on hard times in the mid-2000s as demand for its power conversion and management gear dropped off in the computer and telecommunications markets.
That started to change in 2006, with the purchase of a power electronics group from a company called Magnetek for $71.7 million in cash and the assumption about $16.7 million in debt. When Power-One CEO Rich Thompson joined the company in 2007, he rehabilitated the balance sheet by raising capital and dug into a less-examined part of Magnetek: a plant in Italy that made inverters for solar panels.
“The company was initially purchasing Magnetek for its power business, but I believed the company needed a growth opportunity,” Thompson told the Business Times. “We chose renewables.”
Alexander Levran, former chief technology officer at Magnetek, took charge of the renewable energy effort at Power-One. The company pumped money into engineering, and the result was some of the most efficient products on the market. Power-One’s solar inverters are 96 percent efficient, and its wind inverters are 99 percent efficient.
“That allowed us to aggressively enter the European market,” Thompson said. “Germany, as a country, is the largest purchaser of solar equipment in the world.”
The new factories should help Power-One’s upward trajectory continue, said Walter Nasdeo, director of research for New York-based Ardour Capital Investments.
“Getting a toehold in the U.S. and Canada and the whole North American market was key to their strategy,” said Nasdeo, whose firm has a buy rating on Power-One stock but does not own any shares. “There’s a lot of expectation for growth in 2011 for the solar markets in the United States. This is going to put [Power-One] in a strong position to capitalize on that, along with what they’re doing in Europe and Asia.”
Inverters can tip the scales at 5,500 pounds, and most of their cost is in materials. That means it makes little sense to ship them around the world or build them far from suppliers, Thompson said.
The electrical grid requirements also vary from country to country. But the biggest reason to build inverters for the U.S. market in the U.S. itself is turnaround time — Power-One needs to be able to ship inverters within two or three weeks.
“You decide to purchase a power system for your house, you want to be ready to go. You don’t want to be waiting weeks or months for components,” Thompson said.
Power-One is also in the wind inverter market, though it’s a tougher market to crack.
“Almost half of the wind market is captive — the guys who build the turbines build the inverters,” Thompson said. “That leaves half of the market, but it’s still a huge market.”
There are technical challenges as well, Nasdeo said.
“Wind inverters are more difficult than solar energy because of the volatility of the sine wave of the energy from a wind turbine,” Nasdeo said. “A lot of companies just don’t spend much time on them. … But by the same token, if somebody comes up with a real technologically advanced type of inverter — high-efficiency and things like that — I think you’ll see folks going to it.”
Power-One still makes power conversion and management gear for telecommunications and industrial equipment, a business Thompson said the firm “will continue to mend.” It closed its Dominican Republic plant, consolidated facilities in China for efficiency and moved Italian production to Slovakia. The company is looking for higher-margin niches where it can compete successfully against much bigger companies like Emerson.
“You have to build a better mousetrap, but you have also have a very cost-competitive product,” Thompson said.
While its other lines will still factor into the revenue mix, Nasdeo and Thompson both peg renewables as the division where big gains will come. Power-One’s inverters are a necessary component of any renewable electricity system, but they aren’t tied to particular panel or turbine technology and can be adapted as new ways to capture sunlight or wind come about.
“We see renewable energy as a growth market for years to come,” Thompson said.