Fiercer global competition

In 2012, inverter manufacturers were amongst those companies that had to face increasingly fierce competition and the internationalization of markets. An increase of about $200 million over last year saw total sales revenue of around $7 billion, but the growth of the previous years was not achieved. According to Sam Wilkinson, Research Manager at IHS, prices decreased by about 13% compared to 2011. On the whole, the field of the leading manufacturers remained stable – SMA and Power-One are still the two top dogs. However, with Omron there was a rising star in the segment. This Japanese inverter manufacturer has profited from strong growth in its home market and, according to Wilkinson, produces mainly to order for leading Japanese module manufacturers such as Sharp. Microinverter manufacturer Enphase, the second big climber up the ranking, has completely outsourced its production. This Californian company profited above all from the popularity of microinverters in the booming U.S. market and the fact that they sell for approximately double the price of a standard inverter.
The 2012 ranking is based on the manufacturers’ sales revenues and no longer, as before, the volume of products sold. This classification generally favorshigher priced manufacturers. According to IHS, inverter prices in Europe can be in the $0.15 – 0.25/W range. However, in China and India prices can be as low as $0.06 – 0.08/W. That means a Chinese supplier could sell twice as many inverters there and still receive less than half of the revenue compared to selling in Europe.

SMA: still ahead

As in the previous year, SMA Solar Technology is leading the IHS 2012 ranking by far. Based in Niestetal, Germany, the company sold $1.68 billion worth of inverters in 2012. According to IHS, that represents a 24% share of the $7 billion worth of worldwide inverter revenue. However, the inverter manufacturer’s market share has gradually declined over the last few years due to growing competition. In 2010 it was 40% (based on sales revenues), said Sam Wilkinson. The IHS analyst expects SMA to remain market leader this year but anticipates that the company will continue to lose market share because of the competition from “pursuer” Power-One and Asian competitors, as well as rapid price declines, severance payments and restructuring. In the first half of 2013, the company’s gross margin fell to 19.5% (from around 25% in 2012) and it suffered a net loss of minus 3.5% according to IHS.
So far SMA has been unable to generate much turnover in the rapidly growing Chinese market, despite the takeover of Jiangsu Zeversolar New Energy. According to Wilkinson’s assessment, SMA is doing “a little business” in Japan but the company is still far from establishing itself there as the leading manufacturer. “SMA’s big plus point is its excellent service network,” said Dirk Morbitzer, Managing Director at Renewable Analytics. However, this drives costs higher, he continued. Now the company faces the challenge of retaining this level of service while, at the same time, “investing a lot of money in building up new markets” and averting losses caused by declining market share. A hard task that will lead to the company ending the current year on a loss, commented Morbitzer. He says it is vital that SMA “turns the corner” in 2014 so that they can continue to maintain their service. “It would be fatal if SMA curtailed its customer service as in so doing they would relinquish their most valuable unique selling point,” says Morbitzer. Additional planned investment in research and development and recently announced storage technology products are further crucial turning points for SMA, added Wilkinson, his colleague at IHS.
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Power-One: well-positioned

As in 2011, the runner-up in the ranking is Power-One. Last year the U.S. firm sold inverters to the value of $700 million, representing a global market share of 10% of sales revenues. To quote IHS analyst Sam Wilkinson: “Power-One obviously understood that it was necessary to become much less dependent on the Italian market and to concentrate more heavily on other European markets, the U.S. and Australia.” The main factor behind the company’s vigorous growth in 2011 was the supplying of the Italian market, which at the time was booming but eventually collapsed last year. In the spring of this year Power-One was taken over by ABB. “This opens up huge strategic opportunities for further successful internationalization,” says Wilkinson, referring to the consolidated global service network of the new parent company, their successful activities in power generation and the energy business in Southeast Asia and Japan, and the well-known brand name of ABB. “The acquisition by ABB has certainly given Power-One the potential to become a market leader,” points out Morbitzer. However, he also sees challenges and risks: “The interesting question is how good is the internal coordination within ABB for the successful integration of Power-One into the group and how well the marketing evolves,” says Morbitzer. This remains to be seen. For the further growth of Power-One he sees “the good positioning and good management of the company” in key growth markets such as the U.S., South Africa and Latin America as positive factors. In China, the business of Power-One is still comparatively small but with a new production site and the financial strength of ABB behind them, he sees great opportunities, although, he says, the local Chinese competition is certainly “catching up.”

Kaco: well maintained

Kaco New Energy was also able to retain its position in the world’s elite. As in the previous year the German company came third in the IHS 2012 ranking. Last year Kaco sold inverters to the value of a little over $210 million, representing about 3% of the global revenue for the inverter industry. Sam Wilkinson says that Kaco owes this strong performance mainly to its good business in Germany and Europe as well as to its initial success in the U.S. and some Asian countries last year. The main challenge for the medium-sized company based in Neckarsulm, Baden-Württemberg, is – as for many other manufacturers – to further reduce its dependence on the European market and to promote internationalization. Challenges facing the company are market entry in Japan and China, where Kaco, according to Wilkinson, “makes practically no turnover,” and India, where the company has hardly established itself. The U.S. also offers untapped business opportunities, says Dirk Morbitzer. “In the U.S. Kaco has, despite local production, been under-represented in all market segments. The U.S. market still offers Kaco significantly more growth opportunities,” says Morbitzer. Wilkinson sees the announced partnership with a Saudi Arabian electronics company for the local production and development of inverters as a pioneering step towards greater internationalization of the company.

Schneider Electric: global

Schneider Electric climbed up the 2012 ranking. The French electrical engineering group came in fourth (2011: sixth place) and last year sold inverters worth about $210 million (about 3% of global turnover). Schneider Electric “grew strongly” last year, stated Wilkinson. Factors behind the success, he continued, were the large number of worldwide branches and the “very good sales support.” As a global company, Schneider could “easily develop new markets and begin, if necessary, local production,” and in many countries already has “a good basis for maintenance and repair.” In important new PV markets such as India and Thailand, Schneider is already successful. The inverter manufacturer is also “very bankable,” said Wilkinson.

Advanced Energy: strong in the US

Advanced Energy was able to move up two spots and claim fifth place in the 2012 ranking. According to IHS, the U.S. manufacturer generated almost $210 million in revenue, only slightly less than competitors Kaco and Schneider. Rounded up, this represents 3% of global turnover. Wilkinson went on to say that one important success factor for the good performance of the company based in Fort Collins, Colorado, was the “strong business in the fast-growing U.S. market,” especially in the area of central inverters. Advanced Energy increased its market share in the U.S. last year to over 20%, said Wilkinson.
The challenge, said Wilkinson, is now on the one hand to further strengthen the U.S. business, but on the other hand achieve “further internationalization and broadening of the product range.” Things were “put on the right track” by buying Refusol in spring 2013, he commented. The takeover of the German manufacturer has enabled Advanced Energy to offer smaller inverters as well as “easier market access to Europe and Asia,” where Refusol was already active. The fact that the U.S. manufacturer is nowbeginning production in China is also reason for optimism, said Wilkinson. Morbitzer, however, is more skeptical. Even after the acquisition of Refusol, Advanced Energy is a comparatively small manufacturer, he explains. The company has a presence in China but “is not very established in the market.” The challenge of growing and opening up new markets while, at the same time, reducing internal costs, as shown by Advanced Energy’s last quarterly report, represents the “squaring of the circle,” according to Morbitzer. Whether the manufacturer can manage this on its own is questionable in view of its low financial ceiling. Hence it is unclear to Morbitzer whether Advanced Energy “can maintain its position in 2013 and 2014.”

Omron: boom in Japan

The biggest climber in the ranking is Omron. The Japanese manufacturer moved up eight positions and finished in sixth place in the 2012 ranking (2011: 14th place). “Omron is very focused on the domestic market and benefited from the enormous photovoltaics boom in Japan,” says Sam Wilkinson. For the most part, according to IHS, the company produces to order for Japanese module manufacturers such as Sharp that generally offer complete systems on their home market. This focus requires, however, dependence on further market development in Japan. However, this year saw PV growth in Japan exceed all predictions and Wilkinson, along with Morbitzer, expects Omron to move further up in the 2013 ranking. In addition, the Japanese company is “well positioned” in other Asian growth markets such as India and Thailand, says Morbitzer.

Fronius: sliding down

Fronius fell back three places in the ranking. The Austrian manufacturer only came in seventh (2011: fourth place). “Focusing too strongly on Europe is the main reason that I can see for this,” said IHS analyst Wilkinson. Outside Europe the company has, with the exception of the United States, little presence. However, the local market share of less than 5% is still very low. “Fronius is overall a very good manufacturer with very good products, but has accepted the challenge too late to grow on the exciting international markets,” said Morbitzer. Also, the company still lags behind the competition in offering storage solutions. On the positive side, however, Morbitzer sees the “very good positioning of Fronius in the small segment,” as this is a sustainable area of operations.

Enphase: one of the big winners

The second big climber in the 2012 ranking is Enphase Energy. The Californian manufacturer of microinverters improved by five places and now occupies eighth place (2011: 13th place). Enphase performed especially well in the U.S. with private roof systems in 2012. The USA is by far the most important market for microinverters and Enphase garnered “very successful additional market share” there last year, according to Sam Wilkinson. Enphase does not manufacture itself, having completely outsourced production. Challenges facing the company that the IHS analyst can see are the development of new markets for microinverter applications outside the U.S. and the increasing competition from other providers such as SolarBridge, Power-One and SMA. In view of the fact that Enphase, according to Wilkinson, “is so far not profitable” and the company’s financial reserves still stem mainly from its IPO, the year 2013 should indeed be exciting for the U.S. manufacturer. Dirk Morbitzer also refers to “Enphase’s problems with its bankability” and the “as yet underdeveloped segment of microinverter applications outside the United States.” He views the continued strong position of Enphase in the booming U.S. market as a plus point, however.

Danfoss: climber with challenges

Danfoss Solar Inverters had a strong year in 2012. The Danish manufacturer improved its ranking according to sales revenue and moved up three positions to ninth (2011: twelfth place). Danfoss was particularly successful with string inverters and inverters for smaller private roof systems, according to IHS. “The portfolio and market positioning are rather comparable to Fronius,” says Wilkinson. The most important challenge he can see is the further internationalization of the company so as to become more independent of shrinking European markets.

Siemens: goodbye to PV

Although Siemens slipped back two places in the 2012 ranking, it was able to maintain tenth place among the global market leaders (2011: eighth place). “In the first half of 2012 they generated a lot of revenue, but pulled out nevertheless,” says Wilkinson with regard to the withdrawal of the group from the solar sector in October 2012. In May of this year, Siemens announced the end of its inverter division. “The Siemens example shows that a large group structure alone is in itself not an advantage for a sustainable, successful PV business,” says Morbitzer.

Declining importance of Europe

It will be exciting to see who fills the gap left by Siemens in the next ranking and how the market develops. What is clear is that competition will become even fiercer and the markets further internationalized. IHS expects prices for inverters to collapse by 11% and a decline in global sales revenue of the inverter manufacturers of around $300 million to $6.7 billion for 2013 (2012: $7 billion). European companies will be affected most, says IHS analyst Wilkinson. For them, he predicts a decline in sales revenue by 40%. As the markets will develop even further towards Japan, China and India this year, European markets will shrink.
“When I see what is happening in Japan and China, I am certain we will see a number of new names in the ranking both this and next year,” says Dirk Morbitzer. It is to be expected that Chinese manufacturers such as Sungrow and Chint will expand their market shares in both the domestic market and abroad. They will probably be able to compensate for their comparatively low sales revenues (due to their lower prices) by bulk sales and thus stand a good chance of moving up into the top ten of this industry ranking. According to IHS, in 2012 Sungrow was in third place worldwide in terms of volume sold but only fourteenth in terms of sales revenue. The company’s gross margin was 22% in the first half of 2013 and its net margin 7.5%, similar to SMA’s net margin in the first six months of 2012, according to IHS.
Morbitzer also sees good chances for Huawei to play a leading role worldwide.
The Chinese electronics company is currently in the process of expanding its inverter business.
IHS analyst Wilkinson expects Japanese manufacturer Omron to climb even further up the ranking and anticipates that competitor Tabuchi, which also mainly manufactures on behalf of Japanese module manufacturers, will enter the top ten for the first time.
Morbitzer expects SMA and Power-One to increasingly be involved in the high-priced Japanese market as they are both already present with certified products. And in China, he also sees “certain market opportunities despite the enormous price pressure” for those western manufacturers that produce there, such as SMA, Power-One or Advanced Energy.

Waiting for new markets

Is it likely that internationally known inverter manufacturers will soon invest in production facilities in other new markets such as Turkey and Brazil to provide incentives for locally produced products? No, says Sam Wilkinson. The demand there is often too low and incentive and market access regulations are usually very complex. Leading manufacturers have been reluctant to invest here for these reasons.
Wilkinson also points to the example of South Africa where, although well-known manufacturers such as SMA “have invested heavily in new production facilities”, demand has so far lagged behind.

Bright future for microinverters?

In regard to technology trends, Wilkinson mentions further growth in the market for smaller three-phase inverters that will also be used for larger projects, which up until now have relied on central inverters. Simpler maintenance and efficiency are two very attractive features which outweigh their higher cost. Wilkinson also sees “good growth potential” for microinverters outside the U.S. and in large-scale plants. For 2013,
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he expects a 20% increase in volume sold worldwide up to about 500 MW (2012: approximately 400 MW). Morbitzer is more skeptical about the growth of the microinverter segment, since in terms of cost they make more sense for smaller systems in partly shaded locations than for larger power plants.