Why is Sun Power (NASDAQ:SPWR) buying micro inverters?


The second largest US solar products manufacturer SunPower (NASDAQ:SPWR) has recently announced to acquire SolarBridge which produces panel integrated micro invertors. The company was once owned Cyprus semiconductor. It produces solar panels for both residential and commercial uses. The purpose of its recent acquisition is to specialize in the production of panel integrated micro inverters for the solar industry.

Sun Power already was in a strategic partnership with its supplier SolarBridge but owning the supply chain or integrating vertically will help the company to better utilize and customize the micro inverter technology for its panels. The deal will also help SunPower (NASDAQ:SPWR) to become energy efficient and yielding its solar systems, as it tries to distinguish itself in a highly customized market. The financial terms of the deal are not disclosed however it has been noted that SolarBridge has raised $105 Million from its funders.

SunPower (NASDAQ:SPWR) is 9% ahead of the current market price at an estimated price of $33. Margin revenue of SunPower (NASDAQ:SPWR) increased from 9% in 2012 to 12.5% in 2013. Due to reduction in manufacturing costs its average price declined from $4.42 per watt in 2010 to $3.61 in 2012 due to reduction in manufacturing costs. However the prices are expected to decline and then stabilize at $2.70 per watt in the long run.

If the average price increases to $3.30 by the end of the forecast period then we can see an upside increase at around 10%.  It conducts most of its high margins sales in America. The Government’s cut of renewable energy subsidies drastically reduced prices and pressured margins. The pollution and decline in natural resources are becoming some major issues for companies like SunPower (NASDAQ:SPWR). Industrial over capacity has also resulted in under pressure pricing for the company.

Apart from all these problems the company has still been able to sustain its revenue. The inverters are helpful in reducing installation time in the field, bringing down the balance of systems and labor related costs for solar power systems, as they can be easily integrated into the panels at the factory. The 2014 data of the company is not available however according to the 2011 data SolarBridge labor related savings are estimated around$0.25 per watt.

There is also a possibility that the percentage of potential savings of total systems cost have been increasing since 2011, as labor work force consists of a larger portion of solar system’s costs as panel and component prices are falling with an increasing rate. The purchase of the supply chain would also give a solution in the rapid price decrease by cutting off additional supply expenses. The inverters will be more sustainable and will not require regular inspections, making this attribute valuable for residential and commercial solar market.

There can also be a few disadvantages of having inverters that could include high failure rate as they are electronic devices, the maintenance and repair could be very difficult as the inverters are placed inside the panels and its not easy to disassemble them again and the micro converters also cost more than the traditional inverters.