SolarEdge Acquires Gamatronic, Time To Diversify


By Cormac Gilligan, research manager, solar and energy storage for IHS Markit, and Lucas Beran, analyst, data center infrastructure for IHS Markit

Solar inverter supplier SolarEdge announced on May 9, 2018, its intention to acquire Gamatronic, a manufacturer of uninterruptible power supply (UPS) systems.

This move is a clear indication of SolarEdge’s plans to diversify its business outside of solar, and to expand into new large revenue industries with potential for disruption. This asset purchase agreement will enable SolarEdge to build a presence in the UPS market, which will reach nearly $8 billion globally in 2018.

Gamatronic holds relatively low revenue market share in the global UPS industry, but it has a strong presence in its local market in Israel. Gamatronic is active in many of the same markets as SolarEdge, such as the United States, Europe, Latin America and Africa. It is also active in China, in which SolarEdge has had a historically limited presence. Although the acquisition is due to close by the end of the second quarter of 2018,

SolarEdge noted the deal will have limited positive impact on its revenue this year. However, future synergies between UPS, energy storage and virtual power plants applications have the potential to build a long-term stream of revenue growth for the company.

SolarEdge continues to expand its solar inverter business, as it accelerates diversification into new business models

Historically, SolarEdge has primarily focused on residential and small-commercial systems, which benefited from higher average inverter prices, since they command a small premium price, compared to inverters serving larger systems. In 2017 SolarEdge was the 4th-largest solar inverter supplier globally in revenue and 13th-largest in shipment volume. While the company has a global footprint, it has been particularly successful in becoming the leading supplier of residential systems in the United States, which is a core reason for its success to date.

From 2018 to 2022, inverter prices are forecast to decline at a compound annual growth rate (CAGR) of negative 6 percent. Competition is expected to increase in these segments globally, as Huawei, Ginlong, Sungrow, Goodwe and numerous other Chinese suppliers expand, and as SMA, Fronius, Enphase, ABB and other western suppliers continue to update their inverter portfolios.

Despite the intense competition, SolarEdge has been able to increase its market share and expand into new territories, like India. As it develops partnerships with major inverter suppliers in Japan (e.g., Omron) and other conservative markets, the company knows it needs to diversify and build new growth opportunities. Although SolarEdge was one of the first companies to move into energy storage, electric vehicle (EV) charging, energy services, virtual power plant (VPP) development and other high-potential markets, it is clear some of these areas will take some time to bear fruit.

The agreement to acquire Gamatronic is the first time SolarEdge has delved into its significant cash reserves, which reached $400 million in the first quarter of 2018. Furthermore, SolarEdge has noted its intention to expand further into other industries, including smart meters and energy management.

The UPS market is ripe for disruption, as synergies abound

With that in mind, the SolarEdge acquisition of Gamatronic has moved the company into the UPS industry, which has been a relatively stable market over the past decade. Its revenue is similar to the PV inverter market and has some overlap, in terms of power conversion architecture. Many of the leading UPS suppliers are also the same large multinational industrial players SolarEdge has competed against since the company was founded.

Gamatronic’s flagship product is its modular UPS topology (i.e., rack-based, scalable power modules), which is a fast-growing subsegment of the market, particularly in Europe and Asia. SolarEdge expects to grow its presence and market share in the UPS market, by leveraging its sales and marketing skills and the scale of its existing power conversion business.

Furthermore, the UPS market has some overlap with the behind-the-meter energy storage market for residential systems, in which SolarEdge has been active for a few years. While lead acid batteries are currently the primary form of backup energy storage, Lithium-ion batteries are now making their way into UPS, a technology SolarEdge has expertise in. As the adoption of that technology continues, the flexible lithium-ion battery chemistry will enable UPS to play a role in VPP applications, such as peak shaving and frequency regulation. Its history of technical innovation suggests SolarEdge has identified an opportunity to exploit these synergies.

SolarEdge doubles its total addressable market

Despite the high growth of PV inverter shipments, price pressure is curtailing revenue growth, making the forecast somewhat flat. This situation has forced suppliers to look for ways to expand. UPS, likewise, is a stable revenue market. Overall, the acquisition of Gamatronic will rapidly double the total addressable market (TAM) of SolarEdge to more than $15 billion in 2018, allowing it to continue its high-growth rate, as it attempts to replicate its success in the PV inverter market and apply it to the UPS market.

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