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Subject:  PWER - Q4 2010 - my thoughts Date:  2/4/2011  2:01 PM
Author:  TMFGebinr Number:  195 of 1280

Hi everyone,


Wow. Down 22% right now and down as much as 24% earlier. All in a single day. And all, as far as I can tell, because revenue guidance of $260 million to $290 million for Q1 was lower than the $294 million consensus expectations had.


    For Q4: $0.49 (after backing out a true one-time charge), well ahead of Street estimates of $0.40.
    For 2010: $1.10 (same back out), well ahead of $1.02 estimated.
    For Q4: $366 million, well ahead of estimates of $352.5 million.
    For 2010: $1.05 billion, slightly ahead of $1.05 billion estimates.

For Q1: Revenue of $260 million to $290 million, shy of desired $294 million.
For 2011: Revenue of $1.1 to $1.3 billion, barely meeting at the top end of desired $1.3 billion.

This is where they got punished. As I was listening to the call, it was extremely obvious to me that the analysts asking questions were very concerned about Q1 and a bit concerned about the full year of 2011. I guess their models had more revenue growth baked in and when Power-One didn't comply, everybody freaked.

Except at the midpoint, that's still an 80% growth YoY over 2010. And CEO Richard Thompson did remind people that 2010 was an extraordinary year. Apparently that reminder fell on deaf ears. We humans do like to take recent results and project them out into the future on a straight line, so when the company predicted "only" 80% growth in revenue, instead of a more aggressive 150% or something, Power-One became plain Cinderella at midnight.

Comments on inventory levels:
The company also got punished for this. Last year, the industry delivered 20 GW of inverters when 17.4 GW actually got used. That means there's a glut in the system (largely in Germany) and that traditionally means two things. First, unit sales going forward will be less. Second, those unit sales are going to be at lower price points. The combined result of this is an expected reduction in revenue.

According to Thompson, IMS Research projects a 15% drop in average selling prices for 2011. This is probably a result of that inventory glut along with the raised prices many manufacturers put through in 2010.

Thompson claims that of the 2.6 GW extra, only abut 0.3 GW of it (11.5%) is from Power-One, as the company didn't participate in the channel stuffing. Power-One also didn't participate in the industry practice of raising prices. So, management expects "only" an 8% - 10% drop in average selling price this year.

Germany and Italy:
In 2010, Germany and Italy installed about 7 GW and 2.5 - 3 GW, respectively. For this year, management projects about 5.5 GW for Germany and 3+ GW for Italy. That's about a 15% drop between those two markets. And, if you take, say, 1.5 to 2 GW of the 2.6 GW inventory glut and say that's Germany's portion (see above), that means Germany would only ne