Will another round of layoffs halt SolarEdge's downward spiral?
Will another round of layoffs halt SolarEdge's downward spiral?
The renewable energy company, which laid off about 900 workers in January, is expected to announce the layoffs of hundreds more employees in the coming week. SolarEdge, which traded at a record value of about $20 billion two years ago and was the first Israeli company in the S&P 500, has since lost almost 90% of its value.
The Israeli renewable energy company, SolarEdge, is expected to announce the layoffs of hundreds of employees in the coming week. This will be the company's second round of layoffs this year; in January, it laid off 900 workers, approximately 16% of its workforce, including 550 in Israel.
These layoffs are an attempt to overcome a crisis the company has faced over the past year. SolarEdge's stock has fallen by 68% on the Nasdaq since January and has plummeted 88.3% over the last 12 months, while the Nasdaq index rose by 32.2% during the same period. The market value of SolarEdge is now only $1.8 billion, a significant drop from its peak of $20 billion in August 2022, when it became the Israeli company with the highest market cap. Thanks to this high value, SolarEdge was the first and only Israeli company to enter the prestigious S&P 500 index in December 2021. However, due to the stock collapse, it was removed from the index two years later.
SolarEdge, founded in 2006 by five veterans of the Intelligence Corps, produces a variety of products for the home and institutional markets, including optimization systems for solar panels. The company's stock jumped 6% during Friday's trading, as investors positively received news of the expected layoffs, although they have not yet been officially confirmed.
The company's crisis stems from two main factors. The first is the increase in interest rates in the U.S., which has hurt the economic viability of installing solar systems. The second is the accumulation of product stock in European warehouses following a wave of orders at the onset of the war in Ukraine. SolarEdge sells its systems in the U.S. to both renewable energy companies and private customers. The interest rate is crucial because renewable energy projects are typically financed up to 80%, and private customers often use credit to finance their systems. The burden increased significantly when U.S. interest rates jumped from zero to 5.5% from mid-2022 until now. Since half of SolarEdge's solar activity is in the U.S., this drop in demand for solar systems has significantly impacted the company.
At the end of 2023, there were market expectations for an interest rate cut by the Federal Reserve, which could have benefited the company. However, these expectations were tempered by the assessment that rate cuts would be slower and lower, leading to continued difficulties for SolarEdge.
In addition to the interest burden, new regulations in California in 2023 reduced the rate that owners of private solar systems receive by up to 75%, affecting demand. This particularly impacted solar systems without storage facilities, which SolarEdge also sells but are less common among private customers due to their cost.
In Europe, a significant market for SolarEdge, the outbreak of the Russia-Ukraine war in February 2022 spiked traditional energy prices, causing a surge in demand for renewable energy and leading to significant inventory build-up, which decreased orders from SolarEdge.
The company's revenues in the first quarter of 2024 fell by 79% to $204 million, with a loss of $108.6 million compared to a net profit of $174.5 million in the first quarter of 2023. The loss per share was $1.9, sharper than analysts' estimates of $1.57, compared to a profit of $2.9 per share in the corresponding quarter last year. SolarEdge ended the fourth quarter of 2023 with a loss of $162.4 million compared to a profit of $21 million in the corresponding quarter.
Last month, the company issued $300 million in convertible bonds, with the potential to increase to $345 million, carrying an annual interest rate of 2.25% and maturing in 2029. The proceeds are intended to repay part of an existing series of convertible bonds due in 2025, with a low probability of conversion given the stock's fall.
Investors reacted negatively to the offering, causing SolarEdge shares to drop by 20% that day. Last week, SolarEdge reported the retirement of CFO Ronen Faier after 14 years. Faier will continue for the next three months and will be replaced by Ariel Porat.
SolarEdge refused to comment on the matter.
