Enphase Energy announced after trading hours Tuesday that it plans to acquire SunPower's microinverter business for $25 million in cash and $7.5 million in shares of Enphase common stock.
The five-year agreement is intended to "accelerate global adoption of AC modules as the de facto residential solution," according to a press release.
The deal adds more than 140 patents to Enphase's portfolio, while enhancing SunPower's Equinox Home Solar System with a custom line of Enphase IQ microinverters for use with SunPower AC modules.
LG launched an AC module manufactured with an integrated Enphase microinverter last July. At the time, Enphase leadership called the AC module "the future of rooftop solar." The combined solar module/microinverter product has fewer parts and is easier for installers to deploy, which is a real advantage in a fast-paced and competitive solar market.
SunPower also got a head start on this trend with the acquisition of microinverter company SolarBridge in 2014. All of SunPower's Equinox-branded modules currently come with the microinverter built in.
With the new purchase, Enphase will become the microinverter supplier for SunPower's AC modules. According to company statements, the Enphase IQ 7XS AC microinverter offers 97.5 percent CEC efficiency and was designed specifically for the SunPower X Series 96-cell PV modules with peak AC output power of 320 watts and a maximum power point tracking range of 53 to 64 volts.
The microinverter "strongly complements SunPower's high-efficiency solar cells, communication and racking to create a high-performance, high-quality and easy-to-use Equinox Home Solar System," said Badri Kothandaraman, Enphase CEO, who was picked for the role last fall, following the ouster of Paul Nahi last August.
As a result of the deal, Enphase expects to add $60 million to $70 million in annualized revenue in the second half of 2019, at 33 percent to 35 percent gross margin.
Enphase's market share will rise immediately, particularly in the U.S. market where SunPower sells its AC module product, according to Scott Moskowitz, research manager of renewable technologies at GTM Research, which is now part of Wood Mackenzie. SolarEdge will still be the U.S. leader, but the two companies will now control over 80 percent of the U.S. residential inverter market. SunPower had been the No. 3 player in the space.
"GTM has been expecting consolidation in the solar inverter space for a long time," Moskowitz said. "Pricing is competitive and share gains are hard to come by, so acquisitions are a natural solution. It appears that Enphase's motive for the acquisition is to acquire a captive customer and long-term partner — the press release makes it quite clear that they will scrap SunPower's legacy microinverters previously acquired from SolarBridge Technologies and sell the new Enphase IQ7 320W microinverter instead."
"Overall, this is a move that would have hard to picture just a year ago when Enphase was working through layoffs and restructuring," he added. "The acquisition will lessen the company's cash on hand, but it should contribute to their 30 percent margin, 20 percent opex, and 10 percent operating income targets, which are their top measurements of success."
Sources told GTM reporters earlier this year that SunPower may be looking to purchase Enphase, which SunPower CEO Tom Werner denied in a recent interview. The reverse order of the transaction comes as something of a surprise, but ultimately fits with SunPower's current financial position and ongoing business-model shift.
Werner said his company's customers would continue to see the same high performance they see now with Enphase's exclusive microinverter product. "As a result of this strategic partnership, SunPower looks forward to benefiting from Enphase's expertise, allowing us to continue constraining costs, leveraging R&D support and helping streamline our business priorities," he said in a statement.
The acquisition news comes roughly two months after SunPower announced it will acquire U.S.-based solar module manufacturing company SolarWorld Americas, which brought the Section 201 trade case last year along with Suniva. The petition resulted in the Trump administration imposing new tariffs on foreign-made solar cells and modules, which have had adverse impacts on much of the solar industry, including SunPower.
SunPower is headquartered in the U.S. but makes most of its solar panels abroad in Mexico and Asia. The SolarWorld acquisition was motivated by the trade case, since it would give SunPower access to American-made, tariff-free modules, while possibly securing a tariff exclusion for SunPower's unique copper-plated, interdigitated back contact solar technology.
The U.S. Office of the Trade Representative has yet to announce which companies and technologies will be able to avoid President Trump's new tariffs.
The sale of SunPower's inverter business will bring in some cash to help fund the SolarWorld acquisition, which was made for an undisclosed amount. This year was expected to be a transition year for SunPower, which logged significant losses in 2017. Today's news indicates that transition is in full swing.
The Enphase transaction is expected to close at the end of the third quarter of 2018, subject to product qualification and other closing conditions.