Enphase kicked off the microinverter trend, but its long-time struggle with profitability led to the ouster of CEO Paul Nahi in August.
The search for his replacement wrapped up quickly with the internal pick of Chief Operating Officer Badri Kothandaraman. He joined the team in April from a leadership role at Cyprus Semiconductor, a few months after Cyprus founder, ardent free-marketeer and climate change skeptic TJ Rodgers made a lifeline investment in the cash-strapped Enphase and got himself a seat on the board.
In a statement at the time, Nahi called Kothandaraman "an exciting addition to the Enphase team." Kothandaraman expressed excitement about "strengthening our leadership in renewable energy." That collaboration lasted four months.
Now at the helm, Kothandaraman is tasked with making a profit in the highly competitive solar inverter space. "My job is actually cut out for the next 18 months," Kothandaraman said in an interview. "Improve gross margins, slow and steady; keep our operating expenses in check; make sure we become profitable beginning Q4 of this year, then make steady progress from there onward."
The company won a small victory -- or dodged a bullet -- this week when its stock price climbed back above $1 per share. The price had dipped below that level for much of the summer, putting it at risk of delisting by Nasdaq for failure to meet the minimum price requirement.
Global expansion
The company has launched microinverter-coupled solar modules (AC modules) with LG and Jinko, banking on the value of simplifying the installation process for installers and customers. Those products could drive a new revenue stream for Enphase, via those distributor partners.
For now, though, the core product remains the microinverter, and Kothandaraman has plans to grow sales globally.
The total market worldwide is about 10 gigawatts, he said, but Enphase’s served available market is about 4 gigawatts. Of the 4 gigawatts of business it competes for, Enphase captures roughly 25 percent, he calculated.
The AC module ships from the factory with a microinverter already attached, shortening the time to install.
"Why are you only playing in 4 gigawatts out of 10 gigawatts?" he pondered. "There is an opportunity for us to cover that gap in terms of the 6 gigawatts, which means we must expand more into Europe, we need to expand more into Asia-Pacific, we need to expand more into Japan."
That drive may be easier with the new IQ7 generation expected out in Q1 of 2018, said Kothandaraman.
"We may not be able to cover all 10 [gigawatts] immediately, but we would like to get from 4 to 8, which opens up new markets," he said. "Then we need to deploy the right sales force strategy in order to gain market share, which will be a process in itself."
To become profitable, Enphase has to grow sales while also growing margins, said Scott Moskowitz, a senior analyst who tracks inverter markets at GTM Research. The company will need to be careful in picking which global markets to enter, because some are lower-margin than others.
"If they're just going for volume, they're going to lose," he said. "They need to go for quality volume."
Storage flop
In the lean months last winter, Enphase spoke of its modular, AC-coupled energy storage product as a possible lifeline to keep the business afloat.
Those battery sales failed to materialize, which Kothandaraman acknowledged directly.
"The storage product, it didn't do well," he said. "I don't want to mince words about it. We think that solar-plus-storage is a central element of our strategy, there is no question about that. However, we think the storage market is still facing its early days -- the demand hasn't picked up yet."
Despite all the hype, the residential storage market has yet to materialize in real numbers outside of select markets like Germany and Australia.
In the U.S., a few dozen companies have emerged to chase a few hundred installations per quarter. There are few price signals to incentivize homeowners to shift their energy usage, making it hard to pitch a return on investment for storage systems.
Enphase's much-discussed energy storage launch did not yield the sales hoped for. (Image credit: Enphase)
The storage product won't disappear, Kothandaraman added. It will still be available, but Enphase doesn't expect to ship in large numbers for the near future.
"In the short term, it’s not going to move the needle too much," he said. "Within the next 12 to 18 months, things are going to start changing in the market and storage will start to get a lot more exciting."
Semiconductor savant
Kothandaraman studied material science as an undergraduate in India, and completed a master's degree at U.C. Berkeley in 1995. From there, he joined Cypress Semiconductor as an engineer, and over the years moved into chip design and business unit leadership. Most recently he ran the data connectivity division, which handles USB and internet of things.
One day, he said, TJ Rogers called and said he should take a look at a microinverter company.
"Yes, I've gotten lot of exposure to chips, but I was looking for something at a higher level: How do I build systems?" Kothandaraman recalled of his decision to change careers. Now, as CEO, his core job will be optimizing the systems that make up the company.
His microchip experience is important. At one point, Kothandaraman reverse-engineered some transistors that Enphase buys from suppliers. He gathered granular data on the product, calculated a ground-up estimate of what it should cost to make (plus the manufacturer's margin), and renegotiated the price Enphase would be willing to pay for it.
That's the next chapter for Enphase: further cost reduction and supply chain control.
"Paul did a fantastic job -- 10 years, starting from nothing, a three-person startup, and building this company to a $350 million company, fantastic," Kothandaraman said. "He had the vision to do that, him along with the two founders. They basically created something cool."
"My job is to build on that creation," he continued. "What I bring to the table is the operational excellence. The second thing I bring is discipline."