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| Statement |
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| Third, our tracker product continues to gain momentum |
| Through these actions, we made sure not to impact our R&D activities in the development of future products that will enable us to maintain our strong position in this market, which we remain optimistic about over the mid and long term |
| The Netherlands is -- I think, it's well known that it was a very strong market for us historically |
| So the Netherlands is a very significant stronghold for us and has been a good market for us and kind of on par to Germany, in terms of the size of business for us, although very different in scale and size of the market |
| In Germany, regulatory policy remains quite favorable despite the recent headline news about renewable subsidy cuts which do not impact residential solar |
| The elimination of these caps is expected to result in higher electricity prices for the German consumer in 2024, improving the return on investment for solar installations |
| This is our first optimizer equipped with high-frequency DC power line communication technology, which allows communication with large number of optimizers for ground mount applications as well as improved remote software upgrade capabilities |
| Looking ahead, we expect underlying demand to improve in the second and third quarter, given typical seasonal improvements and market dynamics discussed earlier |
| We are well positioned for a solar only Netherlands market as well as for the transition to battery and self-consumption that will take place in a few years' time |
| So it's still a strong and good market, and we also see already an uptick in battery adoption, but it is lower than what it used to be in 2022 for us and definitely at the peak of 2023 |
| So that is the source of why we expect a positive trajectory on C&I in the US |
| We are more optimistic about the potential growth of the commercial market due to seasonality, the expected rise in electricity prices, as well as regulatory support for both Agri-PV, renewable energy communities, and solar on multi-dwelling units or MDUs in certain countries on the continent |
| In addition, the market should improve as installers are able to benefit from the various incentives offered by the IRA |
| We have recently begun commercial shipments of three new products that address market segments that we did not previously serve and that we expect will positively contribute to our business in 2024 and beyond |
| In fact, commercial sell-through in the US was up 22% quarter-over-quarter to hit a record high |
| Given the continued drive towards net zero carbon emissions by enterprises, our new product introductions which serve broader portions of this market and the expected benefits from the availability of our IRA eligible products, we expect a positive 2024 for the US C&I market as a whole and for us as a leader in this market |
| Looking past the winter season, we expect a more positive environment in the European residential market |
| Through the strength of the algorithm team that we have built in our R&D group, we aim to provide a best-in-class energy management software suite in order to generate maximum savings for our customers through our simple and user-friendly interface |
| The commercial market in the US continues to be the most positive segment from a growth perspective |
| But once they start to be clear, then we will see higher purchases of these products that enjoy very nice gross margins |
| And that, combined with some of the regulatory clarifications that we mentioned, both of these elements together in our mind, translate to the fact that the first quarter and on, there will be a gradual improvement in installation rates and clearing of inventory and eventually of revenue in Europe |
| We expect this market to accelerate in the coming quarters now that customers can benefit from lower cost solar |
| We continue to see good potential in Australia, Taiwan, and Thailand where a rapid shutdown requirement for commercial rooftops was recently put in place |
| It grew significantly in the fourth quarter compared to the third quarter, and we are, at record, historical levels from that perspective in terms of sell-through by our distributors, there's still time until the inventory clears and that begins to translate into revenue for us |
| But I think we're happy with the level of engagement and motivation and optimism that we see across the sales force in the various geographies |
| And availability of IRA products later in the year and especially installers and TPOs learning how to construct their business that they can benefit from the IRA, and that should help push the market forward a bit in the later part of the year |
| And we expect stronger growth in North American commercial and some level of stagnation in North America residential |
| Gross margin for our non-solar segment was negative 2.2%, an improvement from negative 23.9% last quarter, a result of higher revenues from our energy storage division and better utilization of Sella 2 factory |
| But we are relatively optimistic about continued growth in the commercial market in the US again, a lot of it is driven by enterprise, module prices and at some point, also availability of IRA product that I mentioned, we will begin to deliver in Q2 and deliver in volumes in Q3 |
| Therefore, while we believe the market will likely react positively, it remains to be seen if it will return to 2022 levels |
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| As reflected in our fourth quarter results and in the first quarter guidance released today, we continue to face challenges from general market dynamics as well as the inventory levels of our products in the channels due to the abrupt slowdown in demand in the second half of 2023 |
| The market situation, which resulted in lower revenue levels in the fourth quarter and in the next quarter creates various anomalies in our financials, which I would address today |
| In Austria, the fourth quarter was abnormally weak as the market paused in anticipation of the elimination of the solar VAT tax, which came into effect on January 1st of this year |
| And I think that it's mostly the very abrupt stop of revenues -- or sorry, reduction in revenues, coupled with the customers, I would call it, inability to pay when needed |
| As it relates to demand across our residential products, sell-through on a dollar basis in Europe in the fourth quarter was down approximately 35% quarter-over-quarter |
| And yet, these costs accounted for 670 basis points negative impact compared to the third quarter on gross margin due to lower revenue |
| And the residential in the US is the segment where we are less optimistic about growth, at least in the short term, and expect the market to continue to be a bit slow with gradual trends of people realizing how to sell and operate within a NEM 3.0 environment in California |
| Another example is warranty expenses in accrual, which were 49% lower on an absolute dollar basis in Q4 and yet accounted for 200 basis points negative impact on gross margins due to the lower revenue |
| Moving to the US residential market, dynamics here are relatively unchanged from what we witnessed in the second half of 2023, namely a significant slowdown in installations in California due to the rollover of NEM 2.0 and continued slow growth in the uptake of NEM 3.0 and in the rest of the country, slowness in markets with lower electricity prices |
| Consolidated GAAP gross margin for the quarter was a negative 17.9% compared to positive 19.7% in the prior quarter, largely due to our discontinued operations and restructuring activities |
| Moving to our European commercial business, sell-through in the fourth quarter was down approximately 40% quarter-over-quarter |
| In the fourth quarter, direct margin was 970 basis points lower than the third quarter, a direct result of a typically high portion of large customers within our mix that enjoy volume discounts and a very high portion of our single-phase batteries that are based on Samsung sales purchased under prices that prevailed in the battery cell market in 2022 |
| Moving to the Netherlands, following the first half of 2023 that saw installation rates nearly 50% above 2022 levels, the market by the fourth quarter fell more than 50% from peak levels due to uncertainty around the Dutch election and potential policy changes in net metering |
| And then with your sales team, given suppressed levels of sales |
| Sell-through of our residential inverters and optimizers was down 39%, while sell-through of our residential batteries was down 16% |
| This decline from the third quarter to the fourth quarter is more pronounced than the 10% to 15% seasonal decline we typically see in Europe in the fourth quarter, largely due to early onset of winter, combined with the market dynamics in Europe associated with high interest rates and regulatory issues and uncertainties in some countries |
| Although we further expect reduction in the absolute dollar value spending in the first quarter of 2024, the lower guided revenues will continue to negatively impact our gross margins |
| So the first thing I would say that with -- of these 970 basis points loss of gross margin compared to the previous quarter, a lot of it is actually related to the fact that our portion of single phase batteries was much higher than in the previous quarters |
| The European commercial market was down in the second half of 2023 for similar reasons as the market as a whole |
| In addition, as previously reported, we discontinued our manufacturing in Mexico and reduced our manufacturing levels in China |
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