Enphase Energy: A Visionary Internet Of Things Company

| About: Enphase Energy (ENPH)
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Summary

The Internet of Things isn't about Wi-Fi doorbells, smart light bulbs, etc.

The Internet of Things is about Big Data.

Enphase Energy is already leveraging the Internet of Things.

Its vision is to be a premier Internet of Things company.

We have probably all heard that the Internet of Things is on its way. At the recent Consumer Electronics Show (CES), Internet of Things (IoT) gadgets and appliances were all the rage. I love gadgets as much as anyone, but I think smart, Wi-Fi-connected doorbells, smart light bulbs, and other consumer devices are distracting investors from the real opportunity of the IoT.

As humans, we are naturally limited in how many observations we can make. The IoT changes all that. If products are equipped with sensors and an ability to communicate data back to the cloud, then, instead of a single human observation, there will be a multitude of observations or Big Data. Analysis of Big Data will change every industry profoundly because conclusions from Big Data will be based on a statistically significant number of observations, not the limited number that humans can make.

An example will help. Take General Electric (NYSE:GE). GE uses the term Industrial Internet to describe the opportunity that their businesses will have to track data on products from cradle to grave. If every part of the manufacturing process for a jet engine is tracked, including raw material inputs and manufacturing conditions, and if the engine has sensors from which data are recorded about usage conditions, engine performance and failure incidents, then analysis of all of the Big Data about their jet engines will allow GE to correlate failures with raw materials, manufacturing conditions and/or usage conditions.

In a relatively short time, GE will be able to modify their manufacturing to improve reliability, as well as prevent failures by intelligent, cost-effective improvements to preventative maintenance. Any company not engaged in IoT for their products will soon be at a severe competitive disadvantage.

A second, very different example will show how pervasive an impact IoT Big Data will have. When the Apple Watch (NASDAQ:AAPL) was announced, one of the features touted was health monitoring. If individuals' vital signs like pulse, blood pressure, blood sugar, even molecules indicative of cancer can eventually be monitored with a wearable device like the Apple Watch, then the Big Data for each individual, stored securely in the cloud, can be correlated with health records including their DNA. Preventative medicine will be revolutionized.

So what does this have to do with Enphase Energy (NASDAQ:ENPH), a solar energy company? First, thanks to two commenters on my previous article (kudos to Richard Dohr and thomrob), I was made aware that Enphase microinverters record and report their internal temperatures during operation. Enphase prepared a report, based on thousands of microinverter readings under the extreme summer temperatures in Australia during January 2014.

As Richard Dohr pointed out in his comment, these temperature readings never reached the specified maximum operating temperatures of the microinverters. Accelerated reliability testing done by Enphase, on both components and microinverters, had predetermined the maximum operating temperature. As a former microelectronics researcher myself, I know the power of accelerated reliability testing in qualifying new products, but I also know how much better it is to have real data from the field to corroborate and validate the testing.

So Enphase is already using IoT Big Data to improve their products. In fact, I should have known this already because, as an early adopter of Enphase microinverters in 2009, I benefited from the real time data reporting capabilities of the microinverters. I had one panel fail in my 33-panel array, and because the microinverters report their output in real time, I became aware of this fact.

If I had chosen a conventional string inverter, I probably still wouldn't know of the failure. Anyway, my installer, Black Platinum Solar and Electric, replaced it under warranty. Many installers monitor their customers' systems using Enphase data reporting as a service that enhances their business. This is another example of the leverage of IoT for Enphase's business.

Second, and more importantly, Enphase sees its future as an IoT company. Their vision of a smart home tied into a smart electrical grid is an outstanding example of a company positioning itself to be a premier IoT company. To really understand this, I strongly encourage you to watch the Enphase video "Powering What's Next." I think you'll agree that it is one of the clearest vision statements of any small company out there, and it is aimed squarely at the power of the IoT.

Quoting from Enphase, "The innovative Enphase Energy Management System combines energy generation, storage, control, and management into one complete solution, smarter and more connected than ever before." Their alliance partner, Ingersoll Rand (NYSE:IR), integrates Nexia Home Intelligence into Enphase Energy Management.

The Enphase vision, and the real products behind it, not only encompass the components of a smart home but also provide the path for Big Data to optimize energy management in the smart grid of the future. Plus, Enphase already enables commercial users to optimize and manage their energy usage efficiently using IoT tools.

In my previous article, I made the argument that Enphase stock has been overlooked and undervalued because it's been overshadowed by the large media footprint of SolarCity (NASDAQ:SCTY) and especially by SolarCity's associated company Tesla (NASDAQ:TSLA). Ironically, what Enphase is doing is as exciting and futuristic as anything Tesla is doing. So if it takes buzzwords to get investors' attention, Enphase has it in spades: Internet of Things, Big Data, Smart Home, Smart Grid. And Enphase has real products behind the buzzwords and is executing on its vision.

Disclosure: I am/we are long ENPH, GE, AAPL, TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.