Insights From Itron's Q3 Smart Grid Earnings

Nov. 08, 2012 5:07 PM ETItron, Inc. (ITRI)
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Greentech Media

By Zach Pollock

U.S. smart meter maker Itron (NASDAQ:ITRI) had few surprises in its third quarter 2012 earnings call last Thursday. CEO LeRoy Nosbaum affirmed earlier GTM Research predictions of flat to slightly negative sales through the end of 2012 and heading into the first half of 2013. Don’t single Itron out, though -- this trend isn’t unique to the Liberty Lake, Wash.-based company, but rather reflects the state of the industry as a whole.

What’s driving the slowdown? In North America, only a handful of potential multi-million endpoint contracts remain, and regulators have become increasingly stringent in approving business cases for advanced metering infrastructure (AMI). In Europe, macroeconomic and political uncertainties as well as immature standards have delayed tenders at several utilities such as France’s ERDF. Concurrently, large projects won several years ago are now coming to a close.

The impact of project ramp-down has been significant. Itron’s global electric business revenue decreased 24 percent in constant currency from Q3 2011, largely due to the fact that several key OpenWay projects in North America have been completed or are nearing completion. Those include deployments at CenterPoint Energy, Southern California Edison, San Diego Gas & Electric and BCHydro.

Other marquee projects including Detroit Edison have also progressed rapidly, Nosbaum said. As a result, the company’s OpenWay backlog from the five aforementioned projects has decreased to $285 million -- down from the post-stimulus high of $949 million in Q3 2010.

The acquisition of cellular smart meter company SmartSynch (now Itron Cellular Solutions) added $60 million to backlog in Q2 and will be a critical component in acquiring new business going forward, given that Itron’s largest competitor, Silver Spring Networks, also offers RF mesh and cellular networking capabilities. Itron’s management also noted the scope of the project at Michigan utility Consumer’s Energy has expanded, and there may be an

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