) -- The solar sector has been a bloodbath in 2011, a fact that makes solar inverter company



slight second-quarter miss seem not half bad.

Solar has been a disaster with the key European markets of Germany and Italy showing weak demand through the first half as inventory built up across the solar supply chain, including in the solar inverter space.

Power-One shares have declined 32% year-to-date amid the solar woes, and that's why the company's roughly in-line report and a full-year revenue view that surrounds the average analysts' estimate may be viewed as a positive trigger for shares.

Power-One reported earnings of $31 million, or 21 cents a share, for the three months ended June 30 with revenue coming in at $260.3 million. Wall Street was looking for a profit of 22 cents a share in the June quarter on revenue of $254 million.

The more important projection was for revenue of $1.05 billion to $1.15 billion in the full year. That forecast is below the company's previous expectations for revenue of $1.1 billion to $1.25 billion in 2011 but still has some potential upside to the current consensus view of $1.1 billion. All in all, the level of the lowered top-line view is probably less than many solar bears expected.

"They brought down the guidance, but not by a huge amount and the stock had anticipated a much worse revision," said Carter Driscoll, analyst at Capstone Investments. "They held the line on pricing and maybe incrementally took some share. You can't say there's much uptick year over year, but it wasn't the Armageddon some people were expecting."

If the Power-One report wasn't all bad, it was also far from an 'all clear' signal. Pricing remains under pressure throughout the solar supply chain and even if Power-One started from a lower price point than some competitors -- a point it has never failed to make in the past -- investor sentiment will still turn on profitability, not just revenue holding up better than expected. The revenue guidance doesn't provide investors with any indication of earnings power reduced by pricing declines.

Recent guidance revisions from solar modules companies


( SPWRA) and

Canadian Solar

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provided a window onto reduced earnings power.

SunPower pre-announced that it would meet revenue guidance but illustrated the weakness in gross margins by swinging from a potential profit to a guaranteed loss. Canadian Solar said it would make its shipment guidance, but guided its gross margins down to a range of 12% to 13%.

Inverter companies maintain that they are insulated from declines in solar module pricing, and Power-One says competitors in the inverter space have been playing catch-up to its pricing. Yet this may not lead to a big relief rally in shares if Power-One suggests that pricing declines in the second half of the year will reduce earnings.

"The relief rally could be wiped out by module commentary," Driscoll said. "If the market is down 15%, inverter pricing may not be down as much, but it will be down in a relative band."

Power-One shares were flat at $6.88 in after-hours action on Thursday with more than 100,000 shares changing hands, according to

. The stock ranged as high as $7.35 earlier in the extended session and as low as $6.70.

Power-One CEO Richard Thompson is expecting an upturn in Europe before the year's end.

"Power-One has made significant progress expanding into the fast growing solar markets in the United States, China and India, resulting in important customer wins and increased market share," Thompson said in Thursday's press release. "For the second half of 2011, we anticipate the solar market will begin to gain momentum in Europe and be bolstered by gains in new geographies."

-- Written by Eric Rosenbaum from New York.


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Eric Rosenbaum