(Satcon earnings and forecast article corrected for inaccuracy in gross margin number)

BOSTON, Mass. ( TheStreet) -- Solar inverter manufacturer SatCon Technology ( SATC) edged out the street in its fourth quarter revenues of $21.5 million, and reported earnings per share loss in line with street consensus -- albeit a consensus of two analysts.

This doesn't mean it was a great earnings report for SatCon though one of the two analysts who cover the solar inverter company said SatCon showed significant improvement in the quarter.

John Hickman, analyst at MDB Capital Group, said one of the most important metrics for him in the fourth quarter earnings analysis of SatCon was its gross margin improvement.

SatCon's gross margins increased from 0.5% to 13.5%. Hickman had been looking for a move up to at least the mid-teens in gross margin, from a company that once had gross margins as high as 30%. "This should be the first quarter of 2009 that shows sequential improvement. High teens in gross margin makes sense," Hickman said. It didn't happen, but Hickman thought the improvement in gross margin was notable nonetheless.

The biggest sticking point has been SatCon's transition of its manufacturing to China. Many U.S. alternative energy companies have been moving manufacturing to Asia to remain competitive on a cost basis. The problem for MDB's Hickman is that he expected that process to be near completion by the end of the third quarter, and to cease to be a drag on margins in the fourth quarter results.

Instead, SatCon said in its earnings that it won't be done with the transition to China until mid 2010.

By that time, New York Senator Charles Schumer may ban SatCon from selling its inverters in the U.S. based on his recent attacks against alternative energy companies for manufacturing overseas while looking for U.S.-based projects.

Going into the earnings, Hickman had said, "We should see improvement in the gross margins, which have been flat in 2009. That's the key, and if they are still transitioning to the China manufacturing at this point, something is wrong."

The MDB analyst noted that even in previous quarters, when SatCon had revenues below $20 million, it still had gross margin levels above 20%.

SatCon shares were down more than 9% in the after-market session on Thursday -- though it is a relatively thinly traded stock, with an average daily volume of less than 500,000 shares traded.

What's more, the MDB analyst's second key metric for SatCon was its guidance. Hickman said SatCon has always been fairly good with its guidance. SatCon guided below estimates with its earnings -- $14 million to $16 million, below the analysts' estimate of $17.6 million.

"SatCon has good visibility because client orders go into backlog and are delivered from backlog, so they have much better visibility than the module and cell players. When they've given guidance, they've tended to be close," Hickman said.

Ardour Capital Management analyst Adam Krop noted going into the SatCon earnings that SatCon has a majority of its sales in the U.S. utility market. MDB Group's Hickman put the number at 65%-70% of sales in North America, including Canada.

For this reason, Krop thought he might be able to get a read on the potential for the U.S. solar project market to pick up again in 2010, based on SatCon's outlook.

Krop said he hoped to hear more about the tax equity players coming back to the market. In the U.S., tax equity finance for solar projects had disappeared as the main investors, banks, had no profits to use as a basis for making tax equity investments. The U.S. government offered a cash grant -- set to expire at the end of the year -- to fill the gap created when the tax equity investors fell off the short-term solar map.

"We'd like to know about financial institutions coming back by the end of this year, regardless of the type of government incentive in place," Krop said.

However, almost all of the recent business wins that SatCon rehashed in its earnings release -- with the exception of one win in Canada -- were ex-U.S. While SatCon has had some good growth in Eastern European markets, the U.S. is its biggest market and it was not clear from the lower guidance that the U.S. would pick up soon enough.

MDB Group's Hickman said SatCon doesn't have a high market share overseas, but at the same time, analysts haven't seen much in the way of announcements in the fourth quarter about the U.S. market.

"I don't know if there is a high level of confidence, since the company is coming off an underperforming year," Hickman said.

-- Reported by Eric Rosenbaum in New York.


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