So where’s all the smart-grid money that’s supposed to pour into fancy new smart meters? According to Itron, a leader in the smart meter sector, it’s stuck in the pockets of slow-moving utilities.
Liberty Lake, Wash.-based Itron said revenue in the first three months of 2009 fell 19 percent from a year earlier to $389 million. Net earnings came in at 33 cents a share, 19 cents below analysts’ estimates. Itron’s stock was down 8.5 percent in aftermarket trading following the Wednesday afternoon earnings report.
Itron estimates that about 45 percent of the 315 million energy and water meters in North America use some kind of advanced metering systems, and that half of those rely on Itron’s technology. But most of the meters Itron has made use automated meter reading, or AMR, an early-generation technology that helps utilities reduce the labor costs and data errors assocaited with manual meter readings.
But AMR is already outdated. Utilities want to use advanced metering infrastructure, or AMI, which employs many of the more gee-whiz features of a smart grid, such as demand response and real-time energy pricing. In other parts of the world, utilities are going directly from manual meter reading to AMI, bypassing AMR entirely.
In theory, Itron should be able to manage the transition smoothly. It has longstanding ties with utilities and a deep knowledge of metering technology. But that’s not happening so far. What’s happening is that as utilities wind down spending on AMR projects and turn to AMI, Itron is at risk of getting lost in the shuffle.
Itron has been booking new orders, such as $260 million last quarter related to an AMI contract with San Diego Gas and Electric, but its 12-month backlog of $471 million was less than the $552 million a year earlier. That doesn’t bode well for revenue over the next few quarters.
AMI spending is not immediately replacing AMR money for a few reasons. A big one is the recession, which has utilities sitting on cash they might spend on the smart grid. Not only is AMI technology more expensive than AMR, it’s more complex and needs to be integrated with other software systems. Utilities used to go directly to a smart meter vendor like Itron for AMRs. With AMIs, they are more likely to approach a systems integrator like IBM or Cap Gemini, which then choose a meter supplier.
Itron said utilities are also balking at smart grid spending as they work out questions such as open standards and security issues. And the criteria for stimulus spending still hasn’t been finalized. It all adds up to fewer orders for Itron.
“Utilities are squeezing their spending by replacing meters more slowly than they have in the past,” said Steven Helmbrecht, Itron’s CFO. “This is a departure from utility spending in the past. AMI is gaining traction, but it’s slower than we would like.”
Helmbrecht said Itron had been asking utilities when they would start spending on a smart grid “but they simply don’t know.” So Itron is itself pleading ignorance, refusing to give earnings guidance this year, except to say revenue will be flat to slightly down in 2009.
Itron seems ready to write off 2009 as a year of cost-cutting and laying the groundwork for longer-term contracts. Executives told analysts they expect revenue and profit numbers to increase in 2010 and again in 2011. For Itron, at least, 2009 is not going to be the year of the smart meter.