Itron: Meeting the Challenges of Standardization?

www.itron.com   Industry:  Electronic Instruments & Controls Established: 1977 Headquarters: Liberty Lake, WA President  & CEO: Malcolm Unsworth VP IT & CIO: Chuck McAtee Employees: 8,700 Ownership: Publicly traded on the NASDAQ exchange (ITRI)   Institutional Shareholders:  I689 Institutional owners hold 95% of the stock, much higher than average institutional ownership of the Electronic Instrument & Controls Industry at 42.9%, and the S&P 500, which is 70.6%.   Products Itron’s vast portfolio includes: ·  OpenWay AMI solution ·  ChoiceConnect  for AMR ·  Itron Enterprise Edition for meter data management ·  See all Itron electric products   In the field ·   Announced joint marketing agreement with Verizon for development of secure, two-way communications that support utilities’ access to energy usage data and advance their smart grid projects – May 2009 ·   Full field deployment for OpenWay smart metering solution at CenterPoint Energy’s electric transmission and distribution utility. Recent initial shipments will eventually culminate in 2.4 million smart meters being installed by early 2014 – March 2009 ·   Itron and Digi International collaboration to enable utilities to remotely monitor and control distribution automation (DA) devices utilizing the OpenWay advanced metering infrastructure (AMI) network – February – 2009 ·   Formal agreement with Tendril, leading provider of demand-side residential energy management solutions for the utility industry, to extend the reach of the Tendril Residential Energy Ecosystem (TREE) and provide seamless integration with OpenWay  - February 2009   Read more Smart Grid News: Verizon teams with Itron for wireless AMI   EarthTimes: Unified Itron Brand Expands Global Footprint and Creates Opportunities   Greentechgrid: Top10 Smart Grid

In Brief: Itron, Inc.

Itron provides intelligent metering, data collection and software to electric, gas and water utilities. Nearly 8,000 utilities worldwide use Itron’s technology to optimize the delivery and use of energy, gas and water. The product line includes electricity, gas, water and heat meters, data collection and communication systems, including automated meter reading (AMR) and advanced metering infrastructure (AMI); meter data management and related software applications; as well as project management, installation, and consulting services.

Strengths

Itron has a leadership position in the electric metering with experienced management.

Backlog doubled in 2008, year to year, to $1.3 billion as of Dec. 31 as some projects received state approval.  In 2009, however, some of those advance orders were pushed out due to delays by the utilities.

Bookings appear strong and total backlog is at very high levels, which gives confidence for longer term.  New order bookings for the first quarter of 2009 were $625 million, compared with $484 million in the first quarter of 2008.

Smart meter installations should be at a rate of three times 2008 for each of the next 5 years.

With only 6% of worldwide meters installed in the automated category, growth in demand has high probability. Only one-third of sales come from North America.

Challenges

Itron is the clear leader in AMR (automated meter reading), the first-generation of semi-smart, one-way meters.  While a strong base to grow on, it does not guarantee that Itron will lead in AMI (advanced metering infrastructure), the second-generation of truly smart meters with two-way communications.

Itron avoided adopting standards being developed for the Smart Grid industry until just recently – trying to protect their proprietary solutions. 

As a small company even the bidding process (RFPs) is a huge burden for the limited resources and staff.

Earnings were lower than expected for the first quarter of 2009, the weakness attributed to the slowdown in the U.S. economy and the impact of a stronger dollar on international results.  Smart meter installations have been delayed in North America and Europe whereas Latin America and Asia appear more likely to grow.  Add to that, a new stock offering in late May, and earnings per share are bound to be hurt.

Our View

Itron is behind the competition in new, two-way smart meter installations.  At the same time, the old AMR business is declining as the technology evolves.  It needs to ramp up their newer product placement.

With late acceptance of the new Smart Grid industry standards, a major refocus is needed to ensure the new standardized features remain compatible with old line products.

If the industry evolves toward “unified utilities” that handle power, gas and water from a single digital control center, Itron is well positioned. 

As the big players in this arena like IBM, GE, Cisco, and Siemens are redefining the Smart Grid as a software-centric world, meters and other hardware are becoming standardized commodities with cheaper price tags.  Itron needs to move in sync.  It can buy or partner with a meter data management provider, but it’s a brave new world and one that Itron must navigate successfully in order to survive.