Good day, and welcome to the SolarEdge Conference Call for the Fourth Quarter ended December 31 2018. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Event Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved in any recording reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the event calendar page of the Solar Edge investor website. I would now like to turn the call over to Erica Mannion, at Sapphire Investor Relations, Investor Relations of SolarEdge.
Please go ahead.
Thank you. Good afternoon. Thank you for joining us to discuss SolarEdge's operating results for the fourth quarter and full year ended December 31, 2018, as well as the company's outlook for the first quarter of 2019. With me today are Guy Sella, Founder, Chairman and CEO and Ronan Fire, Chief Financial Officer. Guy will begin with a brief review of the results of the 4th quarter and full year ended December 31, 2018, Ronin will review the financial results for the fourth quarter and full year, followed by the company's outlook for the first quarter of 2019.
Then we will open the call for questions. Please note that this call will include forward looking statements that involve risks and uncertainties, that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement contained in our press release and the slides published today for a more complete description. All material contained in the webcast is sold property and copyright of SolarEdge Technologies with all rights reserved. Please note this presentation describes certain non GAAP measures, including non GAAP net income, and non GAAP net diluted measures are presented in this presentation as we believe they provide investors with a means of evaluating and understanding how the company's management evaluates the operating performance.
These non GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U. S. GAAP. Listeners who do not have a copy of the quarter ended December 31, 2018 press release or the presentation may obtain a copy by visiting the Investors section of the company's website. Now I will turn the call over to CEO, Guy Sella.
Thank you, Erica. Good afternoon, and thank you all for joining us on our conference call today. We concluded the quarter with record revenues of $264,000,000 and concluded the year with aggregated revenues of $937,000,000, making us according to the most stringent IHS report from Q3 2018 the largest inverter supplier by revenues worldwide. While we continue to grow our solar business, we also made strategic acquisitions in order to take us to the next step towards becoming a leading smart energy solution provider. Specifically, in July of this year, we concluded the purchase of the assets of Gamatronic, becoming a supplier of uninterruptible life system and in October, we concluded the Kokam transaction, becoming a provider of lithium ion batteries.
At the start of January and not yet relevant for these financials, we acquired the majority stake in SMRE an Italian provider of integrated power terrain technology and electronics for the e mobility market. We're very mindful of the fact that this is a lot to take on and our hands are full. Having said that, we are confident that over time, you will see the synergies of these companies as we see them and will appreciate that the power of the combined companies will accelerate the clean energy and e mobility evolution that we want to lead. Are still small dilutive and will of course require substantial investment both in resources and infrastructure In the next few years, we expect that the main driver for revenue and profitability will remain the solar products Therefore, so that you can analyze and understand our business, we will keep providing you with the relevant data relating to our solar business. This quarter, we are reporting a non GAAP net income of $31,500,000 and a non GAAP net diluted earnings per share of $0.63 while generating $47,000,000 of cash flow from operations In the quarter ended December 31, 2018, we shipped 1.1 gigawatt of AC AC nameplate inverters approximately 5.37 megawatts of which was shipped to North America.
Overall, this quarter, we shipped over 3,100,000 power optimizers and 121,000 inverters. Just by comparison, in the same quarter last year, we shipped 2,100,000 optimizers. As anticipated, we continue to grow our revenue and we're able to overcome the challenging year in terms of industry wide component availability, while expanding our manufacturing capabilities meet the growing demand for our solar products. At the same time, we are working intensely to ramp up an additional manufacturing site in Asia but outside of China in order to supply products that will not be impacted by the U. S.
Tariffs on Chinese products. Looking at our year over year figures, We are reporting annual record revenues for 20.18 of $937,000,000 compared to $607,000,000 in the year ended December 31, 2017, and an annual non GAAP net income of over $157,000,000 compared to a non GAAP net income of $115,000,000 in the year ended December 31, 2017. Our non GAAP diluted EPS for fiscal 2018 is $3.17 compared to $12.43 from operation and increased from the calendar year that ended December 31, 2017, when we generated $7,000,000 in CapEx shortages, our long term proprietary work on this front yielded excellent result, and we will be able to meet the growing demand for our product while only limit with only limited compromises on our operating profitability. We expect to continue to do continue and supply their product demand. At the same time, our profitable business enable us to continue to invest in customer support infrastructure and provide our customers with the best service we can with an aim towards constant improvement.
While Q1 is traditionally seasonally lower quarter in our market in terms of revenues, we expect continued growth in revenues as we are seeing strong demand for this carefully as we invest in the new acquisitions and give them what is needed to grow and become significant contributors to our future profitability. On the note, I would like to touch a bit on the work already underway pertaining to our acquisitions. In the few months since we have began the integration process of Kokam, we have already seen room for gross margin improvement and cost reduction. The synergies among the companies, both in the areas of R And D operations are already bearing fruits. Just for illustration, in Korea, we are gearing up to spend the Kokam manufacturing site in order to increase capacity and we are able to capitalize on 2 decades of manufacturing machinery, building a protees that SMRE contribute to our group.
It is both exciting and inspiring to see a team of Italians, Koreans, Americans and Israelis all working together on various projects for SolarEdge. And with this, I hand the speaker over to Ronen, who will review our financial results.
Thank you, Guy, and good afternoon, everyone. Before starting the review of our financial results for the fourth quarter the full year of 2018, I would like to remind listeners that while the overview will be on a GAAP basis, in certain cases I will be discussing non GAAP numbers and measures which exclude the impact of the newly adopted revenue recognition standard, stock based compensation, one time asset disposals, one time transition tax, changes in deferred tax, one time acquisition related expenses, intangible asset amortization and cost of product adjustment related to the acquisitions of Kokam and the UPS division as well as non GAAP earnings per share. Full reconciliation for the pro form a to GAAP results discussed on this call is available on our website and in the press release issued today. The fourth quarter financials represent a substantial change in our consolidation perimeter due to the first inclusion of Kokam results in our consolidated financials. With the full consolidation of Kokam and our expected consolidation of SMRE Group in the first quarter of 2019, the comparison to our past performance is a little difficult.
In order to allow analysis of our financial performance, as Guy previously mentioned, were practical I will separate my discussion between the traditional solar products and the newly acquired activities. These activities will be referred to as a whole and will include the results of the UPS division and Kokam results. In the future, these activities will also include SMRE. A byproduct of this presentation is that I will not read in this section a summary of each line item and comparison to the prior period but rather focus on the analysis of the various items. Full reporting of our consolidated GAAP and non GAAP results is available on our Web site and in the press release issued today.
Now let's start with the financial results for the fourth quarter of 2018. Total revenues were $263,700,000, an 11% increase compared to $236,600,000 last quarter a 39% increase compared to $189,300,000 for the same quarter last year. Revenues from the sale of solar products were $243,400,000 and were driven by an increase of our revenues in the United States that represented 56.2 percent of our solar revenues, while Europe and the rest of the world revenues represented 26.5 percent and 17.3%, reflecting the industry wide, seasonally slowdown for the 4th and the 1st quarter. This quarter, our top 10 solar customers represented 66.3 percent of our quarterly solar revenues, an increase from the last quarter, while only one customer continued to account for more than 10% of revenues. Blended ASP increased this quarter, mainly due to an increase in our prices in the United States to compensate for the newly imposed tariffs on goods manufactured in China.
This quarter, revenues from the non solar product sales were $20,300,000, mostly driven by a large ESS order received by Kokam prior to the closing of compared to 33% in the prior quarter and 37.5% in the same quarter last year. Non GAAP gross margin this quarter was 30.9% compared to 33.6% in the prior quarter, and 37.9% in the same quarter last year. Gross margin for the solar activities were 32.3% compared to 33.9% in the last quarter. The majority of this margin decrease is technical in essence. Approximately 60 basis points of the decrease are related to the newly imposed tariffs.
As mentioned before, we have increased prices on our At the same time, the arithmetic effect of dividing the same profit by a higher revenue base yields lower gross margins. In addition, while our actual warranty expenses decreased this quarter in comparison to the last quarter in absolute value our long term warranty accrual that reflects average replacement cost per unit and is based on the past expenses substantially increased. With the gradual decrease of our actual support cost, this will also be reflected in our warranty accrual in the next quarters. On the business side, when analyzing our actual margins on the products sold, margins slightly improved compared to the previous quarter as activities was 5.3% where the majority of this result is related to a close to 0 margin ESS order taken by Kokam prior to the acquisition SolarEdge Management reflects hurt healthy margins. In addition, gross margins for the non solar business included 197 basis points related to amortization of intangible assets associated with the acquisition of Kokam Moving to the operating expenses.
In total, operating expenses for the fourth quarter were $55,300,000 or 21 percent of revenues compared to $43,900,000 or 18.6 percent of revenues in the prior quarter and to $36,400,000 or 19.2 percent of revenues for the same quarter last year. Of this increase in operating expenses, $5,200,000 were related to the solar activities in which we continues to increase our R and D investment and geographical footprint to support our growing sales. In general, our solar operating expenses as a percentage of solar revenues were 19.7%. The remaining increase is mainly an inclusion of this is that operating income for the quarter decreased to $24,400,000 compared to $34,000,000 in the previous quarter compared to $34,600,000 for the same period last year. Financial income for the quarter was $300,000 compared to a financial expense of $700,000 in the previous quarter and to finance income of $1,500,000 for the same period last year.
Of interest income on our financial investment offset by deemed interest resulted from the adoption of the new revenue recognition standard and foreign currency changes related to the euro and new Israeli shekel devaluation against the U. S. Dollar. This quarter, we had a tax expense of $12,100,000 compared to a tax credit of $12,300,000 in the prior quarter and a tax expense of $16,600,000 for the same period last year. This result represents a final adjustment of our tax provisions to the latest guidance related to the application of the Tax Cuts and Jobs Act to income of our subsidiaries outside of the United States which affect the provisional tax on undistributed earnings and profits and guilty tax.
While the quarterly result the quarterly tax rate changed significantly throughout this year as the new regulations and practices evolved Our expectation is that the corporate tax rate moving forward will be approximately 15% and the losses of our acquired companies will not substantially affect this result. GAAP net income for the fourth quarter was 12 $900,000 compared to GAAP net income of $45,600,000 for the previous quarter and $19,500,000 for the same quarter last year. Our non GAAP net income was $31,500,000 compared to a non GAAP net income of $42,700,000 in the previous quarter $41,200,000 for the same quarter last year. Our non solar activities generated $4,600,000 net loss this quarter and excluding stock based compensation, intangible assets amortization and one time expenses, a net loss of $2,600,000. GAAP net diluted earnings per share was $0.27 for the 4th quarter compared to $0.95 in the previous quarter and $0.42 for the same quarter last year.
Non GAAP net diluted EPS was $0.63 compared to $0.86 in the previous quarter, and $0.85 in the same quarter last year. Non GAAP net diluted EPS were affected by $0.05 per share as a result of cash equivalents, restricted cash, short term bank deposits and investments were $392,200,000 compared to $453,200,000 in September 30, 2018. During fourth quarter, we generated $46,900,000 in cash from operations. Actual cash paid in the fourth quarter for the purchase of Kokam shares was $101,200,000. In addition, this quarter our balance sheet includes net debt of $20,100,000 related to borrowing taken by Kokam for working capital needs and capital expenditures prior to the acquisition.
We will currently maintain this debt until we finalize our final capital needs for Kokam relating to the increase of manufacturing capacity. AR net increased this quarter reaching 173.6 compared to $151,100,000 last quarter. DSO this quarter in the solar business was 69 days no change from the last quarter. $5,000,000 compared to $107,200,000 in the prior quarter. Approximately $26,000,000 of this amount relates to Kokam inventory, the majority of which is raw materials.
Now let's turn to summarize 2018 full year results. Revenues for the year were $937,200,000, a 54.4% increase from $607,000,000 in calendar 2017. GAAP gross margins were 34.1% compared to 34.5 35.4 percent in the prior year. GAAP operating expenses were $179,400,000, representing 19.1 percent of revenues compared to $123,700,000 in 2017, which represented 20.4 percent of revenues. GAAP net income for 2018 was $128,800,000, a 53.1% increase compared to $84,200,000 in the prior year and GAAP diluted EPS of 2.69 dollars compared to $1.85 in the prior year.
Non GAAP net income for 2018 was $157,300,000, a 36.8% increase compared to $115,000,000 in 2017, and non GAAP diluted EPS of $3.17 compared to $2.43 in the prior This year, we generated $189,100,000 in cash from operations Moving now to the guidance $70,000,000. Revenues from the sale of solar products are expected to be within the range of $245,000,000 $255,000,000. We expect gross margins to be within the range of 30% to 32%. Gross margins from the solar activities is expected to be within the range of 32% to 34%. I will now turn the call over to the operator to open it
We'll take our first question from Mark Strouse of JP Morgan.
Yeah, good evening. Thanks for taking our questions. So wanted to start with the customer support expenses that were highlighted last quarter. Ronin, can you just maybe repeat what you said the impact was this quarter. And then a follow-up would be what the impact is that's that's baked into your 1Q guidance.
And then at this point, are you expecting anything beyond 1Q? How long should we expect these expenses to go on?
So, in general, while we do not open the exact amount of the expenses, I can tell you that the actual expenses were about a 15% lower than in the last quarter, which is a result of mainly much tighter, tightened control on the shipment and the expedited shipments that we had last quarter, which were relatively high. We managed to basically, start stopping these expedited shipments during the middle of the quarter And therefore, you do not see a result over the entire quarter, but actually just a half a quarter result. We expect these expenses to continue and go down gradually over next year as we are both going to, 1st of all, better control and be able to better supply our warehouses with additional goods As Guy mentioned before, the fact that we are growing so rapidly in the situation of severe component shortages means that our inventory at the warehouses is relatively low all the time. And when we are able to get support units, we try to ship them as soon as practicable. Plus the fact that with time, we're also improving some issues that we already know in the product.
We believe that this will will continue to go down to normal levels within the course of the next year. And as I mentioned also on the call, since the reflection of this result is also reflected in our accrual for long term warranty because we basically average a few quarters back to smoother activities that we see on the actual cost, we believe that also this accrual for long term warranty is going to decrease in the course of next year. So I believe that it's, I would say within the second of the year when you're going to see a more or more, I would call it, closer to standard expenses as we used to have before.
Got it. Okay. That's helpful. Thank you. And then can you just give an update on the the manufacturing transition, due to the tariffs.
And then, and I apologize if I missed it, but in the the slides you referenced, you're working on a a second manufacturing site in Asia. Is that in the solar business or in the non solar business? Thank you.
So this was referred to the solar business. We are starting to ramp up a big operation in Asian country, which is not China in order to be able to supply products from a low cost manufacturing site, but still not impacted by the Chinese tariffs. I think that in a quarter, we'll know much better about the schedule. We have all the automatic lines for the optimizer already built in the shipping stage for those lines, but the exact ramp up schedule is not yet finalized.
Thank you. We'll take our next question from Philip Shen of Roth Capital Partners.
Hi, everyone. Thanks for questions. First one is on your guidance. Can you talk through where you're seeing the strength in revenues, you know, we are seeing strength in global markets in general. And, was wondering if if you could talk through, you know, which markets might be surprising you to the upside, as it relates to demand and what the drivers might be.
So for example, are you seeing market driven demand in certain countries and not policy driven demand? And what do you expect your U. S. Versus international revenue mix to be in Q1, I think you said it was 56 ish percent for Q4. And then how do you expect that to trend?
Through 2019? Thanks.
So there were lots of questions, but I will try wrap it up. We I don't think we have better view, than you on the drivers of the market. We were We were expecting that the year will be healthy. We think that the situation in the U. S.
Were last year, maybe the market, the resi market didn't grow, but this year, it's supposed to grow as we can see it. I think that that's push a little bit the U. S. Forward based on last year, maybe a little slowdown in the resi space. At the same time, Europe is, keeping the same momentum as we reported, like, I think, year and a half ago, and we see increased demand in almost all the European countries, even countries that are not, completely, let's call it natural for solar like Sweden, etcetera, where we see very high demand and much bigger and mature infrastructure to install solar systems.
Specifically, I think that while it's very, very tough for us, as you see from some of the parameters, it's in a bit tougher to our competitors and part of growth is the fact that while we are getting stronger, some of them get a little bit quicker. They need to invest less in support they might have issues with the supply of products. And with all the preparation we did in the last couple of years, we're enjoying this as well. So the way we see it, we would expect a very nice double digit growth for 20 19 in the solar products. And, so far Q1 touch wood started very, very nicely.
Can you talk about the international versus US mix? And do you do you expect the international mix to maybe, ex, you know, become even larger than the US mix at all in 2019?
To be honest, I don't think we have until we'll have the utility product and big project. And that's, as you know, the will be available by the end of 2020. We will not have a real streamline of project before 2021. I don't think we'll be able to give good estimation of the ratio so early in the year. I can say that so far think that Q1 will be more balanced like fifty-fifty between the U.
S. And rest of world. But in general, I don't think we have enough view to estimate the rest of you through the year.
Okay. Thanks. Shifting over to the warranty issues and in failure rates. Can you talk about the failure rates by in our checks, you know, there's a certain failure rate for, optimizers and then there's a failure rate for the inverters. And then, I think there are firmware issues early in Q3.
Can you talk about each one of those things and kind of what were the drivers as to why the failure rates were higher than expected And then, and which ones have you improved and, and, how, do you expect to get back to your full kind of, 36, 38% type margin, maybe by the end of 2019. I know to Mark's question you talked about, improving steadily through the year, but some additional color on that would be great. Thanks.
So I think again, it's like 3, 4 questions. So as we, I think, said in the past, the were changing due to the fact that many components are in shortage, many times, suppliers increased lead time from 14 week to 700 days where they already within the 14 week period and we had to do lots of constant and fast changes We did have some components that came out of spec and caused some of the failures. As far as we know today, the majority of those beyond us, we didn't change a major component in the last 2, 3 quarters. So we start to see those small phenomenas more under control. As far as firmware, you know, we also all the changes that addition feature set, etcetera, supplying inverters with storage with various batteries from different for different applications, etcetera.
You all the time have some points that you need to improve. Many of them not related to us, but to standard change or to customer that want to install different installation that was then in compared to what tested in the beginning and gaining more from the product we already have and we change and adapt firmware accordingly. We are lucky that we can do everything remotely. So I'm not aware of any case where It's really caused us more than a bit of delay until we change or adapted software to the customer needs. As mentioned by Ronen, trying to cover your last point, I believe that within two quarters, we'll come back to something in the same range of percentage as we had in the previous couple of years.
Great. Thanks for the color. I'll pass it on.
Thank you. We'll take our next question from Jeff Osborne of Cowen and Company.
Hey, good afternoon, guys. I had another question on warranty, but, in a different angle, also on the service side. I think one of the issues running, was that you were in the past prior to HD wave replacing field, replacements with, with cards or particular items within the inverter for sample that had failed versus, you know, maybe at a cost of a 100 or $200 a piece versus sending a full inverter at a 1000 plus. Can you talk about, you know, with the all of the new product introductions and product cycles you've had? You know, A, can you confirm that that was a problem?
And then B, you know, how is that evolving? Is that also going to be resolved over the next few quarters or not?
I don't think that's exactly the situation. In the classical one facing Vertu, we had 3 PCBs. Today, we have 2 PCBs. When the failure is in the communication, you still replace the communication board, I don't think there is a big difference and please remember that HD wave cost dramatically less than the inverter before and the numbers that you use are way, way off the real cost of the inverter. So I don't think that the analysis you do is actually impacting anything in the financials as you describe it.
Then then what what what drove the warranty accruals to be higher than? I'm trying to get a a sense of the service cost over the past few quarters. Is it literally what Philip described in terms of field replacements?
No, so that's what we said. It was that's more what we said in Q3 that it was a combination of expediting shipments, a bit higher percentage of replacement that we do and basically big portion of costs that is coming to improve the service we give to customers, increase the amount of people we have in the field that can actually support people in their own installations and the combination of many little things, which all of them now are getting into better mechanism better improvement. And as mentioned before in the script, I believe that during this year, we will improve the level of service even further, while at the same time reducing the percentage cost of it from the revenue or the relative percentage of revenue.
Got it. That's good to hear. Another line of question I had was just you mentioned keeping the debt from Kokam. In light of the capacity expansion. Can you talk about what the CapEx needs are for maybe the year or for that particular initiative?
I think on prior calls, you had highlighted that it was underutilized and all of a sudden, you're expanding capacity. So I just wanna understand the decision making process around the balance sheet management, but also what this will cost.
Okay. So, first of all, yes, as as we mentioned in, I think our previous call, the fact was that the Kokam factory due to lower orders or bookings were underutilized, but still, as we also mentioned, the overall capacity of the Kokam factory is smaller than the needs that we already see right now, and we forecast for the years to come. As the solar plus storage is, demand is increasing all the time. And as such, we will need to do some expansion. When it comes actual amount of that we're going to invest is much is very much going to be related to the size of the capacity and also the type of the machinery and design of the factory.
What we would like to do is to design a factory and use machinery that is over higher capacity at the lower cost. In addition to this, and by the way, and some of this machinery will actually be developed in house using the machinery team of SMRE that is doing exactly this for the last 20 years. Now in addition to this, when it comes to the way that we're going to deploy the amounts that we will determine that are needed based on the capacity that we would like, Our, I'll say approach will try to be taking debt, or even actually local debt in Korea in order to finance this. The combination of the fact that any money that you are entering into Korea from other countries may be one day a subject to dividend tax once you would like to repatriate it. The fact that all in all, the more money you put inside, the more a cumbersome is the, I would call it, you know, corporate structure.
At the same time, we know that there is the ability to get credit at a relatively good terms in Korea for expression, especially when foreign investment is involved. And as such, our preference will be either than simply taking money with a very high cost of capital associated with money that we earn or for example, had we decided to issue stock, we decided to take it to debt as debt, where which has a much lower cost of capital and much easier ability to get it in Korea and return it in Korea without having a tax accidents on the way.
And any sense running in terms of the magnitude of of the total debt capacity? I I think in the past, you had highlighted this as tens of 1,000,000. Is it
This is the exact this is still the amount, yes.
Got it. And then my last question is just, any sense on how we should be modeling, OpEx trends with a full quarter of SMRE, coming online? You've given guidance is helpful around the segments for margins and the top line. But how should we think about the incremental OpEx for that acquisition?
So the SMRE acquisition is supposed to contribute between approximately 2 to 1,000,000 in Q1. So this is the OpEx addition, revenues are going to be relatively small because of the seasonal nature of this business. At the same time, I would like to mention something which is more and this is the fact that part of the acquisition was actually paid in stock. And, as many of you maybe saw the S3 that we filed, you need to take into account into the share count, the additional shares that we issued when calculating the EPS. So OpEx will be around to $200,000,000 to $200,000,000 and look at the share count for EPS.
And just for the benefit of everybody on the call, do you happen to have that share count, just so we're all on the same page?
Approximately 1,200,000 shares.
Got it. Thank you.
Thank you. We'll take our next question from Colin Rusch of Oppenheimer.
Thanks so much. Can we just dig a little bit further into the Kokam CapEx? Can you give us an actual number on cost per kilowatt, for the cells and then for the fully installed systems. And then I've got a follow-up around margins.
No, that's not information that, we currently have in details and we're not planning to share it, until we establish a factory that we fully control, understand the evolution of it, etcetera. One thing that I will say though is the fact that, as we mentioned on the call about $20,000,000 of the non solar business came from an ESS transaction that came at close to 0 margin,
in Kokam, in under our management, at least we're not taking low margin transactions, anything that we'll take will be, I would say, a healthy margin that is above 10% at least per transaction.
Okay. And I guess that's a part of my follow-up. So what are the margin expectations for the Kokam battery business and how much inventory have you written down at this point?
So again, on expectations, we will provide once we streamline the manufacturing and get the fleet utilization that we plan, we simply do not want to give data that later on will be proven as inaccurate. But in general, I forgot the sorry, I missed the first part of the question. So it was the cost and?
Well, the margin expectation and how much inventory have you written down from the Kokam business at this point?
So actually very little inventory was written down. The only thing that because a lot of the inventory of Kokam because of their cash position, they did not carry a lot of finished good inventory. But rather carried it as raw materials. So the amount of inventory written down is relatively small, Also, by the way, given the fact that based on the accounting principles, you conduct something that is called PPA purchase price allocation, where you are already entering the inventory at a fair value into your financials. Actually, we had a small write down on inventory, but this is very, very small write down on UPS related inventory But this is again, it's a negligible amount.
Okay. Thanks a lot guys.
Thank you. We'll take our next question from Carter Driscoll of B. Riley FBR.
Hey, guys. Can you talk about maybe your expectations of what the M and A acquisitions might be as a percent of sales either by yearend or I have to get a ramp maybe a rough percentage in 2020?
I think that it's yet a little bit early to provide this right now. The way that we look at it, Carter, is that These are businesses where the potential is very high, but all of them require investment. And one of the things that We have decided given the fact that we really have the luxury, the fact that solar is providing so much profitability and our ability to help them to grow, we decided that instead of rushing and increasing revenue at the of maybe a little bit of ASP erosion or actually take low margin deals, we decided that we simply allow both Kokam and later SMRE to do the right thing to build the right infrastructure to build the right cost structure before they start to sell because whatever added revenues we get at the low margin will very slightly affect our our bottom line. And as such, I would say that while still early, we do not expect that by the end of the year, will be more than 10% overall, all the other businesses. And I think that it's really too early to estimate 2020 We, on our hand, will make sure that once we're able to grow revenues, we will do it in the most profitable, and I would call it efficient manner.
And then just quickly another run out of time. Talk about a benign competitive landscape. Do you anticipate? The political environment, maybe handicapping one of your prime competitors making an entry into your base business?
I guess you refer to Huawei, I think they are starting, they have a product in the U. S. They started, I guess, shipping at very small volumes as far as we can understand. So far, we didn't see any place in the market that took any market share from us. And we have, I think, very good set of products, coming and great features coming in the coming 18 months.
So I think that, as was mentioned, in the last three years, I strongly believe that we'll be able to keep growing a company at a nice 2 digits, despite this extra competition. Okay.
Maybe just last one for me. Are you planning for the tariff increase in China? Have you built that into your 2nd quarter and beyond expectations. Obviously, you're building capacity outside of China, but in terms of price increases, are you talking about potentially passing those along as you did from the last round of 10%?
It's 2 action process. In one hand, we try to ramp up outside of China in low cost Asian factory as fast as possible. On the other hand, it will need will increase prices to overcome, the for the percentage of the product that we will have to keep shipping from China. And it, and in a secure, secure plan B, we cross fingers that Mr. Trump won't increase then the 2000 the 201 or 301 taxes?
Me sneak the last one in there, are there any assets from SMRE that you don't consider core that you might consider divesting?
So actually, not whatever we took is, whatever we took under SMRA is something that we believe that we can utilize. For example, As we said before, the machinery business is something that is already taken into our I would call it consideration when it comes to increasing our activities and capacity in Kokam. As Guy mentioned, we were in Korea where Italian, Korean, American, Israeli teams work together designing machinery. So this is something that we consider as core. They have software business that also, we believe that can help us basically whatever we took, we believe is something that we can utilize in a profitable way.
Appreciate taking all my questions guys. I'll get back in the queue. Thank you.
Thank you. This concludes today's question and answer session. I will turn the call back to Guy Sella for closing remarks.
Thank you. In summary, our 4th quarter results and 937,000,000 record revenues for 2018 show continued successful execution of our business strategy and consistently stable profitability. We are well positioned to continue to grow our solar business and to further expand our offering with the acquisitions completed and are excited for what SolarEdge will bring to the world Clean Energy And E Mobility in 2019 and beyond. Thank you all for joining us on today's call. All the best.
Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.