UPDATE 3-SMA Solar Q2 fails to impress, shares fall

* Q2 sales 477 mln eur vs 469 mln poll estimate

* Q2 oper profit 128 mln eur vs 134 mln eur estimate

* Q2 net profit 92 mln eur vs 94 mln eur estimate

* Sticks to sales, EBIT margin outlook for 2010

* Shares down 2.1 pct in volatile trading

(Adds analyst quote, background, valuations)

By Christoph Steitz

FRANKFURT, Aug 13 (Reuters) - SMA Solar (S92G.DE), the world's No.1 maker of solar inverters, missed high expectations for second-quarter profits after the German group fuelled hopes for more by raising its outlook last month.

A buoyant German market led industry players around the world -- including SunPower SPWRA.O, LDK (LDK.N), Phoenix Solar (PS4G.DE) and SolarWorld (SWVG.DE) -- to post strong second-quarter results, with some raising their outlooks. [ID:nLDE67A13W] [ID:nLDE67A0D7] [ID:nN10163416]

Demand for solar products in Germany ballooned in the first half as customers brought forward orders to take advantage of sector subsidies ahead of painful cuts. But companies say demand and prices may fall next year as more cuts to incentives loom.

SMA earnings before interest and tax (EBIT) of 128 million euros ($165 million) and net profit of 92 million -- both up more than fourfold versus last year -- lagged market estimates for 134 million in EBIT and 94 million in net profit.

Analysts and traders had expected better results after the company hiked its full-year sales outlook to 1.5 billion euros to 1.8 billion euros from a previous 1.1-1.3 billion, a goal it confirmed on Friday.

"SMA was expected to deliver a pretty good set of numbers. Yes, the margin disappointed slightly, but if you just look at the absolute numbers, it's difficult to find that quality in other solar stocks," said LBBW analyst Walter Schneider.

The maker of solar inverters -- a key component for solar systems that converts direct current generated from solar modules into alternating current -- controls about 40 percent of the global market for the product, which customers can buy from retailers or as part of complete solar energy systems.

Sales of the product have soared along with modules in the first half of the year, above all in Germany, the world's biggest solar market, giving SMA Solar a market capitalisation of 3.1 billion euros.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on market shares and margins, click on:

here

For a comparison of solar companies, click on:

here

For an SMA analysis see [ID:nGEE5B61HO] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

With an operating margin of 27 percent, the company is an exception in the solar industry, where margins of peers making cells and modules have been under heavy attack as selling prices for modules fell by up to half in 2009.

SMA shares gained almost 150 percent in 2009 and are down 6.7 percent so far this year, outperforming the 14 percent drop in the FTSE cleantech index.

Shares fell 2.1 percent to 85.20 euros at 1050 GMT, lagging the 0.1 percent dip in the FTSE cleantech index .FTET50.

The company trades at 10.5 times 12-month forward earnings, a discount to sector peers such as SolarWorld and Centrotherm, as analysts have cautioned that the company's industry dominance may come under fire from bigger conglomerates.

SMA competes with smaller peers such as Fronius and Kaco but also with big conglomerates such as Siemens (SIEGn.DE) and Schneider Electric (SCHN.PA).

The company became an investor favourite amid a massive sell-off in solar stocks earlier this year, with 62 percent of analysts covering the stock rating it "buy", according to Thomson Reuters StarMine. (Editing by Michael Shields)