Solar Adds A Dent To Applied Materials Recovery
August 12 2009 - 2:34PM
Dow Jones News
Solar is taking some of the shine off of an Applied Materials
Inc. (AMAT) recovery.
Applied Materials' traditional business, making the tools used
by companies to make semiconductors, is showing some signs of life
after years wading through a brutal market. But its newer business
selling a ready-made line of manufacturing tools to solar panel
makers appears to be holding the company back.
The company reported third-quarter results Tuesday that topped
Wall Street expectations, driven by sequential revenue gains in its
businesses selling and servicing machines used to make chips. Its
solar unit, however, saw a significant revenue drop.
The solar business comprises tools to make both traditional
silicon-based solar panels and thin-film panels - a cheaper but
less efficient alternative. And while its silicon and thin-film
businesses have suffered from difficult conditions in the solar
sector, the thin-film business raises additional concerns.
To address the thin-film market, Applied Materials sells a full
assembly line of tools, known as SunFab. Companies can purchase the
full system and essentially flip a switch to begin cranking out
panels. So far, Applied has sold six such systems.
While its silicon solar business sells products to larger,
well-capitalized firms such as SunPower Corp. (SPWRA), the smaller
solar companies SunFab targets have been hardest hit recently, as
financing has dried up and prices for panels have plunged, hurting
revenue and leading to losses. Many can't afford new manufacturing
lines, and are delaying purchases.
Meanwhile, firms may also find a ready-made solution less
appealing as they try to top competitors in price and
efficiency.
Farhad Moghadam, the newly appointed Chief Executive of Ascent
Solar Technologies Inc. (ASTI) and a former executive in Applied
Materials' solar unit, said that proprietary designs and
intellectual property - not ready-made manufacturing processes -
will lead to success in the solar industry.
"I don't believe the turn-key is the right direction to go for
any panel manufacturer," said Moghadam.
Some analysts have raised similar concerns.
"Applied Materials' problem is that it has invested a lot of
money and a lot of energy into a product that the market might not
want, and that is the SunFab thin-film line," said Auriga analyst
Daniel Berenbaum.
The costs to get this business up and running have been
significant. Berenbaum estimates that the majority of Applied
Materials' overall capital spending is going towards SunFab
infrastructure. The company doesn't make this data public.
For its part, Applied Materials stands behind the business. In a
conference call to discuss third-quarter results, the company said
2009 would be a year for improvements in operations.
"We're at the point where it's very easy to question it," said
Applied Materials Chief Financial Officer George Davis on the
SunFab business, in an interview with Dow Jones Newswires. "We're
thinking of the long-term fundamentals."
Thin-film, he said, has the greatest potential to compete in the
market over the long term.
Investors appear satisfied with the company's overall results,
as shares recently rose 2.8% to $13.59 Wednesday. Since the
beginning of the year, Applied Materials shares are up about 34%,
slightly below its peers. The Philadelphia Semiconductor Index, or
SOX, has gained about 39% over the same period.
Still, as Applied Materials works to pull itself towards
recovery, continued weakness in SunFab could prove an
albatross.
The solar unit reported an operating loss of $53 million last
quarter while Applied's other businesses turned a combined
operating profit of $75 million.
"I've always viewed [the solar business] as a wild-card," said
Berenbaum. "Wild cards can be good, or wild cards can be bad."
-By Jerry A. DiColo; Dow Jones Newswires; 212-416-2155;
jerry.dicolo@dowjones.com