UPDATE: Big Machines, Big Aspirations: Applied Materials Goes Solar
03/05 4:29 am (ON)
Story 0102 (AMAT, SPWR, WFR)
By Matt Andrejczak
SAN FRANCISCO (Dow Jones) -- For over 40 years, Applied Materials Inc. has helped electronics makers cut product costs. It's done it for computer-chip makers,
flat-panel TV makers and consumer-electronics providers. Now, it's taking the same playbook to the growing solar market.
Charlie Gay, who runs the company's solar machine group, likes to tell this analogy between the solar machine market and semiconductor-equipment:
Due to the costs of transistors and the equipment that made them, it would have cost $1 billion to make an iPod 30 years ago.
"We're going to make a huge impact on cost reduction for solar," bets Gay, who Applied
Materials plucked from nearby solar firm SunPower Corp. (SPWR) to run its show. "We're on a very predictable learning curve."
This would be good news for homeowners that shell out at least $25,000 in states such
as California and New Jersey to install solar panels in their homes. The expensive price tag is due to the machine designs, installation costs,
government incentives and other factors.
Applied Materials, of Santa Clara, Calif., stepped into the solar market last summer
when it made a surprising $464 million acquisition of Applied Films, which made solar machines.
As the world's largest producer of machines that make microchips in consumer-electronic
devices, Applied Materials (AMAT) aims to apply the engineering techniques it's crafted over the decades for chip-equipment to the solar industry.
The company is starting with similar designs its engineers have used for machines
that churn out glass sheets the size of garage doors for flat-panel TVs.
The kind of solar machines Applied Materials has started to sell to factory owners are known as thin-film.
They are enormous.Watch a video report on the process.
Weighing in at 50 tons, it takes two Boeing 747 -400 planes to ship them. All
together, it takes factory hands one month to assemble, disassemble, reassemble and test them for leaks.
The machines, raised and supported by industrial metal platforms, consist of five
rectangular-shaped, vacuum-tight chambers that can crank out 20 solar panels in one hour, or upwards of 450 panels a day. They are the biggest
pieces of solar equipment on the market.
Size and speed matter in the solar market, according to industry experts. Larger solar panels churned out at faster rates can help drive down factory and installation costs.
"Applied Materials
will be able to provide the muscle to ensure that solar scales up rapidly to become a main part of our energy mix," says Rhone Resch, president
of the Solar Energy Industries Association, who lives in a solar-powered home in the Washington.
"I think the fact that Applied is coming in and spending the amount of money
they are is an indication that they'll be a major contributor in lowering the cost of solar," he added.
Bringing down prices
Gay, a longtime veteran of the solar industry who has been associated with
factories in California and Massachusetts, says the solar market is on a learning curve like other industries.
In the semiconductor industry, for every doubling of transistors on a single chip,
there is a 28% cost reduction. In the solar industry, which uses cost per kilowatt hour of electricity produced as a measuring stick, it's a 20%
reduction for each doubling of kilowatt production, according to Gay.
At the moment, depending on the manufacturing process, it costs about $3 to $5 per watt to produce a solar panel. Ideally, Applied Materials would
like to lower production costs to $1, a price point likely to take three to five years to reach, Gay surmises.
To help put some of that in perspective, CIBC World Markets analysts estimate
the costs of setting up a solar-paneled home in California is $8.50 per watt, before state or federal incentives. California is the largest solar
market is the United States.
Applied Materials' push into solar won't translate into a big-time payday
anytime soon. The company expects to sell $200 million worth of solar machines this year, which would be a tiny fraction of the company's total
estimated sales of $9.5 billion for fiscal 2007, according to analysts polled by Thomson Financial.
By 2010, market researchers estimate the global market for solar equipment will be
$3 billion. Of that, Applied Materials thinks it can grab a 15% to 20% share, or $450 million to $500 million of sales.
"We believe that Applied's early entry into this marketplace and its large scale
gives the company a significant advantage over other potential competitors," Stifel Nicolaus analyst Patrick Ho wrote in a recent research report.
Silicon in demand
Applied Materials may benefit from a current shortage of polycrystalline
silicon -- the main ingredient used to make solar cells and microchips in PCs and consumer electronics -- as most of its sales will come
from thin-film machines. The thin-film process uses cheaper silicon materials that are sandwiched between glass.
Polysilicon makers, such as Hemlock Semiconductor, MEMC Electronic Materials
Inc. (WFR) , and REC Group, are building or expanding factories to boost production of the material in bid to relieve supply pressure.
The situation isn't likely to correct itself until 2010, industry players say.
Polysilicon machines are the leading machines on the market, with 94% market share,
according to the Solar Energy Industries Association. Thin-film machines command a 6% share but are expected to grow at a faster clip due to polysilicon constraints.
In 2006, the solar industry consumed more silicon wafers than the microchip market
for the first time. Solar makers purchased more than 50% of the silicon wafers produced, up from 10% in 2000, according to industry reports.
This appetite has stunted the growth of solar market, with machine demand
outstripping supply by two-to-one. "There's a pent-up demand," for the machines, Gay says.
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