Sunday, March 23, 2008

Applied Materials Move Into Solar

There was an interesting article in today's Austin American Statesman which I have included below. The article talks about Applied Materials' move into fabrication equipment around PV technology from their core competency related to semiconductor chip fabrication equipment. These technologies are somewhat tangential, but the economics and operating environments behind the two industries couldn't be much more different. Applied is an Austin based company, so it might be a good option for anyone who wants to try to remain in the area after graduation. The article has been pasted below in its entirety.

Applied bets on a bright solar future
By Kirk LadendorfAMERICAN-STATESMAN STAFFMonday, March 24, 2008
The boomlet in the fledgling solar power industry may slow dramatically next year, according to a new market research report, but Applied Materials Inc. is undeterred.
Applied, the leading maker of semiconductor manufacturing equipment is pushing hard to expand its solar-power equipment business, shifting hundreds of jobs to the new market and landing record-setting deals.
For now, Applied is making the equipment in Germany, where government incentives promote solar power, Italy and Taiwan.
In the past, it has hinted broadly that it might consider making the equipment in Texas, where it has about 2,500 employees and its U.S. manufacturing headquarters for chip-making equipment.
But the company is looking for a strong commitment of support for solar power from state government leaders before it makes that move.
Applied is actively talking with Texas political officials to encourage the state to adopt a comprehensive incentives program for companies that make solar panels and that set up solar energy farms.
The state is a natural for solar power, said Applied spokesman Steve Taylor, because it has plenty of sunshine, big tracts of open land in West Texas, its own statewide electrical grid, a big market of electrical consumers and a supply of semiconductor industry workers whose skills are readily transferable to the new industry.
"We are going to start working with other companies in the industry to talk to legislators and government officials to help make Texas the Silicon Valley of solar," Taylor said. "Solar power has the potential to be something like the chip industry was in providing good paying jobs for many years.
"The City of Austin and Austin Energy have been at the forefront of alternative energy development," he added. "But the city can do only so much. The State of Texas needs to step up."
Applied has begun informal talks with key figures in the Legislature and the governor's office about creating a comprehensive incentives program for the creation of a solar power industry in Texas.
Those officials haven't jumped on the solar incentives bandwagon yet, but they are interested, Taylor said.
"They want to know more," he said.
Applied has plenty of motivation for its solar push. Early this month, it announced an industry record $1.9 billion deal with an unnamed international customer. Some analysts think the customer is tied to China's government.
Applied is attracting such major deals by not only making solar panel equipment, but also designing the factories to make panels and installing the equipment to make sure it runs right.
Part of the responsibility for that falls on Chris McDonald, an Austin-based Applied vice president over solar power factory projects.
Applied's ability to deliver a complete set of services, including equipment, factory design, installation and maintenance, gives it an advantage in dealing with major customers, such as large electrical utilities, McDonald said.
"Solar power is going to be really big," McDonald said. "Photovoltaics is important for our economy and important for the world."
Applied's early track record in the solar business is winning over some Wall Street analysts, including Ben Pang of Caris & Co. who upgraded the stock to a buy rating last week.
"We expect the company to announce positive developments for their solar efforts over the next several quarters," Pang wrote in a report to investors. "We think the announcements will be ... the primary catalyst for the stock."
Applied is the largest and richest of the world's chip equipment makers, with sales of $9.7 billion and a profit of $1.8 billion for the year ended last October. The company reported $122 million in solar-related revenue for the quarter ended in January, up from $32 million for the same quarter a year ago.
But analysts say that photovoltaics gives Applied a new fast-growing market where it can play a significant role.
Lux Research projects that the solar power industry will continue to grow rapidly, expanding to global revenue of nearly $71 billion in 2012, compared with $21.2 billion last year, a growth rate of 27 percent a year.
But the ride will be bumpy. The consultant says the world's manufacturing capacity for solar power panels will exceed supply starting in 2009 and that the oversupply condition will persist through 2012. That will cause a shakeout in the industry.
"The (solar power) market is now approaching a tipping point," wrote Lux analyst Ted Sullivan. "We project that the supply of solar modules will exceed demand in 2009, leading to falling prices and a shakeout among companies that aren't prepared to thrive in this new environment."
Lux said much of the growth in solar power in recent years has been pushed by government subsidies in Germany, Japan and Spain. Sales to those early adopters will subside over time, but Lux expects that new countries including India and China will introduce richer subsidies.
The U.S. has been somewhat slower to jump on the solar power bandwagon, but several states, including California, Washington and Oregon, have adopted aggressive incentive plans.
At some point, government subsidies for solar power may no longer be crucial.
Some analysts forecast a "crossover" where improved manufacturing solar technologies close the cost gap with conventional electrical power, which is being affected by rising prices for oil, coal and other fuels.
"We could be a few years away from cost parity," said Michael Kuhn, who heads Imagine Solar International in Austin. "It is on that path."
Once solar power reaches price equality with conventional electricity, there will be less need for government incentives, analysts say.
McDonald said that early adopters make their own forecasts for rising fuel prices over the next few decades, because solar power panels are expected to last up to 40 years. For some of those customers, there is no question that solar will be cheaper than conventional electricity sources in the future, he said.
After four decades in the chip equipment business, Applied is used to up and down cycles, and is not fazed by forecasts such as the Lux report.
"We are in this for the long haul," Taylor said. "We entered this market believing that it would mature and that the technology would improve for many years to come. We are in it for the full run."; 445-3622

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