Cloudy Future for Applied Material's SunFab - Barron's

Applied Materials (AMAT) is up 8% this year (vs. Nasdaq -14%) as investors eagerly anticipate an announced $3B in orders from its SunFab solar-panel line, which promises to produce bigger, cheaper solar panels than those of industry leaders Sharp (SHCAY.PK), SunPower (SPWR), Suntech Power (STP) and First Solar (FSLR). But Barron's Bill Alpert thinks bulls may be jumping the gun: The company has yet to show it's able to install the huge 5.7 square-meter panels.

Solar power companies are still struggling to bring the per-kilowatt price of solar energy closer to grid parity (that is, in line with the cost of traditional electricity). A shortage of raw polysilicon that is used to make solar wafers has limited production and pinched margins.

Along came First Solar and began manufacturing solar wafers with cadmium telluride. It absorbs sunlight better than polysilicon, and requires a film 1/100 as thick as a typical polysilicon wafer. First Solar thinks it can hit grid parity by 2012. That's why its shares are up 375% over the past year.

Applied Materials SunFab is decidedly less novel. It uses thin dual silicon films, which are less efficient than cadmium telluride. AMAT thinks it can drive costs way down (17% cheaper than FSLR) by manufacturing panels six times as wide as First Solar's, but acknowledges there is not yet installation machinery that can handle the mega-panels. Even if it could figure out how to build them, the huge glass plates could drive installation costs up.

A Goldman analyst says recent bullish trading in AMAT reminds him of the dot-com bubble. Citi's Tim Arcuri says he's in the "show-me phase."

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Claymore and Van Eck registered the first two solar energy ETFs in March. That's a no-brainer: they will likely gain instant popularity.

Remember that AMAT is in essence a semiconductor company. Credit Suisse's Satya Kumar (noted in Barron's) says its core semiconductor and panel businesses are worth less than $13 a share, based on EPS forecasts of less than $1. There's an awfully big SunFab premium in the stock.

Comments

[Dr. Duru]

I am confused. I thought thin-film panels are LESS efficient (but cheaper) than polysilicon-based panels?

[SA EditorEli Hoffmann]

It's a good question Dr. Duru. Here's my understanding: FSLR's cadmium telluride wafers are less efficient, overall, than competing polysilicon products. But because its wafers are a fraction of the size, the material itself is actually better at absorbing sunlight.

Here is the relevant section from Barron's:

"First Solar doesn't use silicon crystals, employing instead another semiconductor called cadmium telluride that better absorbs sunlight. More importantly, the company puts down just a thin film of the material, which is just one-hundredth the thickness of a typical solar wafer. The resulting thin-film panels are much cheaper, even though they convert sunlight to electricity less efficiently than silicon wafers."

[Andrew Ling]

Eli, AMAT never said their sunfab equipment could produce cheaper than FSLR. I'm assuming the 17% cheaper figure is based off of AMAT's 2010 goal of $1.00/watt vs FSLR's 2007 costs of $1.17. Hardly a fair comparison. Check out my similar article
seekingalpha.com/artic...

[SA EditorEli Hoffmann]

Hi Andrew,

According to the Barron's article, AMAT's CTO Mark Pinto says SunFab could turn out modules for $0.80/watt, vs. $1.00/watt for FSLR, according to their presentation.

Of course Barron's is very skeptical about their ability to follow through...

BTW, that's a tremendous piece you wrote, and a great follow through in the comments section. I am far from an expert on solar technologies, but I think I got the facts straight from Barron's.

[Ideal]

Eli:

You mention: "...AMAT's SunFab line...promises to produce bigger, cheaper solar panels than those of industry leaders Sharp (SHCAY.PK), SunPower (SPWR), Suntech Power (STP) and First Solar (FSLR)."

According to a SmithBarney report (Feb 21, 2008), Suntech Power is an AMAT customer. And I have seen several articles mentioning Sharp as another AMAT customer. So AMAT may actually be a supplier to some of these "industry leaders".

Yes, there could be startup issues for newer technologies. But I see follow-on orders from AMAT's customers (Moser Baer, Sontor/Q-Cell, etc.) for their solar equipment after Pilot production. It would just be absolutely incredible if companies placed follow-on orders while they continue to have problems with their Pilot Plants.

Also, AMAT acquired Baccini due to their capabilities in extremely thin

[Key]

very nicely written article.

@Duru: you are right, less efficient but MUCH cheaper in terms of cost per area. So, if you have enough space, you probably end up in more cost-efficient panels = cost/Wp (Watt peak). However, installation cost rise, therefore my understanding is wafer-based panels can still compete, especially in residential installtion.
Same irradiance provided, the amount of energy (money) that you can generate with a certain capacity (Wp) depends on how the cell technology absorbs the sunlight. Thin-film based panels usually doesnt have such a negative temperature coefficient and it can better absorb indirect irradiance.

@Eli: I think you underestimate AMAT, they have huge experience in building fabs, semi and display, which is not so much different from solar.
They also hired some of the finest scientists in the solar industry (former chief scientist of Nanosolar).

[Andrew Ling]

Eli, if AMAT's equipment is really able to produce at $.80/watt the $3 capex/watt investment may be worthwhile. The question would then shift to installation costs. The physically huge panels should in theory also reduce installation costs. However, we'll have to wait and see since as you mentioned no one has yet dealt with such huge panels. If they succeed in economically installing such huge panels I'd expect FSLR to follow suit within the next few years with a larger substrate.

Installation costs really are one of the few things the monocrystaline manufacturers have going for them, along with limited area systems such as the retail market. Lower efficiency panels involve higher installation costs.

[PB73]

In response to AMAT's commitment and doubt to deliver....AMAT has alway over commited to it's customers based on the philosophy...buy the land now you can always plant the harvest later...Thus AMAT will struggle to meet commitments early but will throw enough resources at it to meet any SLA that was signed with the purchase. They will either meet their commitment or the solar group will go belly up trying...from my experience I am betting on success.

[EnergyFinancier]

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The conference brings together financiers, investors, and renewable energy project developers to network, strike deals, and to learn how money is made in the industry. In short, it is a "must attend" event for anyone involved in the renewable energy sector. For more information, visit www.REFFWallStreet.com.