Does a Move into Solar Make Sense for the Big Semis?

By Jennifer Kho and Rachel Barron

Cypress Semiconductor Corp. (NYSE: CY) plans to give away its stake in solar-panel maker SunPower Corp. (NSDQ: SPWR), cutting its strongest tie to the solar industry.

The company will distribute 42 million of its Class B shares – worth about $3.6 billion in value –beginning Sept. 29, CEO T.J. Rodgers announced Friday.

The semiconductor company owns 52 percent of SunPower, according to Cypress' most recent quarterly filing with the U.S. Securities and Exchange Commission, and holds 88.5 percent of the voting power. (The Class B shares have the voting power of eight common shares.) The divestiture completes the spinoff of SunPower from Cypress, which began divesting itself of the company in 2005, when it took its subsidiary public.

The news bucks the trend of semiconductor companies entering the solar industry, which came to the forefront when Applied Materials (NSDQ: AMAT) entered the solar market in 2006.

Some analysts have speculated that chip companies could have a natural advantage in the market and could pose a threat to incumbent solar companies (see Chip Giants Delve Deeper Into Solar). 

"We've been saying for a long time: This is the domain of the semiconductor guys," said Ron Pernick, a principal with Clean Edge, in June. "If Intel can take intelligence out of its semiconductor operations, spin it out and deliver on funding, who better to scale up manufacturing than one of the largest makers of chips on the planet?''

Intel (INTC) in June spun out a solar-cell startup called SpectraWatt, National Semiconductor (NSM) launched a solar-inverter technology called SolarMagic and Semiconductor Manufacturing International Corp. (NYSE: SMI) announced plans to make polysilicon for solar cells.

But a number of industry insiders have lately questioned whether being a big chip company is such a big advantage after all.

In July, Mike Rogol, managing director of Photon Consulting, said it's unclear whether being a big company is really an advantage (see Analysts Weigh Out Advantages).

"It's easy to imagine a big company building a pretty sizeable solar business and getting a lot of attention for entering the solar space, but it's hard to imagine a big company winning over a small company on cost and on flexibility," he said. "We now have officially zero examples of big companies succeeding in solar."

Rick Hill, CEO of Novellus Systems (NVLS), a semiconductor equipment firm, also is skeptical that the move to solar makes more sense for semiconductor companies than focusing on other growth prospects, according to The Wall Street Journal.

Still, more big companies are likely to continue entering the space – and not just chip companies.

DisplayBank, a research firm in Seoul, expects Korean display companies such as Samsung and LG Electronics to join the global rush to make solar cells next year, reported EE Times.

By 2013, Korea could deliver more than $8 billion in solar panels with a capacity to generate up to 2.6 gigawatts, the research firm forecasts.

Comments

[Smith:]

Intel could get in if they felt like it, but the margins are way too low. Betting on solar would reduce Intel's 60% gross margins and would make the books look bad. Intel has plenty of examples of products (e.g. Flash) where they could succeed if they tried, but they can't make enough money to make it worthwhile.

2008 Sep 11 08:41 AM

[Paul_M:]

Micron Semiconductor, here in Boise, has managed to compete in the DRAM field by keeping its focus on driving cost out of their processes. Solar cell technology currently suffers from high unit costs; the adoption of solar cell solutions is limited by the cost of the cells themselves.

Intel's strategic advantage is their ability to drive transistor count and processing power up, and their ability to engineer processor logic.

Solar cell manufacturing has no such ongoing technological development, it is a manufacturing process driven industry where the cost of manufacturing is the 'advantage'.

Solar technology is the future. Those companies who can manufacture solar cells at a minimum cost own this future.

It's strange to me that there is no visible effort at Micron to enter this field. It seems like a perfect fit.

2008 Sep 11 07:38 PM

[Road Runner:]

About half the cost of a solar system is other than the module price, like framing, electrical wiring, converters, installation, etc. There is much more to being a profitable solar company than making cheap modules. Sunpower, and others, know this so they are vertically integrated to bring down the whole system cost. These giant chip manufacturers have no experience in these areas and thus have limited competitive advantage when bringing down the total system cost.

I wouldn't be surprised to see Sunpower eventually form a partnership with a chip company that has developed a good, cheap, thin-film solar module. The chip company gets the system construction, installation, and distribution channels of Sunpower. Sunpower gets additional income, more efficient use of its distribution channels, and an additional, complementary product line (cheaper thin-film product vs. Sunpower’s compact, high-efficiency product) that increases Sunpower’s “push marketing”.

2008 Sep 12 10:41 AM