With flat (potentially flat-to-negative) PV demand being factored into manufacturers' 2012 guidance and strategy, the prospects for the PV equipment supply-chain remain particularly bleak in the short-term.
Unlike previous years - where capacity expansion plans were enacted somewhat independent of demand projections – it would seem that capacity being added during 2012 is being done with more caution, reflecting visibility in order books and current fab utilization rates.
Whether it is simply fiscal prudence or supply/demand rationality that is forming the basis of the significant reduction in CapEx plans for 2012 is hard to gauge for now. Either way, the decline in new production lines being added represents a considerable blow for equipment suppliers that had relied upon new capacity in the past to justify a PV-specific business unit.
Some equipment suppliers are still banking on a frenzy of upgrade equipment spending, as manufacturers rush to adopt new high-efficiency processes to remain competitive. Indeed, some pretty bullish estimates have been brandished here. But rushing to such a conclusion is hard to justify when the full facts are considered.
Upgrades and retrofits of aging capacity are not new, and have been a regular feature among manufacturers that have been building up capacity during the past 5-10 years. High-efficiency upgrades are a different matter altogether, and it remains a fact that very few efficiency-enhancement processes have been successful within the PV industry. New concepts frequently get to pilot-line phase, but are then deemed to be unjustified based upon lower yields and higher manufacturing costs.
The illusion that some 200+ tier 2 and tier 3 manufacturers are going to upgrade legacy equipment in an attempt to challenge tier 1 players should also be tempered somewhat with reality. A closer look at manufacturing costs, downstream sales channels and access to end-markets reveals greater obstacles preventing such a scenario unfolding. It is more likely that many of the PV manufacturers that transitioned from adjacent manufacturing segments to the PV industry during 2009-2011 will choose to return to their core business activities.
But perhaps the most troubling issue regarding capacity ‘enhancement’ or high-efficiency tool upgrading resides in the lack of synergy in the various approaches being pursued across all tier 1 manufacturers today. Competitive dynamics have prioritized in-house IP and differentiation as the basis of long-term roadmaps for leading manufacturers. This provides a particularly challenging task for equipment suppliers seeking to introduce new products overlapping with technology inflection points – and acts as another key obstacle hindering the mystical double-digit-billion-dollar tool upgrade opportunity.
The dearth in new capacity additions for 2012 – and the lack of technology upgrades – is directly seen in the order books of leading PV equipment suppliers also. New PV order intake for the top-10 PV equipment suppliers for 2011 is forecast to decline by 85% in Q1’12, compared to the US$2.2 billion of new PV equipment orders booked in Q1’11.
As the industry digests the full implications of trade tariffs being imposed on Chinese manufactured c-Si cells, upside may be provided if favored Taiwanese cell makers see stronger-than-expected demand for 2H’12 from leading module suppliers in China. However, it should be noted that a considerable portion of Taiwan-produced cells have been shipping to China and Japan in recent years and US-bound module supply may simply utilize existing supply relationships already in place between China and Taiwan.
It seems somewhat inevitable – and long overdue - however that capacity expansions (and equipment spending) will become increasingly dominated by a select group of tier 1 manufacturers across the entire value-chain. This will represent a significant reduction in the customer-pool for the PV equipment supply-chain, and is likely to effectively end revenue-streams for suppliers that had been benefiting from lower tier manufacturers in the past. Being aligned with the strategic roadmaps of the leading tier 1 manufacturers is now an absolute necessity, regardless if the technologies or tooling required appears at odds with legacy technology roadmaps championed by the industry.