Applied Materials expects to grow solar biz in ‘09, despite order push-outs

Although recently crowned the largest equipment supplier to the photovoltaics industry by a market research firm, Applied Materials isn’t immune from order push-outs and cancellations as the PV manufacturing supply chain struggles with the lack of credit to finance business growth. In its FY1Q09 conference call, Applied’s executives noted that its EES (Energy and Environmental Solutions) business unit, which incorporates its solar sales, saw revenue of approximately US$800 million in 2008. The expectation is that sales will exceed this figure in 2009, though specific guidance was not given.

However, Mike Splinter, President and CEO of Applied Materials, guided that the overall crystalline silicon equipment market will be down about 50% Year-on-Year in 2009. Its ‘SunFab’ thin-film equipment sales would also be impacted by the difficulty with some customers accessing lines of credit. Splinter noted that a gap of several quarters is now expected before ‘SunFab’ sales resumed.

Applied reported EES sales down 34% from FYQ4 while revenue dropped 33%. This was due to a decline particularly attributed to its precision wafering business. Applied noted that it was forced to take US$210 million off its bookings backlog specifically from China-based wafering customers as order push-outs exceeded its 12-month recognition window.

Applied’s order backlog declined 16% to US$4.05 billion in the quarter reported, compared to the previous quarter of which EES represented 34% of its backlog. Approximately half of the EES backlog is related to its thin-film technology, according to the company.

This could well be the area that gives Applied confidence in beating 2008 sales in the solar sector. Executives noted that all ‘SunFab’ orders were fully secured against Letters of Credit and that the majority of initial ‘SunFab’ lines had now been shipped. The company says that it has recognized revenue on its second and third ‘SunFab’ lines during the quarter.

“We expect at least one additional ‘SunFab’ sign off in Q2,” remarked George Davis, CFO of Applied Materials in the conference call. “Any revenue upside in our EES segment would come from acceleration of other ‘SunFab’ factory acceptances as we are seeing improvement in our start-up cycle time.”

Applied also noted that it has five further ‘SunFab’ lines to be qualified in order to realise revenue, intimating that a few of these would be qualified in 2009.

However, Splinter said in response to analysts' questions that four lines could now be recognized after 2009. As a result a question mark has been raised over Best Solar as a customer, which has completed construction of its first thin-film plant but has yet to take delivery of equipment.

Applied said that it had approximately US$120 million in orders related to ‘SunFab’ projects in the quarter, which was further business from several existing customers.

Splinter reiterated in the Q&A session of the conference call that some of its existing ‘SunFab’ customers are planning further expansions and that Applied was working closely with them on scheduling, though did not provide further details.