Applied Materials sees strong earnings, posts record c-Si PV bookings, but SunFab unit takes big hit

Negative backlog adjustments of $184 million came primarily from EES, with thin film making up the majority of that portion due to cancellations. 

The EES group’s orders did increase 64%, almost exclusively because of strong demand for Applied Materials’ wafering and metallization equipment for crystalline-silicon solar cell manufacturing, mainly from Chinese customers.

Company officials said during the conference call that it was the highest-ever quarter for c-Si bookings, and they expect 25% growth in sales. Some 1GW in nameplate capacity of Esatto tools had shipped during the period, with another 50% increase in production run-rate seen for that c-Si product line over the course of the year, according to Mike Splinter, Applied’s chairman/CEO.

Despite the bullish outlook, he cautioned that “while demand signals for crystalline-silicon equipment remain strong in the near term, we’re closely watching the longer-term capital spending outlook, given the growing potential for overcapacity, the change in the value of the Euro, and uncertainty about future European incentives.”

However, the ongoing woes of the SunFab thin-film equipment have forced Applied to move toward restructuring the unit, taking what Splinter called “decisive steps to realign the business with a lower market outlook,” Splinter said.

“The second quarter [for thin film] was very difficult in all respects,” he explained in a prepared statement during the call. “A large customer filed for insolvency, a major new customer failed to secure financing, and several other customers experienced weaker outlooks and reduced their spending plans. These events have significantly reduced our thin-film solar revenue expectations for the year and lowered our demand forecast for new factories.

“As a result, our thin film performance for 2010 will be well below expectations, and we now expect that EES will not meet its goal to achieve breakeven for the year on a non-GAAP basis. We have viewed breakeven as an important milestone for EES that would contribute a substantial improvement to our company’s profitability,” he continued.

“Since that goal is no longer achievable, I have asked our team to develop a plan that will accelerate reductions in our thin-film cost structure beyond the levels we discussed in our recent analyst meeting. These reductions will bring our costs in line with the lower demand profile, while allowing Applied to meet our commitment to existing customers. I expect the plan to be finalized by the middle of June, and I expect EES to make a positive contribution to our company’s financial performance in fiscal 2011.

“Going forward, we will continue to sell SunFabs, but only where we see an acceptable return on the investment. Our confidence in the long-term potential of the thin-film solar market remains high. We know that Applied has the technology and people needed to drive excellent solutions. However, we must have a business that stands on its own,” Splinter concluded.

The company head was asked during the question-and-answer segment of the conference call what kinds of projects might make ROI sense in terms of future SunFab engagements. He replied that “there are a number of different kinds of projects that make sense,” including “large projects with utility companies in China or major companies in India,” adding that Applied is “having discussions with a number of those companies.”

Splinter also said that upgrades, both capacity expansions and tandem junction-related, would “make very good sense and have excellent returns on investment for the company.”

CFO George Davis, responding to a question about any potential liability issues related to SunFab gear sitting in backlog, reiterated the company’s continuing commitment to its current thin-film PV customers.

Noting that virtually every factory acceptance has been signed off, he explained that “the revenue shortfall we’re seeing is typically coming from customers unable to pay bonus obligations that reflect performance in factories above original specifications.”

“The majority of the inventory we have today is associated with installed equipment in factories that we expect to sign off at the end of this year,” he added.