In reporting its fourth-quarter earnings, Applied Materials (AMAT) announced net sales within its Energy & Environmental Services (EES) segment (which includes PV tool revenues) of US$606 million. Accordingly, Solarbuzz equipment supplier analysis reveals that AMAT has just reached a significant landmark: the first equipment supplier to reach and exceed the US$1 billion barrier for PV-specific trended ttm tool revenues. Certainly, this achievement offers comfort to tool suppliers that the PV segment has grown to an appreciable level. However, while every other PV tool supplier would welcome reaching this milestone, AMAT’s road taken to the US$1 billion PV revenue mark has been far from incident free.
This guest blog for PV-Tech explains why, in a year when media attention has often dealt with the dwindling backlog and subsequent discontinuation of one of its flagship PV-specific products, AMAT’s PV revenues have stabilized at, and then considerably exceeded, the US$1 billion trended ttm level.
When AMAT unveiled the ‘Going Solar’ initiative in September 2006, revenue targets for 2010 were to be enabled by turnkey a-Si/µc-Si SunFab production lines outputting Gen 8.5 panels with manufacturing costs at 70¢/W, module ASPs at the US$1/W level, and tandem-junction cells with 11% efficiency. AMAT’s initial goal for PV tool revenues by 2010 was US$500 million. And following a flurry of SunFab contracts signed during 2007, many analysts considered this target was, if anything, somewhat conservative.
However, opinion would remain divided within the industry. Some questioned the viability of a long-term strategy founded upon the ‘one-stop shop’ fab-provider approach (regardless of PV absorber type or panel dimensions involved). Others were more optimistic and suggested that SunFab revenues would exceed US$1 billion during 2010, with the panel manufacturers playing a pivotal role within the PV industry’s overall cost reduction roadmap.
In reality, the subsequent revenues recognized by AMAT following SunFab deliveries provided a highly effective means of rapidly gaining PV equipment market share. As a result, this propelled AMAT overnight to become the leading PV equipment supplier (on revenue terms); and all within just two years of its ‘Going Solar’ initiative rolling out.
Further, during this period, AMAT also became a key player within the c-Si equipment supply chain. But, this time, by embarking upon an acquisition-based strategy. This included HCT Shaping Systems in June 2007 and then Baccini in November 2007. As such, this significantly increased AMAT’s overall SAM within the PV equipment segment and provided further upside to the original thin-film enabled PV revenues on offer. This helped create a more balanced product portfolio and would position AMAT well for periods of strong c-Si growth.
Fast forward to November 2010. SunFab lines are no longer a part of AMAT’s PV product portfolio. Yet AMAT has just become the first equipment supplier to break the US$1 billion barrier for trended ttm PV segment revenues. To understand this apparent anomaly, it is necessary to review both the breakdown in AMAT’s PV revenues of recent between c-Si and thin-film tools and, more importantly, the prevailing market dynamics that have influenced equipment spending trends throughout the PV value chain during 2010.
In contrast to its original thin-film dominated revenue targets, AMAT’s growth trajectory beyond $1B ttm revenues through 2010 has not been driven by organic revenues (though vacuum deposition tooling within thin-film production lines).
Rather, during the past four quarters, PV revenues reported have seen increasing contributions from process tools which trace their origins back to HCT and Baccini: companies which, prior to 2007, provided key process tools at different stages throughout the c-Si value chain (HCT with wire saws for wafering and Baccini with screen printers for BEOL metallization).
But there are many external factors that have also come into play to stimulate AMAT’s trended ttm PV revenues to beyond the US$1 billion level, other than purely holding or increasing market share within individual c-Si process tool revenue segments:
• c-Si cell types have not only maintained dominance within the industry but have increased their market share this year when compared to thin-film panel types. Solarbuzz estimates that for 2010, c-Si cells will account for 85-90% of all PV cells produced worldwide.
• Capacity expansion across the c-Si value chain (mainly from leading Tier 1 c-Si manufacturers within China and Taiwan) has seen 100MW+ additions not simply being announced, but enacted, nearly every quarter through 2010.
• Tooling used within c-Si cell manufacture is still heavily biased towards established (standard) process tool types. Many of the high-efficiency c-Si roadmap inflection points have been deferred to at least 2012 or beyond (thinner wafers, noncontact printing methods, back-contact cells, etc.). This strongly favors equipment suppliers that offer established tool types characteristic of the standard c-Si process flow.
During 2007, HCT and Baccini had been operating with a combined (preacquisition) PV equipment annual revenue run-rate at the US$150-200 million level. Solarbuzz analysis reveals that, by applying Q/Q c-Si wafer/cell industry revenue growth rates out to 2010, ttm revenues at the end of Q3 2010 from these two companies’ PV product offerings would have resulted in revenues at the US$750-850 million level (assuming static market share)—within approximately 20% of Solarbuzz estimates for the c-Si share of AMAT’s PV revenues for 2010.
Looking forward to 2011, AMAT will start the year with a PV SAM considerably lower than 12 months ago, mainly on account of the company discontinuing SunFab products to new customers from July 2010, and a backlog for thin film at around 15% Y/Y. Furthermore, c-Si tool suppliers collectively are facing a coming year with flat to negative revenue growth rates being forecast for c-Si equipment spending (as outlined in the recent PV Equipment Quarterly report).
Revenue upside may however be available to many c-Si tool suppliers, including AMAT, through increased adoption of next-generation screen-printing tool variants within selective emitter concepts or simply as part of incremental efficiency enhancements at the BEOL through double printing.
Indeed, line upgrades may provide significant revenue contributions during 2011 if forecasted overcapacity along the c-Si value chain puts a halt to recently announced expansion plans, thereby (re)prioritizing efficiency enhanced retrofitting as a key deliverable.
Ultimately however, AMAT remains larger by market capitalization, has a broader global reach, and has more experience in capital equipment tool supply than any other equipment company serving the PV industry today.
As such, maintaining PV revenues at the US$1 billion ttm level remains a distinct possibility, but one that probably depends on AMAT increasing the size of its PV SAM through the second half of 2011. To provide some comparison, Centrotherm—on track for double-digit Y/Y PV revenue growth during 2010—participates in a broader range of PV tool segments and caters to a greater number of customer profiles: from key process tools used across the c-Si and thin-film value chains, to various types of turnkey lines, to drop-in high-efficiency upgrade packages.
The accompanying figure shown below illustrates the themes underpinning the narrative above. First, the upper line captures the evolution of AMAT’s PV-specific ttm revenues from CY Q3’08, further trended here by summing three-quarter rolling averages. (Solarbuzz analysis on PV equipment suppliers often utilizes 3QRAs to provide a clearer understanding of revenue trends by smoothing out lumpiness associated with large one-off bookings or delayed timing in revenue recognition which would otherwise provide misleading information on a quarter-by-quarter basis.)
The lower line then highlights Solarbuzz modelled projections using HCT and Baccini (preacquisition) PV-specific revenues extrapolated with equipment spending growth rates taken from the PV Equipment Quarterly.
In viewing the convergence of these two lines, the impact of strong PV equipment spending for c-Si expansions during 2010 can now be seen as a key factor behind AMAT maintaining ttm revenues close to the US$1.0 billion level, while at the same time compensating for the decline in thin-film SunFab revenues.