In reporting their first quarter FY’11 earnings on 24 February 2011, Applied Materials (AMAT) announced new quarterly orders within their Energy & Environmental Services (EES) segment (which is dominated now by c-Si PV-specific tooling) of US$668 million, comprised of new quarterly bookings records for each of the key product lines served by AMAT in c-Si manufacturing today: c-Si cell back-end solutions and wafer wire-saws.
The good news didn’t stop there. EES revenues reached US$476 million and the c-Si specific PV backlog is now estimated by Solarbuzz to be north of US$850 million. With c-Si equipment lead-times for AMAT tools in the 4-6 month range, this suggests continued strong PV revenues for AMAT through 1H’11. Finally, the operating profit for the EES segment – characterized as loss making during the thin-film Sunfab phase until just a few quarters back – posted a record of US$144 million.
Following recent commentary featured in PV-Tech on 18 November 2010 - when AMAT become the first PV equipment supplier to trend at the US$1 billion revenue level for PV-specific tools - additional milestones are now emerging.
AMAT’s PV-specific equipment revenues for calendar-year 2010 are estimated by Solarbuzz to be in the range US$1.49-1.50 billion, comfortably 50% greater than any other equipment manufacturer serving the PV industry today. And with run-rates now trending at ttm levels in excess of US$1.75 billion, 2011 PV-specific revenues (including recognition of the outstanding Sunfab tool) are on track to approach the US$2 billion mark.
There are several reasons contributing to AMAT’s most recent success, aside simply from their strategic focus on the c-Si segment early in 2010 when they discontinued new sales of turn-key thin-film Sunfab tools. Factors include: strong brand recognition of key process tools preferred by leading tier 1 c-Si manufacturers in China and Taiwan; successful (internal) ramp-up of tool manufacturing to meet strong industry capacity expansions; and short timelines between equipment-booking and revenue-recognition.
Revenue recognition policies need to be taken into account when predicting short term performance. Serving tier 1 c-Si manufacturers with qualified key process tools on a 4-6 month lead time provides high visibility on revenues which are going to be recognized just two quarters out. Interestingly, it also means that AMAT’s c-Si PV book-to-bill ratio is currently one of the most accurate barometers within the industry to assess the precise phasing of tier 1 capacity expansion sign-offs and equipment delivery dates.
At first glance, assigning book-to-bill methodology to individual key process tool suppliers may seem somewhat intuitive but - in reality - equipment supply historically to the PV industry has been far less prescriptive in nature. To explain this, comparison is drawn to equipment spending by PV manufacturers who currently fall outside of AMAT’s well-defined c-Si TAM customer grouping, thereby highlighting some of the problems facing other tool suppliers today.
Further upstream, suppliers of equipment to polysilicon producers can be confronted by 18 month order-to-revenue timelines with plant build-out often serving as the gating factor. Within the midstream c-Si segment also, turn-key c-Si lines can easily be subjected to shipment delays, prolonged tool sign-offs and even order cancellations, characteristic of increased risk assigned to new entrants (start-ups) who typically fuel this segment of the equipment spending market.
All across the thin-film sector, a host of different factors may contribute to unpredictable timelines associated with equipment orders being placed, shipped and signed off. For example, turn-key a-Si/uc-Si fabs have been known to suffer from a combination of the above two (revenue push-out) landmines; issues currently hampering the new guard of would-be Asian turn-key suppliers seeking to plug the gap occupied by the likes of AMAT until recently. And within the CIGS segment specifically, PV equipment suppliers can remain in a state of prolonged limbo, awaiting funding outcomes from a subset of CIGS manufacturers whose production process flows render them as potential customers.
The remaining factor behind AMAT’s PV revenue success lately is market-share gain. Quite simply, the more capacity expansions are dominated by aggressive (and vertical-integration aspired) tier 1 c-Si players in China and Taiwan, the greater AMAT’s market share within their overall c-Si TAM.
There is little doubt that the myriad of new (lower tier China-based) entrants tooling up along the c-Si manufacturing value-chain has created a viable (but potentially short-term) business model for equipment suppliers who are not part of the tier 1 producers’ expansion plans. However, quarterly c-Si equipment spending levels are becoming increasingly weighted towards repeat OEM volume purchasing of key process tools.
The one - not insignificant - dark cloud on the horizon (for AMAT and the industry as a whole) relates to the ongoing debate surrounding fab overcapacity. However, it should be noted that - while strongly correlated - overcapacity is somewhat different to oversupply. Over the short term, capacity drives equipment spending first and foremost, irrespective of fab productivity. (Review a-Si/uc-Si and CIGS equipment spending through 2011 as a case-study to verify this.) Oversupply is related to capacity conversion rates (or utilization) of fabs along the value-chain and their relative demand downstream.
Equipment spending levels could indeed remain robust in the short term. It only takes a handful of tier 1 c-Si producers in China to commit to multi-year projects to reach full vertical integration at the several-GW level which - coupled with the further elimination of legacy cost-constrained c-Si producers in Europe - can provide ongoing revenue opportunities for leading PV process tool suppliers.
On the flip side however, a significant downturn in PV market demand through 2H’11 may dominate proceedings in a more abrupt manner, both pushing out new capacity expansion sign-offs to 2012 and signalling the start of a downturn in the equipment spending cycle. The attached figure - adapted from analysis contained within the forthcoming April 2011 Solarbuzz PV Equipment Quarterly report - highlights the projected equipment spending trends from tier 1 c-Si cell manufacturers in China and Taiwan for 2011. The fall off in spending during 2H’11 reflects a softening in demand for 2012.
The outlook in 2011 for leading c-Si tool suppliers therefore shows high visibility during the first two quarters (based on backlogs), followed by a back-half of increased uncertainty as the year unfolds. Attention to book-to-bill trends over the next few months will provide key indicators here and in this respect, AMAT’s next reporting during May 2011 should offer strong signals to the PV industry as a whole as it forecasts tier 1 capacity trends for 2012.