Is Applied Materials changing of the guard good for its solar business?

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As reported, Mike Splinter, Chairman and CEO of Applied Materials (AMAT), is stepping down from the day-to-day running of the company, being replaced by Applied’s current President and former head of Varian Semiconductor, Gary Dickerson.

Although Splinter was instrumental in the major equipment supplier entering the PV equipment market, the cost of acquisition, investment in a-Si thin-film and subsequent massive restructuring costs across its PV operations in recent years has not been the initial and near-term success expected.

The changing of the guard is the first in 10-years for the company and really only the second in 20-years, (I started covering AMAT in the mid-1990’s) so the move could be significant on several fronts, notably its PV equipment business nestling within Applied’s EES Division.

It is no secret that financial analysts started questioning AMAT’s involvement in PV a few years-ago and Splinter’s response at times was typically corporate speak and thus less than clear as to its intentions.

Interestingly at AMAT’s 2013 annual analyst event, held every year at the beginning of SEMICON West and now co-hosted with Intersolar North America, no presentations were given by senior executives on its EES division.

Perhaps more telling is the fact that the financial analysts (except one) have stopped asking the company if it will shed its PV business and (except one) analyst have stopped bothering to ask any financial questions about its EES operations altogether.

Indeed, in AMAT’s latest quarterly conference call (August 15) only a couple of sentences were spoken on EES and nothing directly in relation to the PV element of the Division. 

Only in the Q&A session did the one financial analyst left interested in AMAT’s PV activities (Vishal Shah, Deutsche Bank) generate any executive commentary.

Shah asked in a long-winded, never direct but carefully chosen way, whether the company planned to exit the PV sector.

Splinter responded with the following:

“Well we've made significant cuts in OpEx there in the last year. I think it's on the order of about a US$120 million in the run rate OpEx cuts and in the solar business. The web [coating] business is actually doing very well. We don't talk about that very much, but that business is exceeding our expectations and pretty profitable.

“Relative to the solar businesses or any businesses within the company, we're not married to any particular business. We’ve operating profit goals that we have for businesses, businesses that meet those goals. We're going to invest and grow.”

Other than the fact AMAT hasn’t talked about its PV business in a long time either, his final comments could prove telling. Yet as it currently stands, there is little clear messaging as to AMAT’s PV strategy, technology and investment direction or anything-else about its PV businesses.

Enter stage, Gary Dickerson.

Joining AMAT with its acquisition of ion implant equipment market leader, Varian Semiconductor, Dickerson was instrumental in the company developing an implant tool for the PV industry.

As far as we are aware, AMAT continues to support ion implant for PV applications from Varian’s former HQ, while the small product team support the installed base and R&D activities on the East coast.

Dickerson is therefore fully-aware of the PV industry and supported in that knowledge by AMAT’s new CFO, Bob Halliday his former right-hand man (CFO) when running Varian Semiconductor.

From that perspective the changing of the guard at AMAT may not spell an end to the company being involved in the PV industry as quickly as it may suggest, with Splinter stepping away from the direct operational decisions and the most difficult one of what to do with PV in its EES business segment.

However, listening to AMAT’s analyst day presentations and its most recent quarterly conference call, the company is making renewed and significant investments in its semiconductor business and the only take-away is that semiconductor’s are its utmost focus going forward.

Not least because it was Dickerson setting the tone and direction of that strategy in the conference call.

“Today, I will focus on three areas, where we are building momentum for profitable growth,” noted Dickerson in the call. “First, we are shaping a more competitive company that can execute better, faster, and at lower cost. Second, the major industry trends translate into positive momentum for our leadership business segments that are enabling the key technology inflections in the mobility war. And finally, we have positive momentum in growth businesses that can drive significant incremental contribution to our financial performance.”

Putting Splinter's remarks and Dickerson’s together may of course still be greater than the sum of the parts but it’s the lack of any reference anymore to its PV business and emphasis on “profitable” and “growth” that is the issue.

Profitability and business growth in its PV operations vanished sometime ago and a real recovery in sales not expected until mid-2014 onwards, according to the likes of NPD Solarbuzz and many other equipment company executives.

The cost cutting within AMAT’s EES Division has also been brutal. Halliday noted in the latest conference call that AMAT’s overall headcount had been reduced by approximately 900 from 12-months ago, most of which concentrated in its EES operations. This on top of several other cost reduction efforts over the last few years. 

EES still isn’t profitable despite the cuts, posting net sales of US$45 million and new orders of US$19 million in the FYQ3. As in previous recent quarters that revenue is mostly attributable to its web coating business.

When Dickerson also noted in the call that, “In line with our strategic priorities, we have increased focus on our semiconductor business,” it doesn’t leave much to imagination what lays ahead.

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