"Supplemental" capacity expansions have badly inflated PV equipment suppliers' revenues to the point that it will eventually drag down equipment sales in 2012 and 2013, says Solarbuzz. The result: equipment suppliers need to align with Tier-1 makers' plans, not the end-market.

October 18, 2011 - Sales for PV equipment suppliers are "temporarily inflated" to the tune of $6B thanks to "supplemental" capacity expansions by Tier 2-3 manufacturers pushing their own sales goals instead of matching the industry's actual short-term demand, says Solarbuzz. And that overspend will be felt in lower revenues in 2012 and even 2013.

Global PV equipment spending for both c-Si (ingot to module) and thin-film panels is now seen at $13.1B -- that's down from the $14.2B Solarbuzz projected back in mid-July -- and then will sink another 45% or more in 2012, says Solarbuzz senior analyst Finlay Colville in a statement. (Reached via email, he confirmed the lower equipment spending outlook is "mainly due to cancellations and push-outs that have occurred in the past 3 months.") Nearly half of the 2011 spend is from new entrants or Tier 2-3 players whose "aspirations of rapid market entry or market-share gains" have turned out to exceed the capacity required to meet short-term industry demand. Later in the year, a "second strong cycle of thin-film investments also peaked" which boosted investments as well, Colville noted.

PV equipment spending declined by single-digit percentage points in both 2Q11 and 3Q11 as capacity expansion slows down and equipment suppliers' revenue subsequently softens. Don't be fooled by equipment suppliers strong (~21%) year-on-year comparisons in 3Q11, Colville warns -- on the horizon are "sharp declines in new order intake, resulting from PV manufacturers' concerns over capacity and demand levels forecast for 2012." In fact, he sees "double-digit Q/Q revenue declines" from 4Q11 through 2Q12.



PV equipment investment categories during 2011, c-Si ingot-to-module and thin-film panels. (Source: Solarbuzz)


The only equipment suppliers able to weather this storm are those with backlogs tied to poly-Si expansion in Asia and thus meeting upstream demand. (At the other end of the spectrum, some PV equipment suppliers could suffer -30% or even -70% sales declines -- e.g. those who benefitted from 2011 expansions for c-Si wafers/cells/modules as new expansion plans are pushed out.) Upgrades and replacements won't absorb the pullback in capacity additions, and any technology inflection point-driven upgrades "are likely to be spread across a wide range of competing high-efficiency schemes being investigated today," Colville writes. On top of this, look for a continued shakeout among PV cellmakers beyond just Europe and North America.

Thus, look for PV equipment suppliers to adjust their strategies -- from following incremental capacity matched to end-market growth, to now aligning with the roadmaps of Tier-1 manufacturers in Asia. That includes predicting the next upturn in PV equipment spending (both duration and scale) at the process-tool level. "The total addressable market for PV equipment today is heavily influenced by different investment motives and technology preferences, rather than capacity required under any rational supply-demand balance," Colville explains. "Forecasting the spending cycles associated with these motives and technologies throughout the different stages of the value-chains will be essential for tool suppliers over the next few quarters."