AMAT’s 1Q solar push: Paving the road to overcapacity?

Applied Materials’ fiscal 1Q11 results released yesterday (Feb. 24) showed strong growth in its solar division, with emphasis on c-Si tool sales, and increasingly positive visibility through the year. But do the numbers portend a serious industry overcapacity situation?

February 25, 2011 – Applied Materials’ fiscal 1Q11 results released yesterday (Feb. 24) showed strong growth in its solar division, with emphasis on c-Si tool sales, and increasingly positive visibility through the year. But do the numbers portend a serious industry overcapacity situation?


A look at the 1Q11 data:

 

  • EES (solar): Sales dipped -22% Q/Q to $476M; c-Si tool sales surged almost 30%, only partially offsetting the company’s SunFab write-off (AMAT also recorded $230M thin-film sales in 1Q11). Orders surged 22% to a record $668M. Operating income increased to $144M, partly due to an extra $28M from restructuring.

  • Overall: Sales $2.69B, down -7% from 4Q10 but up 45% from a year ago.

    Outlook for fiscal 2Q11 and fiscal 2011:
  • EES (solar): Sales up 10% Q/Q to $536M, but for the full year down -20% to -30%. Orders down about -25% to $500M. Solar installs, though, will be up 23%-47%, particularly strong in Germany, Italy, US (California), and China.

  • Overall: Sales flat to up 5% (midpoint $2.77B), way above consensus of ~$2.52B


    “Our outlook for the year as a whole is improving,” said AMAT chairman/president/CEO Michael Splinter, in the post-PR analyst call. “2010 was a strong recovery year across the board, and 2011 is shaping up to be even better.”

    Splinter sees continued robust growth in solar PV in 2011, with industrywide panel installations totaling 21GW-25GW, up from 17GW in 2010 (more on that later). 1Q11 shipments for both Baccini and PWS were >200 units, more than the first three quarters of 2010 combined. AMAT projects $7B-$9B of c-Si capex, up 30% from 2011, with 90% of new capacity coming from China and Taiwan. AMAT’s EES backlog is about $1B, with equipment lead times still around 4-6 months, added Davis; “the factories are pretty much all full-out.”

    But are those big numbers in solar, particularly c-Si, a warning sign of building overcapacity? The industry installed 6GW in 4Q10, translating to 25GW annual capacity; Splinter calculates 28GW of “effective production,” today, meaning factories are maxed out. “Today, there is not enough silicon, not enough wafering capacity to meet the demand that we expect to occur this year,” he said. Ultimately in 2011 he thinks end-demand for solar will be “very strong,” led by Europe (Germany and Italy), but also “many other countries getting into the mix, not only in Europe but now throughout the rest of the world.”

    That said, Splinter reiterated several times that the picture for solar in 2H11 is still hazy. Visibility is “improving and I would say strengthening, [but] it’s still hard to see in this market the second half of the year. We have to see continued demand growth to justify the capacity,” he said. “Our view is strengthening, but we still have to get some conviction.”

    Others are more concerned about what seems to be a massive build-up in solar. AMAT’s solar orders surged 55% in 4Q to $546M; now they’re up another 22% to $668M, and the company sees another $500M in the next quarter. Satya Kumar from Credit Suisse does some back-of-the-envelope math: Assuming a pricing of $0.10/W for PWS and $0.05/W for Baccini products, and a three-quarter average order level of $525M (almost all of it for PWS and Baccini, which have 35% and 70% marketshare respectively) — that translates into solar companies ordering 20GW-22GW of new capacity (vs. 16GW-20GW in all of 2010), and none of it applicable to the explosive 6GW installations of 4Q10. Translation: “Risks of a sharp oversupply in solar from 2H11 and into 2012 continue to increase,” he writes, warning that “rapid capacity expansions can lead to a quick change to oversupply for the solar industry.” Anticipating a return of sanity, he projects (hopes?) 2Q11 orders will “pull back” in 2Q11.
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