Applied Materials to “Redesign” Sunfab Business $AMAT

The slump in Applied Materials’ SunFab solar linecontinued Wednesday with sales and orders tumbling in the second quarter and the red ink increasing.

With the business now at perilous levels, Applied Chief Mike Splinter said sharp cuts were on the way, even after an $83 millionsecond-quarter write down of SunFab equipment the company doesn’t thinkit can sell.

"We are taking decisive steps to redesign the business with a loweroutlook," Splinter told analysts on a conference call.

The move will push Applied’s entire solar energy business into thered for the year and delay its first profitable quarter until 2011.Applied had hoped for profits by late 2010.

The move is a blow for the beleaguered operations. Applied hasmaintained that SunFab has a lucrative future making large solar panelsfor utility-scale solar farms. In early March, we reported on rumors and speculation that AppliedMaterials might look to scale back or even sell its group that makes equipment for amorphous silicon solar panels. After that, analysts at Goldman Sachs attributed a rise in Applied’s stock to newsreports that the company might actually scale back on SunFab. Then at the end of March, Applied indicated it would reduce its investments in SunFab.

In April, Signet Solar, Applied’s first customer, pulled plans to build a factory in New Mexico, while another early customer, SunFilm, filed for bankruptcy protection. SunFilm was actually two Applied customers in one: last year, it boughtSontor. Then just recently, Masdar PV, another large customer, abruptlygot rid of its CEO.

Applied claims panels can reach 10 percent efficiency this year – animportant step in competing with crystalline cells.

Splinter tried to put a brave face on the set back. He said thecompany is in business discussions with large utilities in India andChina, where large-scale facilities might make sense.

Applied has accumulated a significant amount of data about production yields and plant efficiencies and knows the formula for success, hesaid. The key is gigantic fabs, where upfront costs can be spread over a large output.

But success seems more distant. The company admitted the backlog oforders for SunFab equipment fell to $400 million – roughly two thirds of what it was a couple quarters ago. On top of that, sales for the entire energy and environmental business fell 54 percent in the recent quarter to $166 million, primarily because of a thin-film shortfall. Theoperating loss for the division was $145 million, including theinventory write down.

"Applied sounded more like it is going to wind down or reduce thisbusiness," said Neeham & Co. senior analyst Edwin Mok, who listenedto the conference call. "They are scaling back."

In contrast, sales of equipment used to make crystalline siliconsolar cells boomed in the quarter. Orders reached record heights withmanufacturers racing to add capacity, says Chief Financial OfficerGeorge Davis. "We’re seeing very strong demand, mostly from China,"

Unfortunately it is not for thin film



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