Solar Equipment Suppliers Go Splat

By Toby Shute | More Articles
May 13, 2009 | Comments (2)

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We've already seen the soft results from shops like SunPower (Nasdaq: SPWRA ) (Nasdaq: SPWRB ) and Evergreen Solar (Nasdaq: ESLR ) this earnings season. Now it's time for solar equipment suppliers to tell their side of the story.

First up is Applied Materials (Nasdaq: AMAT ) , which branched out from semiconductors and LCD displays to the solar PV market back in 2006. Applied Materials, a veteran in the capital equipment space, identified the early 2009 business environment as "reflecting a level of demand the company has not experienced for more than a decade." So that means things have been even worse than during the tech wreck. Not an easy feat.

In a sense, the solar business (falling within the company's energy and environmental solutions segment) was something of a bright spot in Applied Materials' rough fiscal second-quarter report. Segment sales more than quadrupled from last year, and rose 22% sequentially. The other three segments experienced declines, with the core semiconductor business dropping roughly 80% from last year's sales levels. That's just staggering.

The bad news is that new solar orders dropped off sharply, registering a 56% plunge from last quarter. As with First Solar (Nasdaq: FSLR ) and Energy Conversion Devices (Nasdaq: ENER ) , credit just isn't flowing in this space.

The difference between Applied Materials and the thin-film module slingers is that the latter companies are stepping in to help certain customers finance their projects. Applied refuses to do this, with management stating that it sees little added value in "playing the role of a bank."

Meanwhile, anyone banking on sunny results from GT Solar (Nasdaq: SOLR ) was sorely disappointed yesterday afternoon. The polysilicon and photovoltaic equipment specialist registered a sales slide of roughly 33% compared to last quarter, and per-share earnings missed analyst estimates by a wide margin. GT's guidance for its upcoming fiscal year is pretty grim as well.

As with Applied Materials, GT saw its backlog dip sequentially, but the percentage decline was only half as steep. I think that pretty much sums up the state of the solar capital equipment business: It's bad, but less bad than what's going on in semiconductors and other manufacturing businesses.

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Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool's disclosure policy knows that sometimes you're the windshield, and sometimes you're the bug.

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Report this Comment On May 14, 2009, at 10:26 PM, SymanPons wrote:

Applied Materials is missing a great opportunity to establish a new financing model. If they were to finance residential and small building solar electric systems and they retained a mortgage interest in the installed systems, the financing could be structured to allow the buyer to pay a monthly payment slightly less than the cost of the power that would otherwise have to have been purchased, thereby saving the buyer money every month. This is a very powerful financial incentive to installing a solar electric system to a building. As the cost of electricity goes up, as it most certainly is going to do, the buyer's savings is only going to increase. Other building owners are going to quickly realize the value of financing a solar electric system at this time.
Any smart investor is going to look into becoming an investor in solar electric systems. The break even point has more than been reached and a real opportunity to make money writing paper for solar electric systems has arrived.
A twenty year loan on a residential or other small building solar electric power system will provide a very good return to an investor as well as a substantial savings to the buyer if the loan is properly structured and amortized.
This is also true of additive solar heating and geothermal heating systems.
A return of 8 or 10% for an investor for a loan that is also backed by the solar equipment is a safe investment. There are also many incentives from federal, state and local governments that will increase an investors return, as long as they last.
Report this Comment On May 14, 2009, at 10:30 PM, SymanPons wrote:

Applied Materials is missing a great opportunity to establish a new financing model. If they were to finance residential and small building solar electric systems and they retained a mortgage interest in the installed systems, the financing could be structured to allow the buyer to pay a monthly payment slightly less than the cost of the power that would otherwise have to have been purchased, thereby saving the buyer money every month. This is a very powerful financial incentive to installing a solar electric system to a building. As the cost of electricity goes up, as it most certainly is going to do, the buyer's savings is only going to increase. Other building owners are going to quickly realize the value of financing a solar electric system at this time.
Any smart investor is going to look into becoming an investor in solar electric systems. The break even point has more than been reached and a real opportunity to make money writing paper for solar electric systems has arrived.
A twenty year loan on a residential or other small building solar electric power system will provide a very good return to an investor as well as a substantial savings to the buyer if the loan is properly structured and amortized.
This is also true of additive solar heating and geothermal heating systems.
A return of 8 or 10% for an investor for a loan that is also backed by the solar equipment is a safe investment. There are also many incentives from federal, state and local governments that will increase an investors return, as long as they last.

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