Please ensure Javascript is enabled for purposes of website accessibility

Applied Materials Is Sunny Inside

By Jack Uldrich – Updated Nov 11, 2016 at 6:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Its solar business could spur future growth.

Earlier this month, semiconductor equipment manufacturer Applied Materials(NASDAQ:AMAT) stock took a hit when it announced that second-quarter income fell 26%. More ominously, company officials suggested that things could worsen throughout the year and orders could ultimately decline in the third quarter.

It’s hard to be optimistic about a company when such dark clouds are hanging over it, but just like your mom always said when you were little (and as my own mother still says to this day), sunnier days are ahead -- all you have to do is look for the silver lining in the clouds.

Looking on the bright side
This cheery outlook is deserved in Applied Materials’ case, because hidden amidst its gloomy semiconductor numbers was the announcement that revenue from its solar-panel business had almost doubled.

Is this a one-time anomaly? No. Last year, I wrote about the company’s $250 million deal to supply Moser-Baer India with equipment for a thin-film plant in India. More impressive still was the announcement this past February that Applied Materials had received a $1.9 billion order from an undisclosed foreign private company to purchase machinery for a one-gigawatt scale factory.  It was the largest sales agreement in company history.

Both announcements are especially noteworthy because they speak to how fast the market for thin-film photovoltaics is growing. Although officials at Applied Materials are quick to point out that it still sells a majority of its solar equipment into the crystalline solar market, the growth rate for the market for its thin-film equipment could reach around 100% a year.

A shining future
Solar energy still isn’t cost-competitive with grid electricity, but it is catching up fast. As it does, I expect a number of companies, including such heavyweights as Suntech Power (NYSE:STP), General Electric (NYSE:GE), and BP (NYSE:BP), to move aggressively into the thin-film space.

As they and a growing number of other private and mid-sized solar producers -- such as Uni-Solar, a subsidiary of Energy Conversion Devices (NASDAQ:ENER) -- do so, investors can expect even more deals for the company. It will take some time for the company to recognize the revenue from these sales, but it is clear to me that Applied Materials’ solar equipment business will make up an increasing portion of its overall revenue in the future.

Combine this fact with the possibility that its cyclical semiconductor business may also reverse its trend at some point, and I see much sunnier days ahead for the company.

Interested in other solar-related Foolishness? Check out these articles:

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Applied Materials, Inc. Stock Quote
Applied Materials, Inc.
AMAT
$84.29 (-0.88%) $0.75
BP p.l.c. Stock Quote
BP p.l.c.
BP
$28.08 (-8.80%) $-2.71
General Electric Company Stock Quote
General Electric Company
GE
$64.55 (-1.24%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.