SAN JOSE, Calif. -- As expected, Applied Materials Inc. will discontinue its SunFab turnkey line for manufacturing thin-film solar panels, as part of a major restructuring effort in the segment.
As part of the moves, Applied (Santa Clara, Calif.) also plans to divest its low-emissivity architectural glass coating products. These actions are expected to impact between 400-to-500 positions globally. The company has also cut its earnings forecast for the quarter and will take a charge from $375-to-$425 million.
The restructuring plan is intended to make its Energy and Environmental Solutions (EES) unit a profitable segment in fiscal year 2011. Upon completion of the restructuring plan, annual operating expenses are expected to decrease by at least $100 million on an annualized basis.
For some time, rumors have been running rampant that Applied would scrap SunFab. Sunfab has been losing money, because the thin-film technology was never really competitive, as compared to traditional solar cells.
To date, Applied has sold ''more than a dozen'' SunFab lines, said Mike Splinter, chairman and CEO of Applied Materials, during a conference call. Most of the SunFab sales were ''single-junction'' lines for a range of customers. Applied was developing a ''tandem-junction'' line as well.
“While Applied has delivered significant innovations with our SunFab production line and made substantial progress on our technology roadmap, the thin film market has been negatively impacted by several factors, including delays in utility-scale solar adoption, solar panel manufacturers’ challenges in obtaining affordable capital, changes and uncertainty in government renewable energy policies, and competitive pressure from crystalline silicon technologies,” Splinter said.
The company will support existing SunFab customers with services. It will continue to offer individual tools for sale to thin-film solar manufacturers. Applied Materials plans to put an emphasis on opportunities in traditional crystalline silicon (c-Si) solar, where it also sells individual tools.
R&D efforts to improve thin-film panel efficiency and high-productivity deposition will continue. Applied’s solar R&D center in Xi’an, China will concentrate on advancing its c-Si solar and other technologies.
Applied also said it is making a big push in LEDs. As reported, Applied is also developing a tool for light emitting diode (LED) technology.The company is devising an MOCVD tool or hybrid technology for LEDs. Some analysts believe the tool is late to the party, however.
Lately, Applied has not been in a festive mood in solar. Several years ago, Applied made a bet to do ''turnkey'' thin-film solar technology--at a time when polysilicon prices were high. Applied devised SunFab--a turnkey line based on amorphous thin-film technology. Applied also sold gear for the non-thin-film markets.
Then, Applied was hit by the perfect storm. First, polysilicon prices fell like a rock in recent times. As a result, traditional solar cell makers could ramp more product at competitive prices, which impacted the thin-film crowd.
Second, Applied simply bet on the wrong technology. The efficiencies for Applied's SunFab were only about 8-to-10 percent. Applied was able to get the technology up to 10 percent efficiency. But in general, the technology was not competitive. Traditional soler cells are said to have efficiencies of 20 percent or more.
And finally, in 2009, the solar industry experienced its first-ever downturn. Suddenly, Applied began to spill red ink in its solar business. Its solar equipment business weathered the downturn, but SunFab suddenly looked vulnerable.
For some time, Applied has dropped hints that its loss-ridden SunFab unit was in trouble. Recently, it cut the funding for the technology and put the group on notice.
Meanwhile, the cost of implementing the EES restructuring plan is expected to be in the range of approximately $375 million to $425 million, or $0.18 to $0.21 per share, which will be reported as cost of products sold and restructuring and asset impairments in the company’s consolidated statements of operations for the third quarter of fiscal 2010.
As part of the total pre-tax cost, Applied anticipates that it will record the following charges: inventory charges of up to $240 million; equipment and intangible assets impairment charges of up to $95 million; employee severance of up to $50 million; and ther obligations of up to $40 million.
This is expected to impact between 400 to 500 positions. A number of affected employees may transfer to other groups or functions within the company.
Cash expenditures related to these charges are expected to be no more than $80 million. In addition to the charges under the EES plan, the company will record a favorable adjustment of approximately $20 million to the restructuring plan previously announced on November 11, 2009 due to changes in business requirements.
In May, the company announced its target for non-GAAP EPS for the third quarter of fiscal 2010 of between $0.22 and $0.26 per share, which did not include any potential restructuring charges. The revised target is for non-GAAP earnings of $0.10 to $0.14 per share, which would have been at the high end of the previous target after taking into account the approximately $0.14 per share impact of the inventory charges and other obligations related to the actions.
Given indications of future orders and backlogs related to Applied Material's #1 business I would think that the market would view this decision as quite positive for the company... but a quick scan of the market looks to show a small spike and then a [possible] settling to no gain. Hum.
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