Applied Materials & Solar – What’s Going On in Cleantech?

On May 11 I did a blog Applied Material’s stealth entry into the solar market. The column ended up being close to the mark, and was picked up around the blog world, including at Rob Day’s Cleantech Investing blog.

On May 4, AMAT announced it was acquiring Applied Films for $464 mm. Big news for cleantech.

From the press release:

“The acquisition is also anticipated to provide growth opportunities for Applied Materials in solar cell as well as flexible electronics applications where our combined knowledge and capabilities will enable us to bring a new level of expertise to these expanding markets,” said Mark Pinto, senior vice president and chief technical officer of Applied Materials. “In solar cell manufacturing, we expect to help customers deliver higher levels of output at lower production cost — a critical step to making alternative forms of clean energy more available and affordable. By combining Applied Films’ existing platforms with Applied Materials’ broad process portfolio and global customer relationships, we can also accelerate a number of new applications for electronics on flexible substrates.”

Remember, you heard it here first. In any case, this deal has been making the rounds in blog world, including on ChipShots, and definitely validates our earlier assertion that AMAT was entering the photovoltaic equipment end of the cleantech market.

Interestingly enough, I could find no US patents or applications by Applied Films mentioning solar. Perhaps their program is too new.

But that’s not the end of the story.

Applied Films makes the ATON product line, a sputtering systems that uses Physical Vapor Deposition. But it’s not my any means a large business for them yet, with a total installed base of around 10 systems, 15% market share, and only 5-10% of the company’s revenues by it’s own statements. At $2-4 mm/system, that’s $20-$40 mm of total installed base, which represents a minisicule fraction of Applied Material’s business. I cannot believe that AMAT has been spending time and money on a solar group just to evaluate an acquisition of a product line that small.

To follow on that information however, I received another rumour (unconfirmed) that Moser Baer, an Indian manufacturer of removable optical storage devices, is anticipating using AMAT to develop the production line for its announced 80 MW CdTe photovoltaic market entry, targeted in 2007. This would fit of AMAT’s typical practice of entering new markets on the back of a joint development effort with an initial customer. Moser Baer announced its solar plans in October 2005, though no mention of CdTe. Moser Baer did announce that expected project cost was US$58 mm, and that they were investing $25 mm in a subsidiary to kick it off, expected $150-$200 mm in revenues by 2008. This would put them in the top 10 producers globally. A couple of side tidbits, in April 2005 SunPower hired PM Pai, the former President of Moser Baer India Ltd, as COO. Incestuous world, I guess. Also, like with Applied Films, I could find no mention of any US patents or applications by Moser Baer relating to solar.

An AMAT CdTe angle would be intriguing on a number of fronts. Number one, CdTe is a bit afar afield from the what Applied Films seems to have been doing, as well as the process engineer job descriptions that AMAT has out. The Moser Baer rumor and the job ads, as well as AMAT’s patent solar portfolio would also seem to predate the Applied Films deal.

CdTe, a thin film solar process whose largest proponent currently is First Solar, has the theoretical advantage of being significantly lower cost than most solar processes. However, like many thin film processes, it has proven very tricky to do in volume while maintaining product quality, and does make not a particularly high efficiency cell. As most of the main issues in CdTe boil down to control and process consistency, areas where AMAT is particularly good, it would be interesting to see if AMAT were doing work in this area. That could be big news for the solar and cleantech industry.

It also continues to confirm my thesis that it is going to get harder and harder for venture backed startups to compete in solar. As big players enter the market, the window is tightening.

While I’m still trying to verify much of this information, my guess is Applied Materials is after a much bigger play, and that we should expect additional announcements over the coming months.

Neal M. Dikeman is a partner at Jane Capital Partners, a San Francisco merchant bank focused on energy technologies and cleantech.
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