Blog Post

The Hazards for Chip Makers in Solar: Applied Material's Solar Lesson

Late last year, National Semiconductor CEO and Chairman Brian Halla said at the EcoChip forum in Silicon Valley that the big chipmakers had relied too heavily on consumer electronics — a market that was then in rapid decline. “Too many of us were chasing the easy money,” he said, citing cell phones, video games and gadgets. The time had come, the EcoChip panelists from National, Actel and Cypress Semiconductors said, to chase money in semiconductors for energy storage, efficiency and clean power generation.

Well, semiconductor equipment maker Applied Materials (s AMAT) has been doing that — but the “hard money” in the emerging solar energy sector is just that: difficult. At least for now in this economy, given that the solar biz can be darn expensive. Case in point: One of Applied Materials’ top clients (a private, unnamed company) has cut its order for thin-film solar production gear by more than 85 percent to $250 million, down from $1.9 billion.

Back in March 2008, when Applied Materials revealed the thin film solar deal in an SEC filing, it buoyed the company’s stock as the rest of the sector declined. The company disclosed that the deal involved agreements to supply, install and to some extent service equipment for “multiple solar factories” based outside the U.S., as MarketWatch noted. Analysts speculated that it was part of a massive project in Suzhou, China, “that includes wealthy individuals related to the solar industry, a big component of government sponsorship and may also include some existing solar ventures.”

Oh, how times have changed. According to FBR Capital analyst Mehdi Hosseini, quoted in a Wall Street Journal report this afternoon, “The game has started to move a lot faster than what Applied Materials’ customers were anticipating.” The problem with Applied Materials’ so-called SunFab system, Hosseini explained, “is it is very expensive to install — it’s a higher fixed cost.”

The chip giants at the EcoChip forum last year prompted us to ask whether semiconductors could save the world. National’s Halla argued that they could do for renewable energy and zero-emissions vehicles what it did for consumer electronics: make them practical, affordable and profitable. World rescue might just have to wait until the economy turns around.