To: RetiredNow who wrote (342945 ) 7/19/2007 11:30:04 AM From: Road Walker Read Replies (1) | Respond to of 1575191 Applied Materials lays big bet on solar panel business IAN KING Bloomberg Newstheglobeandmail.com . July 18, 2007 SAN FRANCISCO -- Applied Materials Inc. spent $1-billion (U.S.) and hired 500 engineers to get a foothold in solar panel equipment. Now it must prove to investors that the business isn't just an expensive science project. Chief executive officer Mike Splinter estimates the market for electricity-generating machinery is $1-trillion a year. His goal is to make solar panels cheap enough to produce electricity at a competitive rate. "We're quite confident," Mr. Splinter, who is addressing analysts today in San Francisco, said in an interview. "The issue is how long it will take." Shares of Santa Clara, Calif.-based Applied Materials hit a 52-week high yesterday, closing at $21.80 on the Nasdaq Stock Market. The stock is up 18 per cent year to date, and 42.7 per cent in the past 12 months on a total return basis. It has a dividend yield of 1.1 per cent. Print Edition - Section Front Section B Front Enlarge Image The Globe and Mail Machines made by Applied Materials have run most of the world's semiconductor plants since the company was created in 1967, helping make more chips at a lower cost. The challenge is to do the same for solar panels, which so far generate less than 0.1 per cent of the world's electricity. "My whole question with the solar industry at this point is that it's a big Al Gore research project," said analyst Mark FitzGerald at Banc of America Securities in San Francisco. "There's no doubt the technology works, but at what cost?" Former U.S. vice-president Al Gore urges a switch to alternative power to cut dependence on fossil fuels. U.S. companies including Wal-Mart Stores Inc., Google Inc., Microsoft Corp. and Applied Materials itself plan to use solar panels for at least some of their power needs. Installation of the panels rose about 20 per cent in the United States last year. The price of solar-generated electricity must fall by half before it is competitive with fossil fuel power, said Charlie Gay, who headed the National Renewable Energy Laboratory under former U.S. president Bill Clinton. Mr. Splinter hired Mr. Gay last year to head Applied Material's solar business. "It's doable," Mr. Gay said in an interview. "It's within reach now. It's within the next three to five years." On average, a solar panel installation will generate electricity at between 20 and 40 cents a kilowatt-hour over a 25-year lifespan, according to the Solar Energy Industries Association in Washington. The average retail price of electricity is 10.5 cents, says the U.S. Energy Department. For homeowners, installing solar panels typically costs between $30,000 and $40,000, Mr. Gay said. Mr. Splinter, 56, is seeking to blunt the impact of a slowdown in the chip industry, a $40-billion market whose boom-and-bust cycles make it difficult to predict Applied's sales. The solar business will add $500-million to Applied's sales next year and double in each of the next two years, bringing in as much as $2-billion in annual revenue by 2010, Mr. FitzGerald said. The confidence is partly based on lessons from television makers. Rising demand for big flat-screen TVs sparked a race to make them out of ever-larger pieces of glass. The result was cheaper manufacturing, which benefited Applied. The company supplies TV makers with machines that can process sheets of the electronics-coated glass the size of a double bed, a business that accounted for 8 per cent of its $2.5-billion in sales last quarter. Solar panels may generate 5 per cent of sales in 2008, Mr. FitzGerald estimated. While solar panels typically aren't made with the same thin-film technology as flat-panel screens, that may change. Thin film is cheaper and, if used in larger areas, can be more cost-effective than solar panels made from silicon wafers, said Gus Richard, a San Francisco-based analyst at First Albany Corp. Applied is bringing "a lot of the efficiencies that they learned on the flat-panel business, which gives them a head start over a lot of people," said analyst Mark Bachman at Pacific Crest Securities in Portland, Ore. "This is probably one of the more interesting parts of the Applied Materials story," Mr. Bachman said. Mr. FitzGerald, whose own home has solar panels, said he expects Applied's solar business to offer a better return than chip making. In the past five years, Applied shares rose 12 per cent, compared with a 60-per-cent gain by the Nasdaq Stock Market. The world solar energy index, which tracks performance of the 10 largest solar energy stocks, is up 63 per cent this year. Applied's main rival in solar panel equipment is Switzerland's OC Oerlikon Corp. AG, whose stock is up 12 per cent this year. "The equipment industry is wind in their face now," said Piper Jaffray & Co. analyst Jesse Pichel in New York. He has a "market perform" rating on Applied stock. Mr. Splinter expects experience in handling the swings of the chip equipment business to help in the solar venture. "We're used to cyclical business. We know how to handle that. It could be very difficult for other companies not so used to the ups and downs as this market develops."