--Applied Materials CEO sees overcapacity in solar industry for about a year
--CEO says Applied's solar business should be strong and profitable in 2013
--Applied to cut costs in solar and display businesses, including possible layoffs and consolidation
By Shara Tibken
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- The solar industry will likely suffer from overcapacity for about a year, the chief executive of Applied Materials Inc. (AMAT) said, forcing the equipment maker to cut additional costs from its business.
Mike Splinter, speaking in an interview ahead of the equipment maker's analyst day Wednesday in New York, said solar companies built too much capacity last year on hopes they all would gain share. Instead, it left the market with more supply than immediately needed, despite the strong levels of solar adoption.
"We're in a capacity-driven downturn," Splinter said. However, "the end market is strong, so we just have to see a rationalization of the capacity."
While 2012 could be tough, Splinter expects 2013 to be a "reasonable" and profitable year for Applied's solar business.
Applied Materials is a Santa Clara, Calif.-based maker of semiconductor manufacturing equipment, and it regularly experiences sharp boom-and-bust cycles triggered by fluctuations in supplies of chips and demand for them. The company has broadened its business to include tools for making solar panels and displays used in computers and TVs. But supply gluts for manufacturers in those businesses slowed plans to boost production capacity in the past year.
Applied Materials has seen its solar business orders tumble of late, down 62% in the fiscal first quarter. They are expected to be down more than 40% in the current period. The segment had an adjusted operating loss of $17 million and a 34% drop in sales for the period ended Jan. 29.
Splinter said the industry is still young, with a lot of room to grow over the next decade. Some solar vendors will go out of business, Splinter said, while others will see their panels become obsolete because they're not as efficient as other products on the market.
And Applied, while struggling with weak orders at this time, is working to lower costs to get "this business to be profitable at whatever level of business we will have," Splinter said. It's taking similar actions in its display business, he said.
Splinter will provide more details Wednesday about how much expense the company plans to cut, but he said it could require some layoffs or consolidation of businesses.
"We've fairly dramatically already cut our variable cost in those businesses, and we try to make them as variable as we can because we know we have capacity and demand cycles in our business," Splinter said. "We're quite good at that. The downturn in solar is really demanding we do some other things."
Meanwhile, U.S. trade officials last week slapped modest tariffs of 2.9% to 4.73% on imports of Chinese solar panels, giving a partial victory to solar-equipment manufacturers in the U.S. but stopping short of harsh duties that could spark a trade war. The ruling by the U.S. Commerce Department found that Chinese solar manufacturers enjoyed some unfair government assistance that helped them become an export powerhouse.
The bulk of Applied's solar customers come from China and Taiwan, with the region comprising about 80% of business, Splinter said. The U.S. makes up about 5% of Applied's solar equipment demand.
The recent trade battle between the U.S. and China shouldn't impact the solar market, Splinter said, noting the low level of the tariffs. Some analysts had been expecting duties closer to 10%.
Meanwhile, Splinter said when a government lowers its incentives for solar power, people believe it will lower the deployment of panels. But he said that's not the case.
"It's going to increase the deployment because the cost of solar will come down to meet financial returns of whatever the incentives are," he said. "Germany has done quite a masterful job of lowering their incentive year over year over year, and deployment has gone up year over year over year."
Solar deployment in the U.S. is expected to double this year, he said, as should installation in Japan and China. Applied last month said it expected 2012 global installations to be 28 gigawatts to 35 gigawatts, up from about 27 gigawatts in 2011.
"We're pretty positive that between the growth in the U.S., China, India and Japan, we'll overcome whatever slowdown there might be in Germany, if indeed there is one at all," Splinter said.
-By Shara Tibken, Dow Jones Newswires; 212-416-2189; firstname.lastname@example.org
--Cassandra Sweet contributed to this report.
(END) Dow Jones Newswires
March 27, 2012 16:41 ET (20:41 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.