Applied Materials and the $1.5 Billion SunFab Flameout

Enlarge

Solar, Big and Lean: An installation in Germany of thin-film solar panels, each measuring 18.7 square feet. | Photograph Courtesy of Applied Materials

---

Related Content

related link

Thin Slicing

Cameras flashed and fans crowded around, packed shoulder-to-shoulder, straining to get a closer look. At a sleek, huge solar panel. If there has ever been a sexy solar panel, this was the one. "It was a very exciting time," says Jim Cushing, global solar product manager at Applied Materials. He was part of the company's entourage that summer of 2008, soaking up the praise at one of the top solar expos in one of the world's biggest solar markets, Germany. Cushing was squiring the largest panel the world had ever seen, made by customers who had Applied Materials' equipment. Those customers were happy. Installers were practically pressing checks in their hands to buy panels. "One guy told me he could have sold his capacity four times over," Cushing says.

Of course, Applied was accustomed to success. The company had revolutionized the semiconductor industry with high-tech tools that dramatically lowered costs for chip makers. As Applied rose to be the No. 1 supplier of manufacturing equipment to the likes of Intel and AMD, its machines helped drive the growth of a $300 billion industry. Applied also had successfully transferred its expertise to the $100 billion flat-panel display business, becoming the top supplier of manufacturing tools to LCD-panel makers in 2006.

When the company, then pulling in almost $10 billion annually, set its sights on solar, it sent a thrill of excitement throughout the community. Applied developed equipment to make conventional panels, but it got the most buzz for its machines to make a thinner type of panel using amorphous silicon, known colloquially as "thin film." Applied execs believed thin film could slash costs and disrupt the market with panels more than four times larger than conventional ones, giving Applied's customers the same economies of scale that helped lower the cost of LCD displays by a factor of 20.

Combining its amorphous-silicon machines with the best tools it could find, Applied launched a "turnkey" factory called SunFab in 2007. Would-be solar manufacturers loved the idea that they could essentially buy a factory in a box. Applied's sales goals grew from $200 million to $400 million to $600 million. By the time those first SunFab panels were unveiled in Germany, Applied had amassed $1.5 billion worth of orders. That year, VLSI Research named the company -- which had posted zero solar sales in 2006 -- the world's largest seller of solar-electric cell-manufacturing equipment.

But now the thrill is gone. In July, Applied Materials shut down its SunFab business, saying it would spend as much as $425 million to restructure its environmental division. Two of its biggest customers are bankrupt. Though the company blames the economic crisis and subsequent market conditions, the truth is more complicated: Applied took risks and made choices that left it vulnerable. The company's story is a cautionary tale that's emblematic of the solar industry's woes and a prime example of how a big, successful company can fail when it enters a new market.

As it prepared to install SunFab factories back in 2007, Applied ran headlong into trouble. It planned to roll out its first four factories one at a time, for tech giant Moser Baer in India, Signet Solar and SunFilm in Germany, and T-Solar in Spain. But delays in production as well as delays in construction of facilities forced the Silicon Valley-based Applied to set up four far-flung factories simultaneously. "It was a real strain on our resources," Cushing says. "We had to grow our startup team significantly to ramp up four plants."

The plants were slow to reach full capacity and kept missing production deadlines. In October 2009, after Applied's customer, Masdar PV, began shipping its first panels from its German factory, then-CEO Rainer Gegenwart complained: Applied "is not really shipping turnkey. That means the production line just comes and starts." Cushing says the idea that a thin-film solar factory would start without any glitches is unrealistic. "Anyone who starts up a new factory with a new technology for the first time and doesn't think it's going to be hard has probably never started up a new factory before," he says, pointing out that even with well-established technology, it can take months to ramp up a factory to volume production.

But Masdar, which was spearheading the $22 billion green-city initiative in the United Arab Emirates, was new to this game. Cushing acknowledges that he and his team should have done a better job setting expectations. Oerlikon Solar, a direct competitor in thin-film manufacturing equipment, has been more discerning, says Jenny Chase, lead analyst in high-tech manufacturing industries at Bloomberg New Energy Finance. It has picked customers who have more financial strength and more industry-related experience.