What They Said
Applied Materials (AMAT) and Tokyo Electron (TEL) announced a merger on Tuesday that would result in a combined market value of $29 billion. While the primary focus for both companies is the semiconductor industry, AMAT is heavily invested in solar manufacturing equipment. The company has developed wafer and cell equipment for years, including wafer saws, plasma vapor deposition, and screen printing tools. The company also acquired Baccini for $334 million and Varian Semiconductor (client registration required) for $4.9 billion, which has a selective-emitter ion implantation technology for solar cells in addition to its semiconductor tools. TEL acquired Oerlikon Solar’s thin-film silicon (TF-Si) technology (client registration required), an old competitor to AMAT’s SunFab line that AMAT abandoned in 2010.
What We Think
The semiconductor industry has been going through significant consolidation. The number of chip-makers has come down to a handful of large players like Intel, Taiwan Semiconductor, and Samsung. As such, equipment sales come in large cycles, and recent years have been difficult for equipment suppliers. Like the semiconductor industry, solar is also going through consolidation, but is simply at an earlier phase. Solar equipment sales boomed from 2008 through 2011, but as solar wafer, cell, and module manufacturers trudge through recent hard times, capex spending was cut and equipment suppliers suffered. As the solar industry recovers (see the report “Market Size Update 2013: Return to Equilibrium” — client registration required), we expect a gradual rise in capex spending starting with relatively simple, low-cost equipment like selective and passivated emitter tools, then ramping to larger investments for new technology like back contact cell lines in the medium-term.
For solar technology, however, TEL does not bring much to the table, as the company’s TF-Si technology will likely not be a major focus for the combined company as AMAT is pessimistic about TF-Si (client registration required). TF-Si module efficiencies, manufacturing yield, and throughput lag behind competing PV technologies (see the report, “Module Cost Structure Update: Path to Profitability” — client registration required), and a vast majority of the world’s solar capacity is crystalline silicon. Technologically, the merger benefits the companies’ other business sectors more than solar.
While AMAT already has a significant presence in the region, TEL’s status in Japan may give AMAT another avenue in Japan through which to sell solar manufacturing equipment to manufacturers like Sharp, Kyocera, and Panasonic. These Japanese solar manufacturers are producing near 100% capacity, yet cannot satisfy domestic demand, allowing low-cost Chinese competitors into the market. Japanese manufacturers need to differentiate themselves from Chinese competition and could expand capacity to fully capitalize on the booming domestic PV market; both strategies are attractive for equipment suppliers like AMAT.
Additionally, the size and strength of the merged companies will help it compete against emerging Chinese equipment suppliers (see the report, “Turning Lemons into Lemonade: Opportunities in the Turbulent Photovoltaic Equipment Market” — client registration required). For example, AMAT spent approximately $1.3 billion and TEL $0.8 billion on research and development over the last 12 months. Expect to see the combined resources of the semiconductor equipment suppliers in addition to the companies’ interests in solar yield significant technological improvements in the coming years.