Whither solar in the ‘merger of equals’?

Tokyo Electron

Conjoining of Applied Materials and Tokyo Electron raises questions about fates of solar PV production equipment units

Nothing like a corporate M&A bombshell to get the juices flowing first thing in the morning. Tuesday’s news of the “merger of equals” between high-tech process equipment powerhouses Applied Materials and Tokyo Electron took me—and apparently most of the semi- and solar-focused cognoscenti—by surprise. The combined “new global innovator” company, which will be valued at a cool $29 billion, will be far and away the largest “precision materials engineering” player in the main industry sectors that it supplies–semiconductor and flat panel display. As for the merger-of-equals spin, apart from dual HQs and executive/board seats more or less split down the middle, AMAT stockholders will control about 68% of the shares, TEL noteholders the other 32%.

On the microchip side of the ledger, the blended firm will offer deep technological IP and tooling for nearly every part of the semiconductor front-end and back-end-of-line processes—with the major exception of the lithography scanner systems, a segment dominated by ASML. Given my years of covering the chipmaking industry as editor of MICRO magazine, the announcement has made me a bit nostalgic and also rekindled the synapses of my underused knowledge base.

Although I still keep track of my old industry haunt, I live and breathe solar now, so my main question when I heard the news was, whither the two companies’ struggling photovoltaic equipment units? I read through all the content I could find and listened to the nearly hour-long analyst conference call, and found a whole lot of nothing to address my concerns. Apart from a pair of boilerplate mentions on a brand-new factsheet and one Q&A exchange during the analyst conference call, there is not one word about solar nor any substantive hint about what might happen to the PV after—or before–the corporate marriage is consummated.

To review, Applied Materials is one of the leading suppliers of crystalline-silicon PV production gear. Its roster includes systems from the former European entities, Baccini (screen printing) and HCT (wafering), antireflective coating/passivation tools, and more recently acquired-through-acquisition ion implantation equipment technology developed by the now-absorbed company once known as Varian Semiconductor Equipment Associates. The Silicon Valley-based concern also has a sizeable global service team and ongoing R&D efforts. Tokyo Electron plays on the thin-film silicon side of the PV materials divide (where AMAT used to compete as well—remember SunFab?), with its resources mostly based on the equipment, personnel, and technology acquired via the pricey nine-figure purchase of Oerlikon Solar completed late last year.

The lack of overlapping product lines (other than AMAT’s thin film remnants) actually follows a theme embedded in the messaging around the deal: AMAT and TEL have a lot more complementary offerings than competitive. The one nagging thing both companies’ solar groups do share, however, is a distinct lack of revenue generation and profitability over the past few years, as the bottom dropped out of the PV capital equipment market.

If anyone was looking for clarity about the future prospects of the two PV teams during the conference call, there was precious little to go on. When asked the sole solar-related question of whether the “new model” would include the elimination of the money-losing units, soon-to-be-new-CEO (by 2H 2014 anyway, when the deal should close) of the conjoined entity, Gary Dickerson, reiterated the carefully crafted narrative of a semiconductor- and display-centric model with its focus on “products and profitability” in those two “very attractive markets.” Then he finally replied to the question semi-indirectly, noting that “anything other than that, solar or anything else, is an upside to the model. We don’t see it as a drag on the model at all.”

Parsing Dickerson’s financial model-based nonresponse response leads me to the conclusion that no decision has been made—and possibly will be made—before AMAT and TEL become one. The use of phrases like “upside to the model” suggest that anything positive (2014 upturn?) coming from the joint PV business efforts might be a bonus to the megacorp’s bottom line, and that wouldn’t be a drag at all. But the lack of any publicly stated appetite for staying in the solar equipment game for the long haul gives me pause.