Solar Equipment Spending to further fall in 2013

Solar equipment spending fell off a cliff in 2012 after a record 2011. Spending on equipment used to make polysilicon, wafers, cells and modules soared as the Chinese companies spent on equipment as if there was no tomorrow. The solar equipment spending reached more than $10 billion in 2011, leading to a huge over capacity in the solar panel industry. This led to a massive solar panel crash from the 2nd quarter of 2011. The solar panel price decline that started in 2011 has stopped after 2 years and led to panel prices reaching just 60c/watt, from around $3/watt during that time.

The solar equipment makers have suffered greatly in the 2012 and 2013 as orders dried up. The solar panel makers had no money for working capital, let alone capital equipment. Losses have heavily depleted the total equity in companies. Also there was no reason to expand, given that most companies were operating at low utilization. There was also lots of solar capacity lying idle, so if the companies had more orders than their capacity, it would have been easy and cheap to outsource production.

2013 will mark the bottom for the solar equipment industry with total spending estimated at $2.5 billion, according to industry research firm IHS. Recent indications from top solar equipment makers such as GT Advanced Technologies (GTAT) and Meyer Burger also indicated a revival in orders.

The two main drivers for the resurgence in spending are:

a) Panel makers trying to improve their cost and efficiency as they try to gain an edge on the competition and

b) Greenfield building of new capacity in countries other than China, in places such as Brazil, South Africa, Turkey etc. This will be done to prevent the imposition of anti-dumping and CVD duties on solar panel imports.

GTAT is a good way to play the revival in growth, given the company’s strengths in the upstream solar equipment market where there is little competition. Wafer makers will also be looking to use the next generation technology after having exploited all the process and yield improvements from the current p-type multicrystalline wafer equipment. Applied Material (AMAT) may not be a good choice as the company may be looking to sell off its EES division, given the massive failure the company has suffered in the solar equipment market.