PV manufacturing equipment spending reaches record levels in 2010 as c-Si and thin-film fabs enter new investment cycle phases

Finlay Colville, senior analyst, Solarbuzz.

USA: Equipment spending on new manufacturing equipment for c-Si cell and thin-film panel fabs will grow by over 60 percent Y/Y during 2010, and then by the same amount again next year. While equipment spending is spread across each of the c-Si and thin-film segments, the driving factors behind the growth - and the phasing of the investments - for c-Si and thin-film fabs remain somewhat different.

While c-Si cell expansion accounted for 95 percent of incremental ramped manufacturing capacity during Q3'10, thin-film manufacturers are embarking on a new phase of equipment spending which will peak during 1H'11 reaching record quarterly highs in excess of $3 billion.Source: Solarbuzz, USA.

This second cycle of equipment spending into thin-film manufacturing equipment is well underway, having started during Q2'10 and being forecasted to peak 1H'11. During this time period, the industry will witness seven consecutive quarters of above-average thin-film tool spending across a wide range of thin-film technologies as established and new entrants seek to gain market share downstream.

A tale of emerging - and competing - technologies
Equipment spending on c-Si process tools, in particular from the top tier players, can be seen to follow closely downstream demand trends. When the Spanish market exploded in 2008, c-Si cell equipment manufacturers responded by adding significant capacity, resulting in a peak in equipment spending.

With record demand from other key markets (including Germany, Italy, Japan and others) again during 2010, similar capacity expansion was implemented.

With c-Si shipments dominating at 80-90 percent share, thin-film equipment spending can be seen to follow different spending cycle trends. Except for First Solar (whose capacity expansion plans are more closely aligned with the leading c-Si cell makers), thin-film investment remains motivated by the hope of realizing a next-generation, disruptive technology that could offer significant cost advantages over today's c-Si cell technology.

The first cycle of thin-film spending occurred over Q1'08 to Q1'09, and was driven by a range of competing thin-film technologies. Capacity expansion during this time period was a combination of First Solar's rapid growth (moving from around 80MW ramped quarterly capacity to 280MW) and strong sales from a-Si/uc-Si turn-key production lines from the likes of Applied Materials, Oerlikon and ULVAC.

While this led to a rush in purchase orders for these equipment makers and their preferred supply-chains, the most striking conclusion was embedded in PV productivity; how much production was enabled by the tools ordered and delivered.

During Q1'08 to Q1'09, First Solar accounted for less than 15 percent of all thin-film equipment spending, yet produced more than 60 percent of all thin-film panels worldwide. The only other significant thin-film producer to experience strong growth during this time was Trony Solar who - like First Solar - had developed a very strong level of in-house tool and process ownership. Trony had Y/Y productivity gains of more than 200 percent between 2008 and 2009.

2010: A pivotal year for thin-film
2010 has represented a key transition phase not just for the PV industry but in particular for the thin-film segment, with significant impact on tool suppliers and the thin-film equipment supply-chain in general.

Several factors have contributed to this:

* A strong upturn in end-market demand through 2010 has necessitated rapid capacity expansion, and only established c-Si cell manufacturers were ideally placed to ramp up lines in less than nine months.

* Design of thin-film lines has shifted towards the panel makers themselves with increased ownership of key process tools used within the production lines; Applied Materials exiting the turn-key arena being just one of many indicators here that the established turn-key line suppliers are having less of an impact in production line specification.

* A range of companies has entered the thin-film manufacturing space, including established PV makers across the Asia Pacific region, new entrants within China and Taiwan, and a select group of US-based thin-film companies benefiting from stimulus recovery package funds.

Coupled with First Solar's next phase of large capacity expansions through 2011, the net effect is a convergence of thin-film equipment spending. This has resulted in PV's second cycle of strong equipment investment within thin-film technologies. Aside from First Solar enacting meticulously on their crystal clear expansion strategy during 2011, the landscape painted by all other thin-film equipment spending and supply-chain management over the next 12 months is somewhat more abstract in appearance.

Of course, only time will tell which of the thin-film manufacturers succeed in meeting their cost and efficiency targets announced prior to ramp-up. While First Solar were the only real winners following thin-film's first investment cycle, they continue to be the dominant voice in setting the standards for all companies ramping up thin-film capacity during the second investment cycle.Source: Solarbuzz, USA.

Putting aside low-volume niche markets which can tolerate above-average factory-gate prices, it is First Solar's roadmap out to 2012 which stands as the true benchmark for the new thin-film companies ramping up now.

Thin-film winners and losers
For much of the thin-film equipment supply-chain however, which thin-film technologies emerge ultimately as the long-term winners and losers may be less of a concern. Quite simply, each new PV fab represents a significant commercial opportunity for strong revenue return.

For example, during the first thin-film investment phase, Manz Automation saw their PV revenues grow over 170 percent Y/Y between 2007 and 2008 by virtue of being a preferred tool supplier to a leading thin-film line supplier, Oerlikon amassed a backlog approaching $700M with numerous turn-key sales, and Applied Materials recognized sufficient Sunfab revenues to emerge ultimately as the leading PV tool supplier to the industry.

The change from turnkey line dominance to in-house single-equipment procurement may appear from the outside as doom and gloom for established turn-key line suppliers, but this is far from reality.

The opportunity is still there in thin-film - and is perhaps even greater - but the served addressable market is no longer for the complete $100M fab, but instead for the key vacuum deposition tooling (mainly CVD and PVD), which makes up the dominant equipment spending within the front-end-of-line.

The same core competences which initiated strategies into turn-key line build are equally transferrable to single-equipment process tool supply; analogous to how the industry has evolved within the c-Si segment today.

With a variety of planned fabs under construction ranging from 100MW to 500MW+ in capacity, market opportunities for thin-film equipment suppliers are plentiful and suppliers of deposition or laser patterning tools should see strong revenue returns as a result.

c-Si equipment spending in 2011 at threat from overcapacity
Equipment spending within the c-Si segment will continue to see growth through the first half of 2011, as existing backlogs and recently announced capacity expansion phases come to fruition. The outlook for c-Si tool suppliers in 2H'11 is less certain, however, with the strong possibility of overcapacity at the c-Si cell stage.

While this is set to impact revenues for equipment suppliers of standardized c-Si process tools today, it does offer new opportunities for next-generation technologies. Overcapacity typically results in increased R&D and replacement tool spending and this will offers a window of tool acceptance for alternate technologies seeking to emerge as mainstream tool types during subsequent c-Si cell expansion phases.

Competing technologies and manufacturing methods have resulted in an increasingly fragmented solar manufacturing landscape. Solarbuzz analysts now cover the dynamic c-Si cell and thin-film component of the PV value-chain.

Source: Solarbuzz, USA.