Applied Materials Inc will move its solar equipment plant to China from Europe to cut costs and tap into the growing appetite for clean energy in Asia.
Asia is expected to overtake Europe as the largest solar power generation hub, aided by lower manufacturing costs, while falling subsidies and weak demand have hurt the industry in Europe.
Applied Materials, the world’s largest chip-fabrication equipment maker, diversified into the solar industry in recent years, making equipment that is used to slice silicon into wafers as thin as human hair.
It also invested in developing machines used for manufacturing LEDs or Light Emitting Diodes which are used in devices including televisions and mobile phones and as independent light sources.
However, a glut in both the semiconductor and solar markets has hurt profits.
Solar companies are shuttering some production, laying off people and cutting down costs to arrest a steep decline in prices, caused by an oversupply and falling demand.
Applied Materials’ orders too have fallen. New orders at its environmental solutions segment — which houses both its solar and its LED businesses — fell 62 percent in the last quarter to $33 million.
The division had $1.68 billion worth of new orders in fiscal 2011.
To address the challenges, the company said it would restructure the unit by relocating the manufacturing operations of solar to China and cutting costs at the LED unit.
In solar, Applied Materials will shift the manufacturing of its Precision Wafering Systems to Xi’an in China, while retaining the operation’s headquarters and new product development in Switzerland.
The move comes almost a year after the company announced its $4.9 billion acquisition of Varian Semiconductor, which was expected to help it corner a larger share of the solar market.
“Keep in mind that the solar industry has been in a real severe downturn, they’re just trying to lower the cost-structure,” Morningstar analyst Andy Ng said.
“I doubt this will have any effect on overall capacity since there is still a lot of growth potential in this market over the long-run.”
The restructuring is expected to result a pre-tax charge of $70 million to $100 million, or 4 to 6 cents per share, over the next 12 to 18 months and affect about 250 employees globally, the company said in a regulatory filing on Thursday.
Lights out at LED unit?
Analysts said the company may also abandon plans to develop an LED manufacturing system.
“Given the current LED market conditions, the opportunity it represents for Applied and the state of our program, we are taking steps to reduce our costs related to these efforts,” a company spokesman said.
Overcapacity among LED makers too has made new orders hard to come by. In addition, the industry is dominated by Veeco Instruments Inc and Aixtron SE.
Stifel Nicolaus analyst Pat Ho said Thursday’s announcement come as AMAT “exiting the (LED manufacturing system) space through the back door”
Applied Materials shares were down slightly at $11.03 on Nasdaq on Thursday.
