Applied’s Solar Energy Survey Indicates Solar Power Adoption Is Taking Off

June 25th, 2012 by Trefis Team
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AMAT: Applied Materials logo
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Applied Materials

Earlier this month, Applied Materials (NASDAQ:AMAT) was named the top solar photovoltaic (PV) equipment supplier for the fourth consecutive year by market research firm VLSIresearch. Additionally, with revenues of $1.7 billion in 2011 the company crossed the $1 billion mark in sales for the third year in a row. [1]

However, while Applied Materials witnessed a 16% sequential increase in its Q2 2012 revenues, its energy and environmental solutions division registered an almost 62% sequential decline in revenues on account of excess manufacturing capacity in the solar industry.

While we believe that the current year will be a tough one for solar PV demand with the global market declining to almost half its current size in 2012, we remain optimistic on the long term prospects of this segment. With growing awareness about the benefits of renewable energy combined with declining costs, there is bound to be an increase in demand for solar power use.

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If the recent findings of Applied Materials “International solar energy survey” are to be believed, we could see a higher than expected growth in demand  for solar power. Thus, after a substantial drop this year, we estimate the solar PV equipment market to once again cross the $10 billion mark before the end of our forecast period.

See our complete analysis of Applied Materials here

Increased Adoption & Cost-Competitiveness Of Solar Power

Applied Materials fourth annual solar energy survey was conducted in four countries which have the maximum potential for growth in use of renewable energy – China, India, Japan and the United States.

Primarily, there are two factors that the solar industry is concerned about –

1. Grid Parity or solar energy power that is cost-competitive with traditional energy prices; and

2. Adoption Rate of solar power use.

The outcome of the survey was favorable for both these factors. Over half the respondents believe that solar energy is cheaper than traditional energy sources such as coal etc. In reality, over the last year, the PV module prices have fallen to below $1/Watt, implying that in many countries solar power has become cost competitive with retail energy prices. [2]

Additionally, more than half the respondents in emerging economies such as India and China felt that the projected rate of solar energy adoption was too slow an adoption rate and we should have a more optimistic target for the same.

Solar Power Could Become The Energy Source For The Future

As the world’s population is expected to plateau by 2050, we will need about three times the amount of electricity consumed today. Applied Materials is of the view that solar has the potential to contribute around 30% of this global demand. Since utilities plan infrastructure changes on a 30-40 year cycle, the company feels that now is the right opportunity to influence the world’s long-term energy supply. [1]

We believe, that with an increasing rate of cost reduction we will continue to witness an increase in solar PV installation in the coming years. Applied Materials remain committed to its goal of stepping up adoption of solar technology globally and as it continues to invest in renewable energy awareness programs, we feel the company would benefit in the long run with solar power becoming a more meaningful contributor to global energy.

We have a price estimate of $14.83 for the company, a premium of over 30% to the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

Weak market conditions in the second half of 2011 caused pullbacks in expansion plans throughout the industry, as manufacturers adjusted their production levels to match end-user demand. The condition is likely to persist in the first half of 2012. However, with stability in the economic condition and a rebound in the global PC market, we are likely to witness an increase in utilization levels to meet the growing demand. As the downward pressure on utilization rates ease, DRAM and foundry manufacturers will begin to increase spending.

Notes:
  1. Applied Materials Named Top PV Solar Equipment Supplier For 4th Consecutive Year By VLSIResearch, Applied Materials Press Release, June 11, 2012 [↩] [↩]
  2. Summer Solstice Solar Survey: Consumers Around The World Think Their Country Has The Most Solar Power Installed, Clean Technica, June 19, 2012 [↩]