In a major blow to Applied Materials, the Santa Clara company has disclosed that the $1.9 billion solar panel deal it announced early last year — believed to be one of the biggest such agreements ever signed — has been trimmed back to just $250 million because of the soured economy.
Applied’s stock value dropped $1.01, or nearly 9 percent, to close at $10.55 on Tuesday.
The world’s biggest manufacturer of equipment for making semiconductors, Applied has been eager to branch out by providing equipment to make solar panels. And the $1.9 billion deal it announced on March 4, 2008, with an unnamed buyer — which analysts speculated was for a solar-manufacturing project to be built in Suzhou, China, by Best Solar — was widely cheered as a blockbuster.
But the worldwide recession, which has ravaged a number of industries, also has slowed the solar-panel business. Applied’s deal had to be significantly scaled back “in light of the subsequent deterioration in global economic and financial market conditions,” the company said in a filing late Monday with the U.S. Securities and Exchange Commission.
Applied said it and the buyer “will continue to explore additional business opportunities,” hinged largely on the future availability of financing and the economy.
“It’s disappointing,” said company spokesman David Miller. But he noted that Applied is moving forward in the solar-panel business and has about a dozen other contracts to provide similar solar-panel equipment totaling more than $1 billion, none of which have been reduced.
Some analysts that track the company were not overly concerned about the contract being slashed.
“I don’t think it’s troublesome at all,” said Ben Pang of investment bank Caris & Co. He said the decision to scale back the deal apparently had nothing to do with the quality of Applied’s technology and, instead, was based on the buyer’s trouble nailing down financing.
Wes Twigg of investment bank Pacific Crest Securities said some experts recently had feared that Best Solar might not be able to pay for any of the equipment it had contracted for from Applied. “So that’s something I think is encouraging, that Best Solar has gotten at least some financing,” he said.
In a note to his clients, Timothy Summers of investment bank Wunderlich Securities agreed that the news was unlikely to pose a financial problem for Applied.
“Given its size, this was a marquee order for Applied,” he said, adding, “it seems likely, when credit markets improve, an order for the remaining $1.65 billion worth of equipment could reappear.”
But Patrick Ho of investment bank Stifel Nicolaus worried in a note to clients that the contract shrinkage might be followed by others, if the solar industry doesn’t perk up soon.
Although he believes Applied’s stock is worth buying and that the solar market represents “a high growth opportunity for the company,” Ho said, “there could be the proverbial ‘another shoe to drop’ with the company given its increasing solar exposure.”
Contact Steve Johnson at sjohnson@mercurynews.com or 408-920-5043.
