Applied Materials plans to produce solar factory equipment that could make thin-film panels with 10 percent efficiency at a cost of under $1 per watt next year.

Reaching that goal is critical for signing new contracts for its SunFab line in the next 12 months, said Mike Splinter, Applied's CEO, during an earnings conference call with analysts on Tuesday. The company develops factory equipment for making solar panels that use amorphous silicon as the key ingredient for electricity production.

"There is nothing more important in our minds than driving the efficiency roadmap," said George Davis, Applied's chief financial officer, during the earnings call. The company saw its revenue declined and net loss widened for the second fiscal quarter that ended last month.

Lab results have shown that the company is on track to reach 9 percent efficiency – or converting 9 percent of the sunlight that hits the solar panels into electricity – this year and 10 percent in 2010, Davis said.

Crossing that 10 percent mark is important for companies that want to compete effectively with fellow thin-film makers as well as crystalline silicon panel producers, some of which already are rolling out panels at around 15 percent or more.

Santa Clara, Calif.-based Applied is pouring investments into its solar business at a time when market demand is soft and some of its customers are scaling back plans, including one that recently slashed its contract with Applied from $1.9 billion to $250 million. Applied also is learning how to promote and expand its technology and service offerings because it's new to the thin-film business.

The company saw the revenue declined by about 53 percent year-over-year to reach $1.02 billion for the second fiscal quarter. It posted a net loss of $255 million, or 19 cents per share, compared with a net income of $303 million, of 22 cents per share, from a year ago. In the fourth quarter, the company reported a net loss of $133 million, of 10 cents per share. 

The Energy and Environmental Solutions segment, which is made up mostly of its solar business, reported $357 million in sales, up from $293 million in the fourth quarter and $85 million a year ago. New orders fell to $141 million in the second quarter from $321 million in the fourth quarter and $257 million a year ago.

"Weak demand drove revenue to the lowest level since 2002," Splinter said. The company expects its third-quarter revenue to be flat or even lower. 

He added that signs that the economy is recovering are emerging, but not enough to enable his customers to return to profitability soon. Back in February, Splinter said he thought the company wouldn't be signing new orders for a few quarters because the economy was in such a bad shape. He also announced layoffs and other cost cutting measures (see Applied Materials: No New Solar Contracts Expected).

The company has been a long-time maker of factory equipment for the semiconductor and flat panel display industries. It entered the solar business only in 2006, and is counting on it to propel its growth. Applied not only makes equipment for thin-films, but it also for making the conventional crystalline silicon solar panels. It doesn't break down sales figures between the two businesses.

The thin-film solar sector is much newer and presents lots of opportunities to grow. Applied is locked in a fierce competition with Switzerland-based Oerlikon Solar in the amorphous thin-film business.

Last month, Green Energy in Taiwan became Applied's fourth thin-film customer to sign off on the factory equipment, meaning that the equipment passed tests verifying its yield and ability to produce panels with a certain level of efficiency. SunFilm in Germany became the fifth customer to do so.

Unlike other Applied customers, SunFilm is using a second-generation equipment that deposits not only amorphous silicon but also microcrystalline silicon to boost energy production. This two-layer approach, called tandem junction, could improve the panel efficiency by 30 percent over those made with the first-generation equipment, Splinter said. Applied's customers have reported 6 percent to 7 percent panel efficiency with their first-generation equipment (see Signet to Start Thin-Film Solar Production and Moser Baer Rolls Out Thin-Film, Builds Power Plant).

Overall, Applied's thin-film customers have collectively produced over a quarter million panels, or over 200 megawatts since the firm began manufacturing, Splinter said. The company expects three more customers to sign off on its equipment by the end of this fiscal year, Davis said. 

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