June 20, 2008 - Chip equipment firm Ferrotec is one of many companies seeking to diversify into new growth opportunities, and its move into solar cells seems to have met with applause from investors and market players, notes the Nikkei daily.

Last month Ferrotec inked a deal with Tokyo Steel Mfg to set up a JV in China centering on wire saws, for slicing silicon into thin wafers for solar cells. Since the deal was announced on May 29, Ferrotec's stock has topped a YTD high, the paper notes.

The firm projects record profits in the current fiscal year despite sluggish sales of its core semiconductor equipment business, mainly due to optimism for solar cell manufacturing devices that melt silicon into monocrystalline ingots. Strong demand from Chinese solar battery makers should translate into ~200 units this fiscal year and double the solar cell biz's sales, including quartz crucibles and other equipment, to ¥10.2B (US ~$95M), or 26% of total sales. Profitability in this segment is helped by the fact that sales come mostly from equipment rather than machine parts, the paper notes.

Ferrotec managing director He Xian Han projects overall operating profit will increase to >10% this year, from 8.3% in fiscal 2007 (though its solar battery biz was 10.7%), with five-year sales projections of ¥50B ($465M). President Akira Yamamura projects 30% annual growth for the solar battery market; the paper notes that "an international energy agency" projects a 400% surge in solar cells' power generation capacity from 2004-2015.

To gain a foothold and ward off competition in this growth area, Ferrotec has set up a JV to assemble and sell solar battery making devices in South Korea, and by this year's end it will increase production capacity at a Shanghai solar cell equipment plant.

"In the medium and long term, it will be an advantage for the firm to have production bases for equipment necessary in the 'upstream' solar cell manufacturing processes in countries where demand is high," said Kazumasa Kubota, an analyst at Okasan Securities Co., quoted by the paper.