Applied Materials Throws Down $4.9B for Varian

Applied Materials (s AMAT) refocused its solar business last year to concentrate on serving manufacturers of silicon-based equipment, and it’s continuing that strategy this week. On Wednesday’s the chip and solar equipment maker announced that it will buy Varian Semiconductor Equipment Associates for about $4.9 billion.

Applied expects the acquisition to add a new technology to its lineup that can serve not only its core chip business but also customers in solar, display and light emitting diodes, or LEDs. Varian is no new comer to the game – it’s been around for several decades and carved out a business with its ion implantation equipment that solves the ever growing challenge of building powerful, fast and low-power chips for mobile gadgets.

Applied plans to pay $63 per share, a 55 percent premium over Varian’s closing price on Tuesday, and it will use cash and debt to fund the acquisition. Varian will become a business unit of Applied.

Like Applied, Massachusetts-based Varian has viewed solar as a growth market and dived into the market in recent years. Varian’s top customer is Georgia-based Suniva, which recently raised $94.4 million in private equity after foregoing an opportunity to secure a $141 million DOE loan guarantee to build a new factory. Earlier this year, Suniva said it began making solar cells that can convert 19 percent of the sunlight that hits them into electricity, an efficiency that is higher than many of its competitors.

In February this year, Varian said it was launching its ion implantation equipment designed for solar in China, home to some of the world’s largest silicon solar cell makers. Varian’s ion implant processes replaces the traditional silicon solar technology to offer more precise control during the process of making solar cells and eliminate several manufacturing steps at the same time, the company says.

Also in February of this year, Varian announced it had received a $4.8 million grant from the U.S. Department of Energy’s “SunShot” program to figure out a way to cut the manufacturing cost of a newer type of silicon solar cell that transports electrons using metal lines on the back of the cells rather than the front. Moving the metals to the back frees up space on the front of the cells to absorb sunlight and increase power output. Making back-contact cells tends to be more expensive, and Varian said it’s developing a new ion implant technology that can cut the number of manufacturing steps by 30-40 percent.

Solar efficiency leader SunPower first developed a prototype of this type of cell in 2003. The company, which announced the sale of a 60 percent stake to French oil and gas company, Total, last week, is producing the most efficient silicon solar cells (23 percent) on the market today.

“Applied’s proven capability to extend its technology to adjacent markets like display and solar can unlock the tremendous potential of ion implantation in these markets,” said Gary Dickerson, Varian’s CEO, during a conference call with analysts Wednesday to announce the sale.

Applied has indeed carve out a nice slice of the solar market by selling equipment for making silicon wafers and solar cells. As a long-time developer of equipment for making silicon chips for computers and other consumer electronics, getting into the solar space was a no-brainer.

But the company did fumble at branching out into a line of solar equipment that makes use of an alternative to the conventional silicon material, called amorphous silicon. Applied was pushing for this new product line when the economy faltered and its potential customers were having a hard time getting the money needed to build factories. Last June, Applied announced it was moving away from selling this line of solar equipment to focus on silicon wafer and cell business instead.

Photo courtesy of Abi Skipp.