Solar Winners: Amtech at 52-Week High

NEW YORK ( TheStreet) -- Solar cell equipment maker Amtech Systems ( ASYS) touched a 52-week high level of $28 on Tuesday morning, after reporting an earnings beat for the quarter ended Dec. 31.

The solar cell equipment maker reported revenue of $52 million for the Dec. 31 quarter, above the (limited) analyst consensus of $45 million in revenue.

The solar equipment maker's backlog also increased in the Dec. 31 quarter to $172 million.

Amtech Systems shares gained more than 9% in recent trading on Tuesday morning, though its gains fluctuated between 6% and 9% throughout the morning. The solar equipment maker was fast approaching its average daily trading volume on Tuesday morning.

While the fiscal first quarter 2011 performance was a beat for Amtech, recent pricing checks in the solar cell market and estimates of significant solar cell overcapacity in 2011 could present hurdles in the short-term Amtech Systems growth story.

The solar sector outlook remains uncertain at the outset of 2011, and equipment makers are often seen as defensive plays during periods of uncertainty. GT Solar ( SOLR), for example, has been trading near a 52-week high after a series of recent orders from Asian customers.

GT Solar continues to be a favorite defensive solar stock for some Street analysts, but it's not an exact match of the Amtech Systems ( ASYS) business.

GT Solar sells solar equipment at the level of raw polysilicon production. GT Solar has also begun an effort in the LED marketplace to offset the cyclicality of solar supply ande demand.

Amtech Systems, on the other hand, is focused on the solar cell part of the supply chain, where analysts remain less convinced that a bullish demand trend will remain in effect in 2011.

The pricing bottleneck in polysilicon is expected to linger, whereas recent quotes from the Taiwanese cell market show cell pricing falling significantly in the first quarter. Estimates are for as much as 30 gigawatts of solar cell capacity in 2011, versus a solar market that may only reach 15GW to 20GW. There are arguments being made that at some point soon, if not already, tier 2 solar cell makers will have to take production off line because they will not be able to operate at a profit.

Additionally, while polysilicon equipment has to be ordered with an 18-month time horizon, solar cell equipment orders have a shorter order to delivery time frame.

David Arcaro, analyst at Battle Road Research and a GT Solar bull, recently noted, "I wouldn't want to be a solar wafer or cell equipment supplier. The market was already at 25GW at the end of 2010, and it's harder to make a case that it will keep growing."

The Battle Road analyst believes there is still room for more polysilicon equipment orders, but less opportunity for the already oversupplied cell market to grow.

Some analysts say it's splitting hairs to argue that solar equipment makers don't offer investors the same kind of trade, and that playing the polysilicon furnace end of the supply chain makes more sense than the solar cell supply chain.

There are two bullish arguments that contradict a weaker cell market being a negative for Amtech Systems. A potential shakeout among tier-2 cell players should lead to market share gains among the tier-1 solar companies that are clients of Amtech Systems, like Yingli Green Energy ( YGE). The consolidation of the business at the level of the tier-1 players could keep order growth on track for Amtech Systems.

Additionally, Amtech Systems has a more efficient solar furnace that it now offers under an exclusive agreement with Yingli, but which will be rolled out to the broader market for the next fiscal year. As solar cell and module makers look for additional ways to improve efficiency and lower cost, the new furnace technology from Amtech Systems offering higher yields could lead to sustained order growth at the level of the tier-1 players.

While polysilicon equipment orders may have a longer lead time than solar cell equipment orders, that also could mean more time for orders to be canceled if the market deteriorates.

In any event, the existing order backlog of Amtech Systems at $134 million indicates that at least for the next two to three quarters, the revenue profile of the company will be predictable. As with all the players in the capital equipment market, the health of the backlog in upcoming earnings will be more important than the revenue line.

-- Written by Eric Rosenbaum from New York.

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