Polysilicon shortage to hurt solar cells, not chips

Higher prices for polysilicon globally probably won't be passed on to users

An acute shortage of the main raw material necessary to build chips won't hurt chip makers, but solar cell producers will feel a pinch from the lack of polysilicon, a Merrill Lynch & Co. Inc. analyst said Thursday.

It's good news for the IT industry because everything high-tech requires chips for calculating, memory, and other tasks. And even higher prices for polysilicon globally probably won't be passed on to users because it still makes up just a small percentage of the overall cost of a chip.

The polysilicon shortage has been caused by rocketing demand for solar cells, which collect sunlight and convert it into electricity, in the face of soaring global oil prices. But investment in new polysilicon plants has remained slow, leading to the current shortage, said Simon Tsuo, chief executive officer of the solar panel division at Taiwan's Motech Industries.

The shortage has caused polysilicon prices to rise over the past few years, but only solar cell makers will be impacted by the shortage. Chip companies already pay a premium for the highest grade polysilicon, so producers of the raw material will supply them first, at the expense of solar cell manufacturers, according to Brett Hodess, a Merrill Lynch analyst who covers the semiconductor equipment and materials industry.

"Chip makers will get what they need, but the solar cell companies will not get what they need and companies will not meet the forecasts people have for them," Hodess said.

The main trouble in the polysilicon industry has been a lack of significant investment in recent years. Polysilicon makers were burned during the last chip industry downturn, when polysilicon prices slumped. This time around, they've been far more cautious about building expensive new plants. Investment has picked up, but it will still take time for the shortage to ease.

"It takes two and a half to three years to build a polysilicon facility," said Hodess, predicting that the shortfall will last until 2008.

Motech, the world's ninth-largest maker of solar cells, has been looking into working with a polysilicon maker or investing in the area to ensure its own supply, Tsuo said. The company intends to build two more solar cell plants over the next four years, and estimates it will require 10,000 metric tons of polysilicon a year to feed its operations by 2010.

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