Looking on the Sunny Side : Siemens of West Germany Optimistic After Buying Arco Solar

Where Atlantic Richfield Co. saw a black hole, Siemens AG sees a ray of hope.

Arco, the mighty Los Angeles-based oil and gas concern, ended its 12-year, loss-ridden foray into solar energy early this year when it sold its Arco Solar unit to Siemens, a West German electronics giant. The price was between $30 million and $50 million.

Arco pumped $200 million into Camarillo-based Arco Solar, making it the world’s biggest maker of photovoltaic (“light to energy”) cells and solar modules, which are sets of cells placed together to create a larger power source. But it wasn’t enough. Arco Solar never earned a dime, and wanting to focus on its basic oil and gas lines, Arco threw in the towel.

Arco wasn’t the first to sour on solar power. Solar energy generally is a shadow of the size forecasters once thought it would achieve as an alternative to oil, and the current Iraqi oil shock isn’t likely to change that.

But Siemens hardly believes that solar power is a dead issue. The company has plowed more than $10 million into its renamed operation, Siemens Solar Industries, and is now opening another production plant in Vancouver, Wash., to expand its capacity beyond its Camarillo plant, which employs 500.

Siemens Solar President Charles F. Gay also predicted that his company will turn a profit within four years. Why? Because Siemens has patience, deep pockets and, it believes, already promising markets. Siemens Solar primarily sells solar modules not to displace utility-provided electricity--the latter is usually cheaper--but to provide power where electricity doesn’t readily exist. And as evidenced by the new Vancouver plant, Siemens Solar is selling everything it can make.

Specifically, the company’s solar systems power emergency call boxes on freeways and billboard lights. They are used to operate telecommunications relay stations, buoys and other maritime navigational aides, irrigation pumps, remote houses, cabins, farm buildings, boats and even recreational vehicles.

The idea is that when your Winnebago is parked in the middle of Wyoming, you can run the microwave or TV without an electricity hookup or generator. If you have several appliances on the RV, the three or four solar panels necessary to run them all can cost between $1,000 and $1,500.

But Siemens Solar’s biggest market is Third World countries, such as Kenya, Chile and Colombia. The company exports 75% of its products, mainly to developing nations where villages aren’t wired for electricity. Residents use solar panels to recharge the portable batteries that run their lights, televisions and radios. The panels also run medical vaccine refrigerators.

And this year for the first time, Siemens Solar plunged into the consumer housewares market with its own line of outdoor-lighting products that don’t require wiring by the do-it-yourself homeowner. The lights, which have a solar cell on top and a battery to store the energy during the day, are used to line walkways or highlight gardens. They cost between $30 to $50 apiece and are being sold through such stores as Sears, Home Depot and Builders Emporium.

Declining to be more precise, Gay said Siemens Solar’s sales last year were between $30 million and $40 million. Robert Johnson, an analyst with the research firm Strategies Unlimited in Mountain View, said Siemens Solar’s sales were closer to $40 million, giving it a leading 20% or so of the $200-million worldwide solar-panel market. Close behind is Solarex, a Rockville, Md.-based unit of the oil company Amoco Corp.

Siemens Solar makes two kinds of modules, which immediately convert sunlight into electricity: One using single crystal cells and another with a newer thin-film technology. Single crystal cells are black, wafer-thin squares made from a silicon base, and they are linked like rows of burned toast on a panel to create a module. Thin-film modules are panes of glass sprayed with silicon particles. Thin-film is easier to make, but still trails the crystal cell in efficiency.

Siemens, with total sales of $32 billion last year and interests in everything from telephone switching systems to pacemakers, hasn’t turned its solar company upside down. Siemens Solar’s manufacturing process and marketing strategy are little changed from Arco’s days. Gay joined Arco Solar soon after it was started and Arco promoted him to president two years ago. Siemens has kept him in charge.

“Siemens has not made any radical changes,” Gay said. “The reason they purchased us was they liked what we were doing,” he said, adding that Siemens earlier had formed a joint venture with Arco Solar to make solar modules.

Still, some of Siemens Solar’s rivals are waiting to see if Siemens has something else up its sleeve. “I’m waiting to see what their strategy is going to be,” Solarex President John Corsi said.

For now, Siemens has rejuvenated the solar workers’ morale and perhaps halted a slide in its market share. Gay, 43, estimated that Arco Solar lost three to five points of market share during the several months last year that Arco searched for a buyer.

“Arco did a very good job of maintaining the business during the course of the sale, but obviously wasn’t investing in developing the business further,” Gay said. Meanwhile, the market kept growing and “the rest of the world was able to make their move on us while we were being sold,” he said.

The outdoor-lighting market is one Siemens Solar and its competitors are watching closely. The lights will account for only a fraction of Siemens Solar’s sales this year, but by helping convince consumers that solar-powered products work, the lights might usher in a wave of solar-powered products into the enormous housewares market.

“The sales are there,” agreed John Denison, engineering manager for low-voltage lighting products at Intermatic Inc., a Spring Grove, Ill.-based maker of outdoor-lighting products. “There are lots of people out there who want to buy” solar lights because they’re easy to install, he said.

Intermatic, which has bought solar cells from Siemens Solar and Solarex for its lights, is selling one model of solar-powered light this year under the Malibu brand name and plans another model for next year. For its part, Siemens Solar has seven models and plans to introduce new models next year that will be “better, brighter and last longer,” said Steven P. Richman, marketing director for Siemens Solar.

Richman said Siemens Solar expects its outdoor-lighting business to double next year and then keep growing by double digits. But not everyone is convinced it’s the right move for a solar company.

Solarex’s Corsi, casting a cloud over Siemens’ strategy, said his company intentionally stayed away from making its own outdoor lights because “the way to make money is to stick with what you know best. Moving into production and distribution channels that are dominated by other companies, I think, is a risky business.”

One market that will largely escape the solar companies is one of their largest--the utility companies. After the oil shocks of the 1970s, and with tax breaks that lasted until the mid-1980s, it was once thought that solar would become a major source of utilities’ electricity.

But oil prices, instead of soaring to $50 per 42-gallon barrel or more, dropped to $10 in the mid-1980s before climbing to their current level of around $30 a barrel. So solar power became just one of several alternative energy sources that utilities are only gradually exploiting for future use.

“The majority of our business growth in the next decade is not likely to come from utility needs, it’s going to come from world consumers,” Gay said.

That might change if oil kept rising sharply and Siemens Solar and others find ways to wrest more electricity out of each solar cell they make. Then the failed forecasts of a decade ago might one day come true.

Said Gay: “The opportunity has not been lost. The timing has been stretched out.”