Applied Materials Inc said on Monday it plans to improve efficiency to cut the cost of producing solar panels below $1 per watt in three years and is on track to post profits at its environmental unit next year.

The world's largest producer of chipmaking gear also said it is seeing substantial progress in the global industrialization of the solar industry.

We continue to make progress in every aspect of the SunFab lines and are well on our way to delivering 10 percent efficient SunFab panels and $1 per watt production costs in 2010, said Mark Pinto, chief technology officer and general manager of Applied's Energy and Environmental Solutions group, which includes solar.

Pinto, whose remarks at an industry conference in Germany were released to the media, also laid out plans for SunFab panels with 12 percent conversion efficiency and module costs below 70 cents per watt by 2012.

Conversion efficiency is the amount of sunlight that can be turned into electricity.

Applied Materials is relying on its solar equipment arm to bolster sales and growth as its traditional chip business falters.

Applied Materials's SunFab line of equipment anchors the thin-film photovoltaic portion of its business. Thin-film equipment, a crucial segment of the burgeoning solar equipment market, has been walloped by tightening credit and cutbacks in some government subsidies.

Thin-film panels are less efficient than crystalline at converting sunlight into electricity but are typically cheaper to manufacture because they use less silicon.

In an update on its overall solar and environmental services unit, Applied Materials said it expects the business to lead to increasing revenue and profitability as the global economy recovers and governments around the world look to technologies like photovoltaic solar panels and energy-efficient glass to help produce and conserve energy.

The company said its crystalline silicon business is already generating positive returns and the Energy and Environmental Solutions segment is on track to operating profitability in 2010, excluding charges.

Applied Materials, which has registered three consecutive quarters of losses, posted sharply narrower losses for its third fiscal quarter.

Last week Applied Materials shuffled several senior management positions, including naming Pinto to head its solar unit while he remains the company's chief technology officer.

J.P. Morgan analyst Christopher Blansett said in a note to clients that the changes in management are not likely to affect the company's semiconductor equipment business in the short term.

What we are concerned about in general is what appears to be a continuing change in the leadership of AMAT's solar business, Blansett wrote.

This division has undergone a number of changes over the past few years, which is generally not a good environment for fostering stability, the analyst added.

Applied Materials shares were down 33 cents or 2.5 percent at $12.70 in afternoon Nasdaq trading. (Reporting by Poornima Gupta, editing by Gerald E. McCormick)

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