July 25, 2008 – A scan of today’s wires indicates some concern for MEMC after its 2Q08 fiscal figures were well short of expectations, with a heavy sprinkling of operational issues and disappointing FY08 outlook. But analysts also seem to believe that such problems shouldn’t derail the company from long-term success.
First, the numbers, which MEMC said were at the floor of its own guidance: Sales of $531.3M (vs. Wall Street’s $557.9M estimate), and EPS of $0.92 (vs. $1.00). Problems during the month included a couple of facilities glitches — a “premature failure” of a component at its site in Merano, Italy, which caused a 5% crimp in polysilicon output; and a week-long shutdown of half the silane gas production at its Pasadena, TX plant due to fire caused by a loose pipe fitting.
For 3Q08 MEMC projects a strong and growing solar business but softness in semiconductors, leading to sales of $560M-$620M (vs. Street hopes of $616.3M), and FY08 outlook of $2.25B-$2.35B and EPS $4.00-$4.30 (vs. $2.36B and $4.30).
Some shareholders immediately headed for the exits; MEMC stock sunk below $40 (-26%) in after-hours trading to a 52-week low, wiping out more than a year’s worth of gains, but have rebounded since to $45.47 (-15.5%). Citigroup and JP Morgan raised their stock outlooks calling this a “peak” in bad juju for the shares, Kaufman Brothers kept its “Buy” rating with a $80/share target, and Needham reiterated a “Strong Buy” rating on what it says is a “grossly undervalued” stock.
One analyst, writing on Seekingalpha.com, laid out the case for MEMC, characterizing the current issues as “operational” in nature and mainly attributed to random events, not manufacturing or procedural flaws. Declining margins and slowing sales are of more concern, notes R.J. Rhodes, and some growth funds are selling out. But doing some back-of-napkin fiscal calculations, he declares that “the company is not falling apart, there is still unit growth, margins are intact, and expenses are well controlled.”