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Tickers in this Article: FLEX, STP, WFR
MEMC Electronic Materials Inc. (WFR) is scheduled to announce its first quarter fiscal 2012 results on May 9, 2012, after the market closes. There was no estimate revision noticed in the last 30 days. Fourth Quarter Overview

MEMC delivered adjusted fourth quarter loss per share of 9 cents, which was better than the Zacks Consensus Estimate of 14 cents loss per share. The adjusted figure excludes the impact of restructuring charges, goodwill impairment charges and other non-operating items, but includes direct sales and lease-back from the Solar Energy segment.

However, including the special items, the GAAP loss per share was $6.44, compared to earnings per share of 5 cents in the year-ago quarter.

The loss was due to lower wafer volume and pricing, as well as restructuring charges. The ongoing weakness in semiconductor and solar chip demand is taking a toll on the quarter's results.

MEMC reported non-GAAP revenue of $772.1 million, which decreased 18.7% from the year-ago quarter. GAAP revenue decreased 15.6% year over year. The deceleration was due to broad-based weakness in Semiconductor Materials and Solar Materials, partially offset by a solid contribution from Solar Energy.

Margins have declined on a year-over-year basis on lower pricing for its semiconductor and solar chips.

First Quarter Guidance

MEMC did not provide any quantitative guidance for the first quarter and fiscal 2012, citing the ongoing uncertainty in the semiconductor and solar markets.

MEMC believes that the cyclical downturn hurting the semiconductor industry will likely bottom out by the next quarter. Though first quarter revenues could be 10.0-15.0% lower sequentially, order growth could ramp by the second quarter of 2012. Moreover, the company believes that revenue in second half 2012 could be stronger than in the first half.

For our detailed blog on the fourth quarter, please see this link: MEMC Incurs Loss on Low Chip Demand

Agreement of Analysts

The analysts are concerned about declining solar wafer pricing due to a supply glut. The analysts believe that it would not be possible for MEMC to offset the price declines with the ongoing cost reduction program.

We believe these issues are ongoing and the situation is unlikely to change in the near term. We also do not see any other catalysts that could affect earnings at this point, which is most likely the reason that the last 30 days saw minimal estimate revisions for both the first quarter and fiscal 2012.

Magnitude of Estimate Revisions

Given the limited revisions, the Zacks Consensus Estimates for the first quarter and fiscal 2012 remained unchanged in the past 30 days at a loss per share of 15 cents and earnings per share of 15 cents, respectively. But the estimates for the first quarter and fiscal 2012 fell 9 cents and 18 cents, respectively, in the past 90 days.

Recommendation

We believe that MEMC's first quarter results will be impacted by continued solar price declines. Though the company is trying to fight lower ASPs and higher costs through a major restructuring effort, we doubt that any positive impact from the initiative will be seen from results until later in 2012. In the meantime, stable pricing in the semiconductor vertical could provide some support.

We see MEMC's solar energy initiatives as a key driver for the long term. The company has tie-ups with key players such as Flextronics International Ltd. (FLEX) and Jusung Engineering Co. Ltd. to make its solar ventures efficient and profitable. The company is also seeing solar demand cropping up in India.

But the oversupply situation in the solar market is a concern. Moreover, MEMC's long-term solar wafer supply agreement with Suntech Power Holding Co. Ltd. (STP) also came to an end. The persistent fall in polysilicon prices led to lower pricing for solar channels. As the long-term pact was on a higher price, the receiving party decided to cease the agreement. On the other hand, more polysilicon production could negatively affect the oversupply situation in solar chip demand.

Currently, MEMC has a Zacks #3 Rank, implying a short-term Hold recommendation.

 
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