Wafer Whiffs as Company Blows a Gasket

Nearly 3-years ago MEMC Electronic Materials (WFR-NYSE) blew through its historical valuation ceiling as prescient BuySider's bid up the the shares ahead of major growth in the company's end markets. Solar energy fever began to grip Wall Street and the stock was a great way to play it.

But tomorrow shareholders, including Wall Street's Dynamic Duo at the Federated Kaufman fund, will feel a bit of pain:

There is all kinds of trouble this afternoon for MEMC Electronic Materials (WFR), maker of silicon wafers and raw polysilicon used int he semiconductor and solar sectors.

For starters, the company whiffed Q2. Revenue of $531.1 million was well short of Street estimates of $557.9 million. Non-GAAP profits of 92 cents a share missed the Street consensus of $1 by 8 cents. MEMC noted that the results were a bit below the bottom of its targeted range.

The company said in June it suffered “the premature failure of a relatively new heat exchanger” at its Merano, Italy facility, reducing Q2 polysilicon output by 5%. MEMC said that in May and early June it looked like strong output from its Pasadena, Texas plant positioned the company to exceed the upper end of its its targeted revenue range, but that “unfortunately, a loose pipe fitting caused a fire at the company’s Pasadena facility” that required a week-long shutdown of half the silane gas production at the plant. (Silane is a precursor to polysilicon.)

For Q3, the company sees revenue of $560 million to $620 million; the Street has been looking for $616.3 million. Barron's

It is not all bad; the company is buying back a big slug of stock, and end market demand continues at robust levels.

But with the stock trading down under $40 after hours, and off nearly $15, shareholders are certain to feel the pain.

The excuses the company offered up are among the stranger I have witnessed in my life; it just goes to show you that anything can go wrong when you are long. And while this time it might be different, new valuation ranges for stocks do not always hold.

This one is going to hurt Hans Utsch and Lawrence Auriana, who have managed to keep their long-term numbers intact despite a lousy 2008, and they will take a hit tomorrow when the stock opens for trading, assuming it is still near the top of their sheets.

But the stock might present the best buying opportunity in several years as the final bit of froth blows off ths stock.
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Update: Conference Call Notes from 6:32 PM EST per Briefing

Co notes that fall off was due to Pasadena and Merano facility issues; says that issues are currently behind the co… asked about wide range of guidance: says it is due to caution; says semi demand is uncertain; says some customers are telling them that back to school may not be that great; says that solar continues to be strong but $ per kg are higher in semis… says they still expect to reach long range production targets in previously stated time frame… expect polysilicon supply in the markets to be flat q/q… says spot pricing continues to be healthy; sold a nominal amount of spot wafers in Q2… says 300 ml is approx 40-45% of sales.... says they are not silane constrained, they are poly reactor constrained… says pricing pressure on the semi front, especially in 300 ml due to memory market issues… Says Suntech and Jintech appear to be doing well… says have not changed any expansion targets… says they have lost some talent do to other poly plants starting up and taking employees… says they can outsource capacity for silane if they ran into any issues
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Lights Out Tomorrow

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MEMC Whiffs Q2; Guidance Disappoints; Trouble At Italy Plant; Fire In Texas Facility; Stock Plunges
Barron’s

MEMC Electronic Materials, Inc. Q2 2008 Earnings Call Transcript
Seeking Alpha
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