MEMC Posts Wider-Than-Expected Loss - Analyst Blog

MEMC Electronic Materials Inc. (WFR) reported first-quarter 2013 adjusted loss per share of 16 cents, which was wider than the Zacks Consensus Estimate of a loss of 14 cents per share.

The adjusted figure excludes the impact of direct sales and lease-back from the Solar Energy segment as well as some tax benefits, and restructuring and impairment charges.

Revenues

On a GAAP basis, MEMC reported first-quarter revenues of $443.6 million, down 14.6% from $519.2 million in the year-earlier quarter. Reported revenues came much above the Zacks Consensus Estimate of $409.0 million. Lower solar sales volume and weak semiconductor pricing led to the revenue decrease. Pricing was mostly affected by industry-wide slowdown.

Including direct sales from the Solar Energy segment and lease-back transactions, non-GAAP revenues came in at $431.3 million, which decreased 17.7% from the year-ago quarter.

Segment wise, revenues from Semiconductor Materials grew 6.4% year over year to $229.8 million and was 51.8% of total revenue. The improvement was mainly due to higher volume offset by weaker pricing, yen headwinds and unfavorable product mix.

The Solar Energy segment (which now includes Solar Materials) accounted for 48.2% of total revenue. The segment generated revenues of $213.8 million, down 29.5% year over year. The decrease was driven by lower project sales and weaker solar wafer pricing and volume.

During the quarter, most of the projects were under engineering, planning and construction (EPC) only contract due to lower development spending. This has led to lower revenues from solar project sales.

The Solar Energy segment sold 45 megawatts (MW) of solar energy systems on a non-GAAP basis and 43 MW on a GAAP basis. This compares with 49 MW and 47 MW sold, respectively in the year-ago period. Projects interconnected during the first quarter represented 41 MW in 27 projects. MEMC also reported that construction of 104 MW of systems is underway. The project pipeline was 2.7 gigawatt (GW), up 0.1 GW compared with the prior quarter and down 0.2 GW from the year-ago period. Project backlog increased 98 MW sequentially to 925 MW.

Operating Results

Reported gross profit was $49.7 million, down 0.8% from the year-ago quarter. Gross margin was 11.2% compared with 9.6% in the year-ago quarter. Margin expansion was mostly due to cost control measures, partially offset by lower pricing.

Operating loss was $33.5 million compared with a loss of $54.2 million in the year-earlier quarter. Operating margin was (7.6%) compared with (10.4%) in the year-ago quarter.

Total operating expenses decreased 20.2% from the year-ago quarter with marketing and administration expenses falling 15.5% and research and development expenses decreasing 13.4%.

Reported net loss was $89.4 million or 40 cents per share compared with net loss of $98.6 million or 43 cents in the prior-year quarter. Adjusted loss per share was 16 cents versus 29 cents in the year-ago quarter.

Balance Sheet & Cash Flow

MEMC ended the quarter with cash, cash equivalents and restricted cash of $476.2 million, down from $645.0 million in the previous quarter. Cash declined mainly due to deployment for solar project construction and delay in collections. Long-term debt was $763.4 million, slightly up from $758.7 million in the previous quarter.

MEMC used $118.6 million cash in operations as against cash generated from operations of $19.4 million in the preceding quarter. Capital expenditure was $30.8 million, down from $38.1 million in the previous quarter.

Guidance

MEMC expects an upturn in the order pattern in its Semiconductor Materials segment in the coming quarter. Preferring to be cautiously optimistic, management believes that initial volume growth will take place with modest support from ASP growth in the second half of 2013.

For the second quarter of 2013, MEMC expects Semiconductor Materials revenues in the range of $235.0–$245.0 million and solar energy systems sales volume in the range of 29 MW to 54 MW.

Average project pricing would range between $3.40/watt and $3.55/watt. Capital spending is expected between $30.0 million and $40.0 million.

For fiscal 2013, Semiconductor Materials revenues are expected between $960.0 million and $1.0 billion. Solar energy systems sales volume is expected in the range of 430 MW to 500 MW.

Average project pricing would range between $3.10/watt and $3.40/watt. Capital spending is expected between $120.0 million and $140.0 million.

The company also mentioned that it is optimistic about gaining operating leverage from ongoing cost reduction measures. Moreover, it aims to reduce solar materials pricing with the help of economical and flexible sourcing strategy. Together, these potential benefits would help MEMC deliver stronger results in 2013, management believes.

Conclusion

MEMC posted a disappointing first quarter with a wider-than-expected loss. Revenues, too, failed to encourage us as it decreased on a year-over-year basis. Solar systems sales were also lower than expected. However, a sign of recovery in the semiconductor sector helped MEMC to provide a decent sequential guidance. Continuous expense control will continue to support results.

Though the Solar segment has not performed well in the last two quarters, we believe there is immense potential given a strong backlog and a large project pipeline. We also consider MEMC’s recent tie-up with Brazil’s Petrobras, to build one of the largest solar photovoltaic power plants, encouraging. This venture will help MEMC to tap the Brazilian solar market and expand geographically.

Currently, MEMC has a Zacks Rank #3 (Hold). Investors may also consider other technology stocks that are performing well. Integrated Device Technology Inc. (IDTI), Silicon Image Inc. (SIMG) and Spreadtrum Communications Inc. (SPRD) all have a Zacks Rank #1 (Strong Buy) and are worth buying.

INTEGR DEVICE (IDTI): Free Stock Analysis Report

SILICON IMAGE (SIMG): Free Stock Analysis Report

SPREADTRUM-ADR (SPRD): Free Stock Analysis Report

MEMC ELEC MATRL (WFR): Free Stock Analysis Report

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