MEMC’s Return to Profitability

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MEMC Electronic Materials, Inc. (NYSE: WFR), SunEdison’s parent,  has announced an upbeat third quarter earnings report which saw the company going back to making profits easily beating the analysts’ estimates. MEMC’s American peers First Solar, Inc. (NASDAQ: FSLR) and SunPower Corporation (NASDAQ: SPWR) had also recorded better-than-expected results. MEMC’s non-GAAP revenues stood at $708.9M, which translates into $0.30 non-GAAP profit per share as opposed to the anticipated $0.12 loss per share. Net sales for the third quarter fell by 26% sequentially, and increased by 17% year-on-year to $601.6M, but its gross margin increased to 14.4% from approximately 11% in Q2-2012 and Q3-2011. This will be the company’s second consecutive year-on-year increase in revenues. More importantly, the business has made a net profit of $37M, a significant improvement from the loss of $77.2M in the previous quarter and the loss of $94.4M in the year-ago quarter.

Commenting on the results, MEMC’s chief executive Ahmad Chatalia said, "Our results were generally in line with expectations due to strong execution in both our solar and semiconductor businesses.  The benefits of our strategy are becoming clear as we face difficult market conditions in both of the industries we serve.  We are also beginning to see the benefits of a leaner organization which should better position us for increasingly challenging markets in the near-term."

The increase in profits was primarily driven by its Solar Energy business unit, whose operating income rose to $75.8M from just $11.7M in the previous quarter and a loss of $94.9M in Q3-2012. The semiconductors materials unit, on the other hand, has witnessed its operating income increase sequentially by $13M, though it fell on a year-on-year basis by $9.8M to $8.7M. However, some of the increase in Solar Energy’s revenues, up to $37.1M, was attributed to the cancellation of the contract with Conergy. The rest was due to better solar module and project sales. The profits were dragged by the continuous decline in wafer prices, which have halved in the past 12 months. In this quarter, 47MW of solar projects were interconnected by SunEdison. Total solar energy systems shipments (non-GAAP) were 74MW, 16MW more than the higher end of the outlook.

For the fourth quarter, MEMC expects to achieve solar energy systems shipments of 90MW-120Mw, which will be 21.6% more than Q3, even if it manages to touch the lower end of the outlook, while its average selling price will be $3.50/watt, down from $3.87/watt in the third quarter. The business is expecting to maintain its operating expenses below the $90M mark. The company has already reduced its workforce by 1,300 and its impact was evident in better margins. The demand for semiconductor materials business is expected to remain low in the coming quarters. MEMC has 2.9GW of projects in the pipeline, out of which 117MW are under construction, primarily in North America. The CEO has identified that the company needs to focus on diversity, which will come from having various types and sizes of projects spread across the globe.