MEMC Electronic Falls On Competition Worries - What Gives?

Although we are generally negative on the outlook for semiconductors and semi equipment, we are intrigued by polisilicon provider MEMC Electronic Materials (WFR). As far back as last June we were saying that due to its exposure to solar energy, MEMC was a stock “to keep an eye on.” We wish we had opened our wallets for it at the time, but that’s another story. We have now, at least, officially put the name on our latest Large Cap Watch List. Unfortunately, our timing may yet again prove suspect.

MEMC shares fall on competition worries

Shares of MEMC Electronic Materials Inc., a maker of silicon wafers used in semiconductors, fell Tuesday on competitive and pricing concerns.

Analysts cited plans by at least two MEMC competitors, Hemlock and M. Setek, to increase manufacturing capacity, announced at a polysilicon and solar industry conference in Munich.

That sounds like something we’ve heard before. Oh, we remember - we said it back in October:

We have long written about excess semiconductor manufacturing capacity. We also noted, however, that one segment of the market - the production of actual wafers - remained tight due to competing demand from both semiconductor and solar cell makers. However, as is often the case when profits are near - more capacity is being build and indicates an increasing likelihood that the sunny outlook will cloud somewhat.

When we said it, they said our “evidence was a little slim.” Now it hits BusinessWeek, which raises an intriguing issue: are we more of a contrary indicator on this name than even BusinessWeek?

For the record, we’d rather be a perfect contrary indicator than to bat .500. Perfect imperfection beats mediocrity any day. Stay tuned to this space to see where things shake out.

WFR 1-yr chart: