MEMC Electronic Turns In Another Strong Quarter

| About: SunEdison, Inc. (SUNEQ)

Large Cap Watch List member MEMC Electronic Materials, Inc. (WFR) reported financial results for the quarter ended June 30, 2007. Net sales of $472.7 million and earnings per share of $0.70 ($0.81 after the stuff they exclude but probably shouldn’t) compared with a consensus estimate of $466 million in sales and $0.76 in earnings per share.

Guidance was also strong:

Wafer inventory levels at some customers are still at somewhat elevated levels and could be back to normalized levels in the fall season. Demand from solar applications, however, continues to be healthy. Based on these customer indications, we are targeting revenues of approximately $500 million for the third quarter. We are also targeting margins to improve by approximately 100 basis points compared to the second quarter levels, with operating expenses of approximately $39 million.

For the full year 2007, we are currently targeting revenue of over $1.95 billion. In addition, we are now targeting non-GAAP EPS to be a little over $3.30 based on a cash tax rate in the mid-teens, and excluding any change in the Suntech warrant valuation. This would represent over 60% growth in non-GAAP EPS over the 2006 level of $2.06.

Next quarter’s revenue estimate is in line with consensus, and the full year estimates were previously at $1.94 billion in sales and $3.17 in EPS. The company’s own inventories continue to decline, reflecting the shortage of capacity for wafers in general. The company has announced capacity expansions but supply is likely to remain tight for some time, particularly if solar demand remains strong and semiconductor demand improves as I expect.

MEMC is the only semiconductor related company on my watch list, and there is a reason it got there.

WFR 1-yr chart:

WFR 1-yr chart

Disclosure: author has a short position in SMH put options at time of publication.