Solar Sector's Black Box: MEMC Electronic

Updated from Monday, Feb. 1

SAINT PETERS, Mo. (TheStreet) -- The black box of the solar industry may be revealed on Tuesday.

No, it's not the net impact of Germany's feed-in tariff reductions to the entire solar industry. MEMC Electronic Materials(WFR) will report its earnings, but the No. 1 priority of many analysts that cover MEMC is not the backward-looking numbers from the fourth quarter. The market is awaiting details on SunEdison, the private large-scale solar project developer that MEMC acquired in Oct. 2009.

Because SunEdison was a private company, analysts lack any information on the financial picture of the company. That is about to change, as MEMC sets about convincing investors and The Street that the SunEdison deal -- which some analysts still refer to as a "mystery" -- will be an accretive deal for MEMC shareholders.

"Clarity on the SunEdison deal has been holding MEMC back,'" said Ardour Capital Management analyst Adam Krop.

The MEMC picture is complicated headed into the earnings season. Getting a read on SunEdison may be the big ticket item, but analysts are also looking for resolution to silicon plant production problems that plagued MEMC in its Pasadena location last year. What's more, the much-feared German reductions in solar feed-in tariffs will also be important to the MEMC outlook.

As a result, the earnings season points of concern for MEMC are two parts company-specific, and one-part European feed-in tariff-related.

The critical question related to SunEdison is how MEMC integrates the solar project developer without deteriorating the gross margins to which investors have become accustomed. Engineering, procurement and construction work (EPC) is a low margin business, and it is the type of business in which SunEdison specializes.