SunEdison Drags MEMC Earnings Down

(MEMC earnings story updated with analyst commentary)

NEW YORK ( TheStreet) -- MEMC Electronic Materials ( MEMC) came in below Street expectations, as the systems business revenue drop offset gains made in semiconductor and solar materials.

MEMC shares were down between 7% and 10% in after-hours trading on Thursday right after the earnings report, and was down 15% at the open on Friday morning. MEMC shares have already been beaten down this year, and reached a 52-week low in early July, at which the shares were trading again on Friday morning, more or less.

MEMC reported earnings of 6 cents, below the Street expectation of 9 cents per share. MEMC revenue came in short of expectations, too, at $448 million, versus the Street at $466 million.

The big drop from MEMC was in the SunEdison solar systems business that it acquired last year, a controversial acquisition at the time, questioned by analysts.

The SunEdison revenue dropped by roughly 50% in the second quarter, from the first quarter sales of $60.7 million to second quarter sales of $30.7 million. The systems business had a loss of $4.4 million in the second quarter, versus a $6.8 million profit in the first quarter.

Theodore O'Neill, analyst at Wunderlich Securities, noted in an email to TheStreet, "Semi and Solar materials were strong as I expected. The solar systems business was a huge miss, but notice revenue top line guidance is the same even though systems business is way down."

MEMC said it would exceed previous guidance for 2010 revenue of $1.75 billion to $1.85 billion. Yet it told investors to expect it to generate earnings below its previous guidance of 70 cents to 80 cents.

O'Neill downgraded shares of MEMC to sell. "We felt management did a terrific job coming clean on the conference call where things worked and where they didn't, but given the lack of earnings and the increased variability of the earnings stream, we feel the shares may trade lower." Wunderlich now has an $8.50 price target and sell rating.

The Street reaction to the MEMC miss was not surprisingly negative overall. Jefferies see wrote in a note on Friday morning that even with incremental improvements in the second half from systems sales, semiconductor and solar margin declines in 2011 and the uncertainties of selling solar projects merit a hold rating and price target of $10. "We believe 2010 is peak earnings/margin for MEMC given our outlook for substantially lower solar wafer prices and potentially lower semi wafer prices/volume in 2011," Jefferies analyst Jesse Pichel wrote.

Oppenheimer & Co. lowered its earnings guidance for the year to 46 cents, noting that MEMC's solar materials unit is seeing de-minimus margin improvement in a favorable pricing environment and took its price target down from $16 to $13.

Needham & Co. took its MEMC full year earnings call down to 33 cents, but kep the stock at a hold, writing, "Semi wafer saw a healthy rebound, but in its solar wafer business, higher prices were again limited by high tolling costs. Additionally, lower SunEdison sales in 2Q10 suggest some delays in project completion, which probably disappointed the Street. While the lowered 2010 earnings guidance should temper expectations, we'd wait for improvements on solar wafer cost and better visibility of SunEdison's project timing before revising our rating."

-- Written by Eric Rosenbaum from New York.

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