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MEMC Electronic Materials, Inc. (MEMC) Reports Disappointing Earnings for the Second Quarter, Lowers FY08 Guidance

MEMC Electronic Materials, Inc. (WFR), a leading provider of polysilicon wafers to the solar cell manufacturing and semiconductor industries, reported second quarter results yesterday that fell short of analysts’ expectations. Revenues increased 12.4% year-over-year to $531.4 million vs. analysts’ estimates of $616.3 million. Net income on a non-GAAP basis was $212 million or 92 cents per share vs. $1.14 per share consensus.

The company continues to be plagued by problems that negatively impact production. A fire at their Pasadena, Texas facility caused a weeklong shutdown, and a faulty heat exchanger at their Merano, Italy facility reduced polysilicon output by five percent.

“MEMC grew sales by 6% sequentially, expanded gross and operating margins by 150 and 200 basis points, respectively, continued to generate industry- leading levels of free cash flow at 22% of sales, and further expanded our cash and investment balances to approximately $1.5 billion,” said Nabeel Gareeb, MEMC’s chief executive officer. “However, our financial results were a bit below the bottom end of our targeted range as the company encountered unanticipated events towards the tail end of the quarter.”

For the third quarter the company expects to achieve revenues of $560 million to $620 million, while analysts are expecting $678 million. Full-year guidance also falls short of estimates. For the full year, MEMC forecasts sales of $2.25 billion – $2.35 billion and non-GAAP EPS of $4 – $4.30 per share. Consensus estimates call for $2.36 billion in revenues and $4.30 EPS. Gareeb cited uncertain semiconductor demand for the cautious guidance, although solar application demand is expected to remain strong.

Shares of WFR closed at $53.80 yesterday and have traded in a 52-week range of $48.50 – $96.08. Shares are trading pre-market nearly 20% lower at $43.58 on volume of 380,000 shares, indicating a huge gap lower on the open and a new 52-week low. The stock has already garnered two upgrades this morning. JP Morgan raised its rating from Neutral to Overweight, and Citigroup upped its rating from Hold to Buy with a $65 price target. Friedman Billings Ramsey maintains an Overweight rating on the stock and lowered its price target from $100 to $80.

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