Mephisto,
The article to which you refer was titled "Running Wafer Thin." It appeared in the March 25 Business Week. The shortage of silicon wafers that it discussed appears to be real and likely to be with us for a while.
There is a theory posted here and elsewhere that the new wafer capacity being brought online next year will result in an oversupply of silicon wafers and that, as a result, MEMC will lose its pricing power in the near future. This is one of the reasons offered to rationalize the price stagnation of MEMC's stock.
I called Sam Duggan in Investor Relations today and asked if he knew of any nonpropietary studies of the supply/demand relationship of silicon wafers. He knew of none, but he did summarize a July 9, 1996 study by Dataquest on this subject with respect to 200mm wafers.
Essentially, Dataquest looked at the total semiconductor fabrication picture and concluded that there would be shortages on 200mm wafers well into the next century. Dataquest factored-in all new semiconductor fab facilities being brought online, factored-in the likely growth of the industry, and calculated the capacity of the wafer manufacturers to meet the likely demand. Dataquest considered all project delays and postponements too. The study did say that there might be some respite from the shortage in late 1997 but that it would be short lived.
Mr. Duggan reiterated what was discussed in the earnings release and the subsequent conference call. The company feels that we're likely to see a run rate this quarter pretty much like we saw earlier this year. Consequently, third quarter earnings could be sequentially lower than second. The company feels comfortable with the current earnings estimates for September and December, $.98/share and $1.02/share I think.
MEMC has to deal with changing product demands in a very dynamic business. Customers can apparently cancel or postpone orders up to 45 days before delivery leaving the company to scramble to find new customers for its production, something it has been good at in the past. Nevertheless, MEMC isn't willing to guarranty this and has taken a conservative public posture regarding future earnings. IMO, this is why the stock is just marking time.
I doubt that this will last much beyond the September quarter. MEMC projects that December earnings will be sequentially higher than September. Furthermore, the semiconductor industry, with which MEMC is joined at the hip in the minds of many investors, should be entering a seasonally strong period. Finally, there is likely to be a shortage of silicon wafers well into the future. Consequently, MEMC should retain its pricing power and, of course, margins.
This is a well run company with a solid future. The September quarter is a little hazy though and the Street, with its short term orientation, doesn't like uncertainty very much. So we'll have to be patient a bit longer before we see the old highs.
Bob M. |
