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Technology Stocks : MEMC INT'L. (WFR -NYSE) The Sleeping Giant?
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To: Debt Free who wrote (4256)3/6/1999 11:27:00 AM
From: Zeev Hed   of 4697
 
Doug, I would not be tempted yet. WFR needs to reach sales levels of about $280 MM maybe even more than $300 MM quarterly to break even, in the last quarter they had about half that much. To recover not only they have to increase sales of wafers but they also must fetch better prices to improve their margins.

I am assuming now that the rights will "go off" at $6 rather than the $7 to $8 their last release suggested. that will add some 33 M shares to about 75 MM shares. That will result in a BV of about $7.875 before any losses that might be incurred in this quarter. I would not be surprised to see them losing another $2 to $3 in the next quarter thus reducing the BV to around $5 to $6.

My suggestion that the stock may retest the low is based both on the technical situation and the SOX breakdown and of course on the lack of visibility of profitability for at least another two maybe four quarters. What they need is for the 300 mm program to finally take off, and for pricing power in their 200 mm business to return. They are spending $23 MM per quarter on R&D a big chunk of which is the fact that they have to maintain the 300 mm program alive until they can actually sell those wafers. By the time they will recover their book value might deteriorate further. I do not see any reason to rush here and would wait until at least June since by then there might be better visibility of what 2000 will look like. If indeed we are entering another phase of rapid growth in Si wafers used (for which we will need to see major announcements of new fabs), then the market may discount a profitable state early in 2000 with much higher prices. Right now, I do not see them shipping $300 MM quarterly any time soon.

Zeev
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