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Technology Stocks : MEMC INT'L. (WFR -NYSE) The Sleeping Giant? -- Ignore unavailable to you. Want to Upgrade?

To: Ian@SI who wrote (4430)	7/30/1999 9:24:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 4697

Ian, somehow, I read the numbers quite differently. If I assume that they somehow manage to get gross profits to 10% of sales (from a current negative 1.2% in the last quarter and about 9% or so in the prior quarter), they will need quarterly sales of about $700 MM, which I believe is probably close to 50% of the total market. They need price improvements and I do not see these anytime soon, since price are still declining (albeit at a single digit rate per quarter). I you assume that their sales are going to go to their prior levels of 20% of the industry and assume that the industry is at about $5.5 billion (last year it was $5 billions), that means annual sales of 1.1MM, or quarterly sales of $275 MM (about 65% above current running rate, quite a task). At these sales level, which IMHO are quite "generous", at current prices (assuming the price decline stopped completely) they will need gross margins of about 20%, just to break even. I think this is a dream for the next three quarters at least. If you wanted to pay 20 times earning of next year to get to justify $10/share, they would need profits of about $33 MM, which at 20% gross margins would require close to $440 MM quarterly in sales. An impossibility even WFR's management will admit. I do not see anytime next year either 20% gross margins nor quarterly sales of $440 MM. I think that at current prices, the stock is overvalued, and I also think that the company is in a precarious financial condition (with close to $800 MM in debt on the balance sheet) and will have difficulties weathering another slump in the industry if it occurs within the next 24 months. In the CC they mentioned $68 MM cash on hand, but the balance sheet showed only half of that. In any event at their current burn rate of $52 MM per quarter, they will be running out of cash (depreciation and planned capex completely "cancel" each other) in two quarters or less. I am staying away, except of possible short term trades and I do not think that WFR is a good investment until we see they can survive the slump in the wafer business. They need better prices and they need a vibrant 300 mm business, which is not scheduled until late 2002, I would think. Zeev