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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: cluka who wrote (42933)	1/23/2009 12:15:45 PM
From: The Ox	Read Replies (1) \| Respond to of 95541

WFR cash: It is also important to note $1.4B in cash or $6.25/share. They also have $300MM in LoCs which adds up to $7.50 cash/share. They also believe there is no way they can be cash flow negative. Weighted-average shares used in computing diluted income per share 225.1 227.6 232.5 228.6 232.3 MEMC ELECTRONIC MATERIALS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited; In millions) Dec. 31, Dec. 31, 2008 2007 ---- ---- ASSETS Current assets: Cash and cash equivalents $988.3 $859.3 Short-term investments 148.4 457.1 988.3+148.4=1136.7/225.1=$5.05 per share in cash/short term inv NOT $6.25

To: cluka who wrote (42933)	1/23/2009 1:32:29 PM
From: Pam	3 Recommendations Read Replies (1) \| Respond to of 95541

WFR has 8k metric tons of poly capacity. It makes no difference if this is later turned into wafers or not, revenue is based off poly price. Say WFR sells this at a very conservative price of $75, that is $150MM in revenue/qtr. It does make a difference. Perhaps, you didn't understand what I said earlier. WFR makes polysilicon and converts part of it into wafers for the semiconductor industry, part of it into wafers for the solar industry and the rest of leftover poly is sold in the Spot markets! When they signed 10 year supply agreements with solar firms, in the last two years or so, poly prices were very high and this being the key ingredient for wafers solar customers were buying, they signed 10 year contracts with WFR which had very high poly prices (yet lower than prevailing Spot prices at the time) built into finished wafer prices that were locked-in. Now poly prices are collapsing and some of the supply that was being used to manufacture wafers for semiconductor industry is also being diverted towards solar wafers and/or raw sales of ploy in the Spot markets. Poly prices are collapsing as demand from solar customers is weak and factories are churning out more poly 24x7 unless you shut down the plant! WFR has capacity of 8000 metric tons, their main competitors are twice and thrice as big! There is a glut of polysilicon as demand for wafers is weak from both semiconductor, as well as solar customers! The only way to clear the supplies is to dump poly at whatever prices they can fetch. In past, the margins were very high for excess supplies as $30/kg product was getting sold at $500/kg in the spot markets and now we are slowly getting to where it would get dumped at cost or even below cost in the Spot markets! We are not there yet, but it will happen eventually. This is a commodity and that's how commodity markets play out. They have also indicated that there is no issue with volume going to solar. That to me means they should not have issues selling this production. There was no issue last quarter but market is getting worse and demand is falling. Solar guys have no credit available to them and pretty soon they may default on their contracts. At minimum, there will be a reset of terms and WFRs margins will come down significantly! I wouldn't be surprised if they even shutdown their poly plant for sometime to manage poly inventories in the coming months. Why are they then projecting only $200MM in revenue? After conference call only thing I can say is they are being very conservative. No, they are not being conservative, they are being realistic. This number may or may not hold just like they revised their guidance a couple of times for 4Q08. After 1Q09, 2Q09 will be no better than 1Q09 and frankly, I wouldn't be surprised if WFRs revs for 2009 come down by 40-45% yoy from 2008! There is a good reason for this, economy is shockingly unpredictable. In such climate it is easy for you to claim they will have operating loss in Q1. However, even at these very conservative estimates WFR says it won't happen. Well, you can do the math. They are guiding 213MM in revs for 1Q and at 20% GM, GP is 42.6MM Opex will be in excess of 40MM as there will not be one-time savings they had last Q with SOE due to the departure of their CEO and that makes OP at almost nothing! If 1Q09 sales numbers are guided down again or off the mark even slightly, OP will be negative! Management's guidance should always be taken with a huge grain of salt. Btw, they also believe they have superior cost structure to the competition, something you claim they don't. There are companies who have a much larger poly output and are in this business for a long time. Their cost structure is much lower than WFR's. WFR's cost structure is better relative to smaller and newer vendors but they are definitely not the lowest cost producers! It is also important to note $1.4B in cash or $6.25/share. They also have $300MM in LoCs which adds up to $7.50 cash/share. They also believe there is no way they can be cash flow negative. Cash is the reason why price is holding up so far. Once they start losing money, things change and CFs come down rapidly. I expect WFR to have an operating loss for 1H09 and small OP for 2H09. Of course it will depend on how the economy recovers in 2H and what the bigger players do with their capacity and expansion plans. For now, I would say $1 in 2009 is not going to happen and as of today consensus is at $2.30!! A few months ago, it was even higher! Just look at Don's tables and you will see how the earnings are coming down and yet they are all behind the curve! Bottom line is if they go ahead with their planned expansion to 11.5K metric tons this year, CF will be negative. How shall we value WFR? Clearly you will not except a possibility that business will ever uptick so you want to value it at liquidation cost. Even then it should be over $10/share. I never said that. Only thing I have said is that this stock will bottom in single digits and when it traded at 10 in Nov it got there for all practical purposes. Yesterday, it traded as low as $10.50 in after-hours and again it came very close to single digits. But we are not done yet because coming months will be difficult for WFR and there is a good possibility that they may go down again. My point is why buy the stock at $17.50 for the long-term if you can buy 75% more shares with the same money and sleep closer to the ground for the long-term? I have positions in LRCX and KLAC, how do I value them? Certainly not by what earnings will be next qtr. If I apply similar principle to WFR, I would consider it it good value under $20. Well, you are entitled to value them the way you want, just as I am entitled to value them the way I want. My analysis differs from yours. I believe both, LRCX and KLAC are going to be cheaper than they are because their sales and margins haven't bottomed as yet. You can read my reasoning, if you care, in my earlier post to TO. There is going to be no significant uptick in orders until their customers are in a position to make some money for a couple of quarters at minimum before they go out and add more capacity. Moreover, credit markets will have to improve so that these purchases can be financed because most of them have no money left!