MEMC Electronic Materials, Inc. (NYSE: WFR), a manufacturer of wafers and related products to the semiconductor and solar industries, reported that net sales fell off steeply in 4Q08. The company said sales volumes of wafers for solar applications actually increased over the previous quarter, but the drop in sales for semiconductors more than offset that increase.
The company warned that revenue in 1Q09 could be cut in half.
Net sales were $425.7 million, a decrease of 22.0% from $546.0 million in 3Q08, and a decrease of 20.6% from 4Q07 net sales of $535.9 million.
The sequential and year-over-year decrease in sales was primarily the result of lower wafer volumes for semiconductor applications and lower prices associated with short-term sales of solar products, the company said.
MEMC said it did not have information about its customers needed to give "meaningful" quarterly, annual or long term guidance. However, Marshall Turner, MEMC’s Interim CEO, said 1Q09 revenue could decline by as much as 50% from 4Q08. This could result in gross margins declining to the 20% range, he said.
Gross profit in 4Q08 was $193.0 million, or 45.3% of net sales, compared to $269.7 million, or 49.4% of net sales, in 3Q08 and $293.6 million, or 54.8% of net sales, in 4Q07.
For the full year ending December 31, 2008, the company’s net sales increased by 4.3% to $2.00 billion, compared to $1.92 billion in 2007. Gross profit increased by 0.4% to $1.0 billion, or 50.1% of net sales in 2008, and operating income increased by 0.9% to $857.7 million, or 42.8% of sales.
MEMC generated operating cash flow of $640.5 million in 2008, or 32.0% of net sales, and free cash flow of $337.3 million, or 16.8% of net sales. This enabled the company to grow cash and investment balances by $92.3 million to over $1.4 billion. Capital expenditures in 2008 totaled $303.2 million, or 15.1% of net sales, compared to $276.4 million, or 14.4% of sales in 2007.
"The fourth quarter of 2008 saw deteriorating semiconductor and solar market conditions, amid the rapidly weakening global macroeconomic environment," Turner said. "While this led to one of the steepest declines of semiconductor industry unit sales on record, and a significant reduction in our quarterly sales, MEMC was able to continue to achieve very strong profitability with gross and operating margins of approximately 45% and 40%, respectively, and continue its consistently high levels of free cash flow generation, at approximately 15% of sales. In addition, the company continued its focus on wafers, with 90% of the company’s fourth quarter revenue coming from wafer sales, and 10% from sales of polysilicon and other products."
Turner added: "End market weakness and low order visibility across both semiconductor and solar applications continues in the first quarter, as reduced consumer spending, limited access to credit and other results of the macroeconomic environment weigh on both markets. This environment is exacerbated by continued inventory reductions at semiconductor customers, the combination of which is resulting in a significant sequential reduction in semiconductor wafer demand which is, in turn, leading to the diversion of some polysilicon output from semiconductor to solar markets. This is having the effect of reducing pricing for polysilicon and wafers in the solar market"
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