MEMC Electronic Materials’ (WFR) fourth-quarter earnings missed the Zacks Consensus Estimate by 2 cents. The company’s share price fell 17.5% in response to the news.
 
Revenues
 
Revenues of $356.7 million were up 15.1% sequentially and down 16.2% year over year. The primary reason for the sequential increase was higher semiconductor volumes, helped by slightly better prices and a one-month contribution of $3.8 million from the newly acquired SunEdison. Although semiconductor wafer volumes doubled, compared to the year-ago quarter and solar volumes were stable, this was more than offset by a significant decline in prices.
 
Semiconductors generated around 60% of total revenues in the last quarter, while solar accounted for the rest. The semiconductor share has risen considerably over the last two quarters, due to strengthening in the market.
 
Margins
 
The pro forma gross margin for the quarter was 14.9%, up 825 basis points (bps) sequentially and down 3,048 bps from the year-ago quarter. Higher volumes, higher utilization (in the low 80% range) and productivity enhancements were responsible for about half of the sequential increase in gross margin, while the other half was because of recovery at the Pasadena plant. The decline from the year-ago period was pricing-related, partially offset by higher volumes and improved productivity. 
 
Operating expenses of $63 million were higher than the previous quarter’s $47.5 million and the year-ago quarter’s $27.5 million. The operating margin of -2.8% was up 591 bps sequentially and down 4,168 bps year over year. Marketing and administration costs (as a percentage of sales) were much higher than the September quarter, but these were offset by lower COGS and flattish R&D. In contrast to the year-ago quarter, all costs were significantly higher as a percentage of sales.
 
Net Income
 
The pro forma net loss was $0.4 million, or 0.1% of sales, compared to loss of $16.4 million, or 5.3% of sales in the previous quarter and income of $131.1 million, or 30.8% of sales in the year-ago quarter. Our pro forma estimate excludes the impact of restructuring charges, warrant adjustments, equity in JV earnings and amount attributable to non-controlling interests.
 
Including the special items, the GAAP loss was $7.1 million ($0.03 per share), compared to loss of $64.6 million ($0.29 per share) in the September 2009 quarter and income of $70.3 million ($0.31 per share) in the December quarter of 2008.
 
Balance Sheet
 
Inventories were up 46.2%, with inventory turns decreasing from 10.5X to 7.5X. Inventory levels are quite high and could be cause for concern, although management stated that backlog was healthy and it was even able to negotiate higher prices for the March quarter. Days sales outstanding (DSOs) went down significantly from 55 to around 44, signifying much better collections.
 
The company ended with cash and short-term investments of $718.6 million, down $187.9 million during the quarter. Cash generated from operations was $19.4 million. Principal usages of cash during the quarter were $188.5 million on acquisitions and $73.6 million on capex.
 
Management did not provide guidance for the upcoming quarter and fiscal year 2010.
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