Solar silicon stumble has MEMC on probation

Times Staff Writer Edward Silver, who keeps a close eye on green investing trends, filed this report on a key player in the alternative-energy food chain:

A big chunk of the revenue rushing into solar energy has found its way into the coffers of MEMC Electronic Materials, a company that does its business entirely indoors. MEMC fashions silicon wafers for computers and solar cells, which need the stuff to push electrons around.

Vibrant demand from solar firms has driven the price of silicon sky-high and made a Wall Street darling out of the St. Louis-based company. But the computer side is interfering with the story.

Usually a good bet for an upside surprise, MEMC revealed first-quarter results late Thursday that barely made it into the ballpark of forecasts. Operating earnings climbed to 84 cents a share from 71 cents a year earlier. Revenue actually declined more than 6% from the fourth quarter to $501.4 million, which the company attributed to softness in high-tech and to the issue that absorbed analysts on the conference call: production bottlenecks that are preventing it from satisfying its clamoring solar clients.

Looking ahead, that raises questions about MEMC’s ability to keep up with demand, and it could test the patience of customers who may decide to find other sources.

So far, the solar side still is booming and wafer prices aren’t coming down. If alt-energy investors were worried about slackening growth, they can exhale.

More guests are crashing the solar silicon party, however, especially overseas. If rising supply tamps down prices, it helps cell purveyors like Suntech Power Holdings and JA Solar but could slice off some of the wafer makers’ share of the pie.

Those bullish on MEMC are bit warier today but still have reason to be optimistic. It takes time for new entrants to ramp up, and some sales that are on hold will show up in the second half of the year. But analysts will be watching to make sure the company fixes its manufacturing trouble.

Traders, not a wait-and-see bunch, took the stock down $4.85, or 6.4%, to $70.50 today. The shares are off 25% from their record high in December.

Posted April 25, 2008