After CFO Departure... How Long Can MEMC Survive?

MEMC Electronic Materials Inc. (NYSE: WFR) is at a point where a turnaround analysis and a valuation analysis just no longer matter.  Having fallen from over $90.00 per share, the stock is now down under $2.00.  The drop today is 20% to $1.70 and the prior 52-week trading range was $2.07 to $10.64.  The question nobody wants to ask is perhaps the worst question of all… How long can MEMC survive?

News on Wednesday night showed that Chief Financial Officer Mark Murphy is leaving the company to rejoin a position at Praxair.  The news is on the heels of previous report showing a major loss due to poor solar materials sales. Does the notion that MEMC named Brian Wuebbels as executive vice president and CFO help?  Not really, even if Murphy will act as a “consultant” during the transition period.

Losing a CFO is not as bad as losing a founder and not as bad as losing a CEO, but the problem with losing a CFO is that Wall Street assumes that the CFO has lost faith in the future of the company. In some cases, it could mean something far worse.  With MEMC shares having fallen from over $90 during teh solar boom down to under $2.00 it is easy to wonder if things are going from just awful to even worse.

So, here is where we cannot help but wonder about MEMC’s future.  Thomson Reuters expects a loss of -$0.10 EPS in 2012 on sales of $2.6 billion.  But almost magically in 2013 the consensus is back up to $0.45 EPS on $2.83 billion in sales.  The revenues in 2011 were $2.715 billion, in 2010 they were $2.239 billion, and 2009 revenues were $1.163 billion.  The problem is that sales in the solar sector are getting harder and harder to come by and the solar sector is in total disarray.  The company’s latest loss and decline in revenues also reflected weak demand in the semiconductor wafer markets.  Yep, MEMC is facing a war on two fronts and its non-GAAP margins are getting squeezed.

The sector leaders are looking like hell frozen over.  First Solar Inc. (NASDAQ: FSLR) is effectively at all-time lows if you discount a small 2% gain today.  SunPower Corporation (NASDAQ: SPWR) is down over 75% since Total SA (NYSE: TOT) bought the controlling interest.

If the company was on the verge of a great turnaround then the CFO would seemingly not have pulled the ripcord on the way down here.  The company has what looks to be ample cash reserves to fund operations, but it also has significant amounts of long-term debt. This situation just feels like it is one which is going from awful to far worse.

MEMC is in serious trouble.  Still, it is one of these outfits that has enough cash to fund operations for probably quite some time, but its core businesses are challenged and the company has so far been unable to get its operating costs in order.  It has also forecast a weaker demand for semiconductor materials in 2012 as well as a lower price per watt in solar.  Our big concern is that the projections may have been based entirely upon the CFO forecasts just a week or so ago, and his departure would bring even the lower guidance into question.

For whatever this is worth, Wunderlich Securities cut its target down to $1.00 after it maintained a SELL rating after the most recent earnings.

It is too soon to declare that MEMC will be a total implosion.  It is even possible that there could be a turnaround of major proportion coming here.  Unfortunately, that does not appear to be the case any time in the immediate future.

So you tell me in a poll, no “I don’t know” answers allowed…

[polldaddy poll=6237014]

JON C. OGG