Tuesday, November 14, 2006

Calls of Note Part 3

- UBS continues to be positive on MEMC Electronic Materials (NYSE:WFR) saying MEMC's operating and EBITDA margins were 37% and 42% respectively for the past 6 months, outperforming its semiconductor wafer competitors. Firm's channel checks have found that early 1Q07 semiconductor wafer contract prices are tracking up 3-5% higher q/q compared to a historical decline of -5%.

While MEMC has not formally elaborated on which companies will make its solar wafers in 1H07, firm's discussions with industry contacts has found that MEMC will actually use at least 3 manufacturing partners instead of just one. Industry research suggests 2 are based in China (Yingli Solar and LDK Solar) and 1 is in Taiwan (Green Energy Technology).

UBS believes Samsung has accelerated efforts to make its own 300mm semiconductor wafers as channel checks found it recently ordered 12+ wafer polishing tools from a large equipment vendor. Industry research also found MEMC installed 300mm wafer slicing equipment in Korea for the first time and they believe MEMC is looking to grow its market share at Samsung which the firm estimates is less than 10%.

UBS values MEMC's semiconductor wafer business at $40/share or 18x CY08E EPS of $2.20 and its solar business at $20/share or 25x CY07E EPS of $0.80.

Notablecalls: UBS' research team has done some nice and productive channel checks. Would not be surprised to see some buy interest in WFR. Note that their tgt is $60 vs current mkt price of around $35. But also note that charts like this one sometimes tend to constrain moves. So, I'm not expecting any explosive moves.

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