Thursday, January 11, 2007

Calls of Note Part 1

- JP Morgan expects MEMC (NYSE:WFR) to sequentially raise gross margins throughout the year in conjunction with its non-vertically integrated semi wafer competitors, Shin-Etsu and SUMCO, which are likely to pass on their increased polysilicon costs to their customers.

Firm expects polysilicon costs may increase by as much as 20% YoY due to the continuing supply/demand imbalance, which is unlikely to be resolved until 2008. They also believe that semi wafer start growth will outpace semi device unit growth in 2007 due to an incremental increase in average device die sizes, which are increasing as large die NAND Flash and multi-core microprocessors grow as a percentage of overall semi devices.

MEMC is also expected to start supplying wafers to the solar industry in 2007 in addition to the polysilicon it currently sells on the spot market to solar wafer makers.

JPM is raising their C2007 PF revenue/EPS estimates to $1.89bn/$2.90 from $1.88bn/$2.74 to reflect improved 2007 outlook on wafer pricing.

Reiterates OW Rating, and Top Consumables Pick Status. WFR shares are trading at 15.1x PF C2007 EPS estimate of $2.90 versus overall group average of 15.8x.

Notablecalls: Love the comments from JPM! While UBS nailed the latest upward move (see archives), JPM may add some fuel to the fire.

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