MEMC Struggles to Shine in a Gloomy Solar Market

MEMC Electronic Materials (NYS: WFR) , a supplier of silicon wafers to solar and semiconductor manufacturers, is planning to restructure its business, which would involve slashing its workforce by 20%, or 1,300 jobs. In addition, the company plans to put some of its facilities on hold in order to ride the slump in the renewable-energy sector.

Weak demand along with painfully low silicon prices in the semiconductor and solar industry are driving the changes. The restructuring would help the company trim its operating costs and strengthen its operating cash flows for the near term. Let's take a look at the company's latest third-quarter figures.

Woeful figures
The latest quarterly results were highly disappointing, with a 31% sequential fall in MEMC's top line and a net loss of $94.4 million.

But it's not just MEMC that's facing the heat. Industry peers like LDK Solar and ReneSola have also witnessed sharp falls in revenue as well as profitability margins. This is forcing them to either cut capacity or close up shop altogether.

MEMC's restructuring process is expected to cost the company $700 million in the fourth quarter. As part of its restructuring plan, it will also cut the capacity of its Portland, Ore., crystal facility and leave idle its polysilicon facility in Merano, Italy.

Apart from this, MEMC would also combine its solar material facility, which is struggling at present, with its SunEdison solar development unit. The hope is to improve efficiency and expand in the solar sector, which is considered less vulnerable to price swings, barring the present slowdown.

Facing the heat
Polysilicon prices have witnessed a tremendous crash since manufacturers raced to raise their production capacity when prices were at loftier levels of $500 per kilogram. Since then, the price has plunged over the years to as little as $25.

To make matters worse, the solar energy market in Europe is facing sunstroke as subsidies have started to shrink, thus adversely affecting demand. Moreover, Chinese competitors are relentlessly dumping their cheap products, causing prices to go southward.

The Foolish bottom line
After MEMC burned its hands with falling polysilicon prices, its restructuring initiative is definitely a welcome change. With its exit from the bottomless pit of solar materials, the company can now focus on restoring the stability of its margins and its business as a whole. So what do you Fools think about the company? Leave your comments in the box below.

Keki Fatakia does not hold shares in any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

At the time thisarticle was published

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.