MEMC Electronic Materials Inc. ( WFR - Analyst Report ) reported first-quarter 2012 adjusted net loss per share of 26 cents, which missed the Zacks Consensus Estimate of 15 cents loss per share. The ongoing weakness in semiconductor and solar chip demand is taking a toll on the quarter’s results. Shares plunged 3.08% after hours.

The adjusted figure excludes the impact of direct sales and lease-back from the Solar Energy segment as well as some tax benefits.

Revenues

On a GAAP basis, MEMC reported first-quarter revenues of $519.2 million, down 29.4% from $735.9 million in the year-earlier quarter. The deceleration was due to broad-based weakness in semiconductor wafer and solar markets.

Including direct sales from the Solar Energy segment and lease-back transactions, non-GAAP revenue came in at $523.8 million, which decreased 37.1% from the year-ago quarter.

Segment wise, revenue from Semiconductor Materials fell 14.1% year over year to $216.0 million and was 41.6% of the total revenue. MEMC witnessed lower wafer volume growth and average selling prices (ASPs). The semiconductor industry is going through a cyclical downturn and hence softer demand for the same adversely affected shipments and pricing.

Solar Energy segment (which now includes Solar Materials), accounted for 58.4% of the total revenue. The segment generated revenue of $303.2 million, down 37.4% year over year. The disappointment was because of significantly weaker wafer pricing, volume growth, as well as lower project sales.

Solar Energy segment sold 49 megawatts (MW) of solar energy systems. Projects interconnected during the first quarter represented 149 MW. MEMC also reported that 147 MW is underway. The project pipeline fell slightly from the prior quarter to 2.9 gigawatt.

Operating Results

Reported gross profit was $56.7 million, compared to $114.0 million in the year-ago quarter. Gross margin was 10.9%, compared to 15.5% in the year-ago quarter. However, gross margin improved from negative 8.2% in the prior quarter due to massive cost control measures.

Operating loss was $47.6 million, compared to $0.2 million in the earlier-year quarter. Operating margin was (9.2%), compared to 0.0% in the year-ago quarter.

Total operating expenses decreased 8.6% from the year-ago quarter with marketing and administration expenses falling 8.9% and research and development expenses decreasing 4.3%. One-time items recorded during the quarter were negligible.

Reported net loss was $92.0 million or 40 cents per share, compared to $4.5 million or 2 cents in the prior-year quarter. However, adjusted net loss was 26 cents per share.

Balance Sheet & Cash Flow

MEMC ended the quarter with cash, cash equivalents and restricted cash of $471.3 million, down from $711.0 million in the previous quarter, primarily due to the delayed sales of solar energy projects. Long-term debt and capital leases were $570.3 million, slightly down from $571.4 million in the previous quarter.

MEMC used $386.5 million cash in operations, compared to $176.6 million in the preceding quarter. Negative operating cash flow was primarily because of increased working capital necessary to fund the construction of solar energy projects, including those held for sale. Capital expenditure was $40.0 million, down from $58.5 million in the previous quarter.

Guidance

Keeping in mind the ongoing uncertainty in the semiconductor and solar markets, MEMC refrained from providing any quantitative revenue and EPS guidance for the second quarter and fiscal 2012.

But MEMC believes that the ongoing oversupply situation in the semiconductor market will bottom. Hence, management expects Semiconductor Materials segment revenue to grow 5.0–10.0% sequentially in the second quarter. Moreover, based on the improving order trend, Solar Energy systems sales is expected to range between 130 MW and 170 MW (pricing per watt to be roughly $3.55), which will be significantly better than 49 MW sold during this quarter. Furthermore, MEMC expects operating expenses of less than $110.0 million and capital expenditure of less than $50.0 million in second quarter.

For the second half of fiscal 2012, MEMC expects consolidated revenue to be higher than the first half.

For fiscal 2012, management expects Semiconductor Materials segment revenue to fall 2.0–3.0% from the prior year level. Solar Energy systems sales are expected to be higher than 400 MW (pricing per watt to be roughly $3.55). Furthermore, MEMC expects operating expenses of less than $375.0 million and capital expenditure of less than $175.0 million in second quarter.

Conclusion

MEMC posted an unimpressive first quarter with a loss per share worse than the Zacks Consensus Estimate. The continuous fall in the polysilicon prices and solar chips are affecting MEMC miserably.

We are encouraged by management’s commentary of witnessing a better demand/supply situation in the semiconductor market. Encouraging second quarter guidance reflects an end of cyclical downturn in the semis.

But the oversupply situation in the solar market is a concern. Moreover, MEMC’s long-term solar wafer supply agreement with Suntech Power Holding Co. Ltd. ( STP - Analyst Report ) also came to an end. Though some stabilization in the solar market is underway, MEMC’s performance in the fiscal 2012 will remain challenging.

Currently, MEMC has a Zacks #3 Rank, implying a short-term Hold recommendation.