Change is hard. If it was easy, there wouldn't be best-selling books about moving your cheese.
Mr. Market hates change and uncertainty more than most. Today, his jittery nerves were tickled by semiconductor wafer producer MEMC Electronic Materials (NYSE: WFR), which is in the midst of turning itself into a solar powerhouse.
The stock is trading at seven-year lows after falling more than 16% today. Earnings fell short of analyst expectations despite turning $0.04 per share of last year's red ink into $0.06 of profits per share. Sales increased a measly 2.4% over last quarter but 59% over the year-ago period. $448 million in revenue includes $31 million of electric power sales from the recently acquired SunEdison operation.
And therein lies the rub. MEMC has been making solar wafers for years. That's still a healthy business that complements traditional semiconductor materials sales to the likes of Samsung and to the third-party chip foundries of the world. Now that MEMC has taken the drastic decision to produce solar power too, the company has become a very rare beast that controls solar panel installations from the raw materials and all the way up to collecting service revenue. In fact, I can't think of a single competitor that fits this description (but set me straight in the comments box below if you know of any).
So rather than just selling materials to panel producers like Suntech Power Holdings (NYSE: STK) and LDK Solar (NYSE: LDK) and then competing with them panelo-a-panelo to win installation contracts, MEMC is reducing the addressable market for the other guys. Rather than running to Progress Energy (NYSE: PGN) or Duke Energy (NYSE: DUK) to have someone manage the installations and run the installed service, potential customers can now do a one-stop-shopping deal with MEMC.
SunEdison is still a mere pup of an operation, scooped up for a song in its formative years. Using its homegrown solar panels, MEMC plans to more than double SunEdison's installed power capacity before the end of the year. Walgreen (NYSE: WAG) and Staples (Nasdaq: SPLS) already run many stores and distribution centers on SunEdison power and like to brag about that green move in press releases. There's plenty of competition in the solar panel space but far less if you need both materials and service. That's a pretty solid selling point.
So sales were weak and earnings disappointed this time. Big deal. MEMC is building itself into a unique solar power play for the future, and there will be occasional divots on the way. That disturbs Mr. Market much more than it bothers me. I'm heading over to CAPS to lock in this awesome starting price while it lasts. Come join me if you'd like, or cast the opposite vote if you think the market was right about MEMC today. I double-dog dare you.
