MEMC warns of cash-flow trouble after posting $88.1 million loss in Q2

ST. PETERS, Mo.--Silicon wafer supplier MEMC Electronic Materials Inc. today warned it could run out of cash after the end of the current third quarter as it struggles with mounting losses in the current semiconductor downturn.

The third-largest supplier of blank production wafers today reported a 29% sequential decline in net sales to $156.9 million in the second quarter from $219.8 million in Q1 as demand for substrates continued to weaken in the semiconductor downturn.

MEMC posted an $88.1 million net loss in the second quarter, including $22.3 million in restructuring charges. The silicon materials supplier had reported a net loss of $17.6 million in the first-quarter this year.

"As a result of the prolonged softness and the actions we have taken to date, our workforce will be approximately 20% below what we started the year with," said Klaus von Horde, chief financial officer of MEMC. "We will continue to review our cost structure and evaluate actions to balance our operating costs with the evolving market conditions. We are working closely with potential financing sources to address our liquidity and cash needs."

MEMC reported a negative operating cash flow of $14.4 million for the second quarter. Capital expenditures in the quarter totaled $14.4 million. The company's management said it currently believes that cash generated from operations--together with the liquidity provided by existing cash balances and credit facilities--will be sufficient to satisfy commitments for capital expenditures, repayment of current maturities of long-term debt and other cash requirements only through the third quarter.

The company said its gross margin decreased to a negative 10.7% in the second quarter compared to positive 12.6% for the prior Q1 period, ended March 31. Gross margin in the second quarter of 2000 was positive 12.9%.

Like nearly all major silicon substrate suppliers, MEMC has been struggling with losses since the last semiconductor recession in the late 1990s. In January, the St. Peters company reported it had broken into the black ahead of schedule with a $1.7 million net income on sales of $255.2 million in the fourth quarter of 2000. The company also had a "free cash flow of $31 million," according to MEMC's chief executive (see Jan. 29 story). But then the bottom fell out of the blank silicon wafer market as chip makers fell into the current recession.

And now, industry officials are worried about total investments and suppliers of 200-mm and 300-mm silicon substrates as suppliers--weakened from the last downturn--fall behind in the current slump. With nearly no new investments being made in made in 200-mm (8-inch) diameter substrate plants, market analysts are now warning of the potential of shortages when chip demand begin to recover in the next couple of years (see Aug. 7 story).