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Equity Research on MEMC. Inc S&P 500 ticker: WFR

Equity Research on MEMC. Inc S&P 500 ticker: WFR. Piyapong (Art) Pantipjatuporn; Liefeng (Richard) Zhang; Meiling Liu . Introduction Company Overview Macroeconomic & Industry Review Financial Analysis and Projections Valuation Recommendation. Executive Summary . History of Holding.

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Equity Research on MEMC. Inc S&P 500 ticker: WFR

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  1. Equity Research on MEMC. IncS&P 500 ticker: WFR Piyapong (Art) Pantipjatuporn; Liefeng (Richard) Zhang; Meiling Liu

  2. Introduction • Company Overview • Macroeconomic & Industry Review • Financial Analysis and Projections • Valuation • Recommendation Executive Summary

  3. History of Holding [1] 03-2008: Bought 200 Shares @ $78.15 [4] 12-2010, Bought 200 shares @ $12.02  [5] 10-28-2011, Price: @ $ 6.64 Unrealized Loss: $ 4192, 51.27%, [2] 12-2008: Bought 400 shares @ $14.43 Average Down: $35.67 per share [3] 11-2010: Sold 200 shares @ $12.41. Realized loss: $4,652 Data Source: Yahoo Finance

  4. Portfolio Breakdown

  5. Based in St. Peters, Missouri; Founded in 1959 • Global leader in the manufacture and sale of silicon wafers for semiconductor and solar material industries • SunEdison, North America's largest solar energy services provider • MEMC’s stock is traded on the New York Stock Exchange under the symbol WFR and is included in the S&P 500 Index. MEMC. Inc Business Areas Company Overview • Semiconductor Materials • Solar Materials • Solar Energy Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm

  6. Products: Semiconductor Materials • 4 categories: prime, epitaxial, test/monitor wafers and silicon-on-insulator (SOI) wafers. • Range from 100 millimeter to 300 millimeter • Starting materials for microprocessor, memory, logic and power devices. In turn, these semiconductor devices are used in computers, cellular phones and other mobile electronic devices Products: Solar Materials • Multicrystalline: primarily 156 millimeter silicon wafers • Manufacture and sell monocrystalline wafers through the acquisition of Solaicx. • Starting material for crystalline solar cells which could be further used to make solar panels Company Overview Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm

  7. Company Overview Products: SunEdison • Provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance of PV solar energy system • Compete on the basis of the price of electricity to consumers • Heavily dependent upon government subsidies, e.g. federal incentive tax credits, state-sponsored energy credits and foreign feed-in tariffs Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm

  8. Company Overview Revenue Breakdown- By Geography Revenue Breakdown- By Business Data Source: 10-K, Q1, Q2 Earning call conference; www.sec.gov

  9. Company Overview Last 3 Years Price Index • Wafer Price Index has dropped more than 50% in the past three years • MEMC stock price dropped more 50% • Price Index: BNEF survey on 6 inch Multicrystalline Silicon Wafer Average Price Business Strategy ONE: M & A History 2009: SunEdison Downstream leadership in solar project development 2010: Solaicx Enter monocrystalline for solar market 2011: FRV US Subsidiary Increase solar energy projects and pipelines Data Source: 10-K; Bloomberg

  10. Company Overview Business Strategy TWO: Operation Locations • Cost Reduction: In the process of transferring semiconductor wafer manufacturing to our new facility in Malaysia. Will continue to invest to expand production capacity in South Korean to Lower Cost • Better Customer Service: Global Operation, Closer to Costumers Data Source: MEMC.Inc Website

  11. Company Overview SWOT Analysis WEAKNESS STRENGTH • Synergy Effect: downstream Supply Chain Integration, from material business to solar energy business • Leading market positions in its businesses, more than 50 yrs material business history, North America's largest solar energy services provider • SunEdison business is seasonal, and heavily dependent upon government subsidies • Higher cost of manufacturing than its Asia competitors • Difficult to distinguish itself from competitors SWOTS OPPORTUNITIES THREAT • Bright future in solar energy business as a whole • Government support for renewable energy industry • Strong Pipeline growth in SunEdison • An excess supply of polysilicon wafer • Price Competition from lower cost manufacturing countries

  12. Macroeconomic & Industry Review U.S. GDP FORECAST (2009-2019) Source: Department of Commerce and Federal Reserve Effect of American Recovery and Reinvestment Act of 2009

  13. Macroeconomic & Industry Review SEMICONDUCTOR INDUSTRY • Industry : -4.8% from 2006-2011 • Production outsourcing, price decline (shrink of demand and global economy weaken) and recession deterred revenue and industry growth • 80% of revenue comes from export Source:http://clients.ibisworld.com/industryus/default.aspx?indid=752

  14. Macroeconomic & Industry Review GLOBAL SEMICONDUCTOR GROWTH FORECAST Source: http://www.isuppli.com/Semiconductor-Value-Chain/News/Pages/The-Die-Hard-Semiconductor-Market-IHS-iSuppli-Slightly-Raises-2011-Chip-Forecast.aspx

  15. Macroeconomic & Industry Review SEMICONDUCTOR INDUSTRY • Average price still continue to decline but investment in R&D will encourage growth (Recent innovation: carbon nanotubes) Source:http://clients.ibisworld.com/industryus/default.aspx?indid=752

  16. Macroeconomic & Industry Review SOLAR POWER INDUSTRY • Industry :15.9% from 2006-2011 • The federal investment tax credit (ITC) has spurred significant investment in solar generation plants over the past five years • Solar energy account for 0.02% of total electricity generation in the U.S. Source:http://clients.ibisworld.com/industryus/default.aspx?indid=1914

  17. Macroeconomic & Industry Review CONCENTRATING SOLAR POWER • Concentrating solar power (CSP) is a technology that uses mirrors to focus sunlight on a particular surface to create electricity • CSP has higher energy efficiency than Photovoltaic • Large-scale deployment of this technology is anticipated during the next five years A parabolic trough CSP

  18. Macroeconomic & Industry Review SOLAR POWER INDUSTRY • Beyond 2012, government legislation is uncertain, depends on new congress • Housing crisis and tough economic conditions cause reduction in electricity power.

  19. Macroeconomic & Industry Review PHOTOVOLTAIC SOLAR PANEL • The solar panel can be used as a component of a larger photovoltaic system • Most solar modules are currently produced from either monocryatalline or multicrystalline • The high cost solar photovoltaics and its weather dependency have restricted its use in the United States A photovoltaic solar panel

  20. Macroeconomic & Industry Review SOLAR MATERIAL INDUSTRY • Industry : 34.8% from 2006-2011 • Falling silicon prices (a vast oversupply during recession), growth in demand and government incentives are major factors for high growth • The RPS (Renewable portfolio standards) stipulate certain States must generate a percentage of their total energy from renewable energy Source:http://clients.ibisworld.com/industryus/default.aspx?indid=754

  21. Macroeconomic & Industry Review SOLAR MATERIAL INDUSTRY • Higher steaming coal price will have positive affect on solar panel demand. • Heavy price competition among global players • Increased R&D costs will weigh on profit as US firms try to compete with low-cost producers

  22. Macroeconomic & Industry Review • Semiconductor Materials • Shin−Etsu Handotai : Silicon wafers and ingots for producing chips • Sumco: Silicon wafers for semiconductor devices and solar cells • Solar Materials/Solar Energy • LDK Solar: Multi/monocrystalline solar cells and develop solar power projects • First Solar Inc. Solar modules (thin films) and provide integrated services for solar power system • Yingli Green : Photovoltaic products • Sun Tech : Photovoltaic products and offer photovoltaic systems integration services COMPETITORS Source: Yahoo Finance, MEMC 10K, CapitalIQ

  23. Macroeconomic & Industry Review COMPETITORS Source: Individual company annual report/10K, CapitalIQ

  24. Macroeconomic & Industry Review Five Force Analysis • Threat of new Entry: Medium • High Capital Expenditure • Bright Future of Solar Energy Industry • Low customer loyalty • Global competition on price and services • Low differences in products Competitive Rivalry: High • Supplier Power: Low • Producer of starting materials for downstream • Business Integration of Supply Chain • Buyer Power: High • Excess Supply • Threat of Substitution: High • Both material business and solar energy business compete on price • Government Subsidiaries to other kind of renewable energy • Technology innovation of materials

  25. Revenue Growth Assumptions

  26. Financial Projections Price Range for Optimistic Case: $8.66 - $10.91 ($9.69) Price Range for Best Guess: $5.32 - $6.76 ($5.98) Price Range for Down Side: $4.27 - $5.47 ($4.82)

  27. Discount Rate

  28. Financial Projections

  29. Price Range for Optimistic Case: $8.66 - $10.91 ($9.69) Price Range for Best Guess: $5.32 - $6.76 ($5.98) Price Range for Down Side: $4.27 - $5.47 ($4.82) ValuationSensitivity Analysis

  30. Multiples Analysis

  31. Valuation: $6.00/share • As of this morning @ $5.69 • Hold • Visibility within the solar industry is very poor • Would take a while to take off as it is still a pretty green industry Recommendation

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