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Zachary (Zoujia) Chen Justin Craigwell-Graham Charles Gambino Vignesh Murali Jacob Rapp

Learn about MEMC Electronic Materials Inc., a leading design and manufacturing company for silicon wafers used in semiconductors and solar cells. Discover their history, acquisition of SunEdison LLC, competition, and industry trends.

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Zachary (Zoujia) Chen Justin Craigwell-Graham Charles Gambino Vignesh Murali Jacob Rapp

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  1. http://www.memc.com/index.php?view=MEMC-History Zachary (Zoujia) Chen Justin Craigwell-Graham Charles Gambino Vignesh Murali Jacob Rapp November 12, 2009

  2. Company Overview • MEMC Electronic Materials, Inc. is engaged in the design, manufacture and sale of silicon wafers • Based in St. Peters, MO • 4600 Employees • Produces both semiconductor wafers and solar wafers • One of four wafer companies with 10% or more of the market share. • Strategy: “Continuous improvement of technology, market share, and profits.” • NYSE Ticker: WFR

  3. Company History • Founded in 1953 • 1995: IPO on NYSE under the ticker WFR • 2001: After almost filing for bankruptcy, Private Equity Firm Texas Pacific Group acquires 72% of the company • October 2009: MEMC acquires SunEdison LLC

  4. What is a wafer? • Wafer’s are the foundation on which the world’s semiconductors and solar cells are built • All the processes of a micro device are conducted on a wafer • Wafer sizes have increased device performance and reduced production costs 50mm, 100 mm, 150mm and 200 mm wafer

  5. What is a Wafer?

  6. Global Manufacturing

  7. SunEdison LLC Acquisition • SunEdison develops solar power projects and is considered a major solar energy services provider in North America • Reiterates Management goal to focus product mix towards the solar energy division • $25 million in sales in 2008

  8. Competition • Main Competition • Solarworld AG: Solar Energy company who also makes semi-conductors based in Germany • Kyocera: Based in Japan. Products range from Ceramic components to electronic devices, equipment and networks • SUMCO: Based in Germany, makers of semiconductor and solar cells

  9. Semiconductor and Solar Industries • These two markets (semiconductor and solar) are evolving and devices are getting more specialized and high-performance. • Silicon wafers are becoming more and more critical to the performance of these devices. • Industry is seeing consolidation & segmentation – four major suppliers • Industry has suffered massive decrease in prices due to decrease in demand and oversupply of wafers as well as polysilicon used to make solar cells • WFR has had to renegotiate contracts at lower prices • Demand in solar industry driven by government incentive • Cost of solar power today exceeds cost of power from electric utility grid • Demand correlated with price of other energy sources

  10. Semiconductor Device Industry Risks • Rapid technological change • Product obsolesence • Changes in product mix • Price erosion • Fluctuations in product supply and demand

  11. Macroeconomic Outlook • A depressed global economy has limited nations especially US, Japan and Germany from investing in solar energy. Subsidies have reduced. • Companies lacking the subsidies will invest in other cheaper energy sources • Short term demand for electronics and semiconductor equipment gloomy as companies hesitate to invest in fixed assets

  12. Dupont Analysis

  13. Strengths International diversification Contracts at full capacity for future Diversified between poly-silicon and solar wafers to reduce cyclicality risk Opportunities Emerging markets Consumer’s desire to “Go Green” Rising costs of conventional forms of energy Weaknesses Dependence on single and limited source suppliers Dependence on both the solar AND semiconductor industry Unable to easily transfer production of specific products between manufacturing facilities Threats Subject to both semiconductor And solar industry risks Investments of substantial cash balances in auction rate securities, fixed income funds, individual corporate bonds, pension plan assets, and asset-backed and mortgage-backed securities. SWOT

  14. Management Performance • What Management Said Would Happen: • Reduction in manufacturing and operating costs from 2006 levels • Our belief that our capital expenditures will be approximately 15% of our net sales in 2008 • Company will continue to possess sufficient liquidity to avoid problems with the tight credit and capital markets • What Happened: • COGS, SG&A, and R&D expenses as a percentage of sales fell from 2006 levels • Capital Expenditures were 15.13% of net sales in 2008 • Quick Ratio has hovered around 3.0x since 2006

  15. Assumptions for Pro Forma

  16. Recommendation • History • March 2008: Bought 200 shares @ $ 78.15 • December 2008: Bought 400 shares @ $14.43 • DCF Valuation: $12.60-15.67 • Multiples Valuation: $12.40-14.14 • Current Price at close on 11/11: $ 13.10 • An upward trend in demand for semi-conductors and solar energy equipment show potential for growth. However current volatility in global economy and hence short term decrease in investment in solar tells us not to take any action in this stock • We recommend a “HOLD” recommendation on this investment.

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