Chia chia hu evangelos kalogiropoulos pragnesh podar joseph vaccaro dec 2 2008
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MEMC Electronic Materials Inc. (WFR). Chia-Chia Hu Evangelos Kalogiropoulos Pragnesh Podar Joseph Vaccaro Dec 2, 2008. Presentation Outline. Company Overview Macroeconomic review and industry trends Historical Financial Analysis Portfolio Positioning Peer group comparison

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MEMC Electronic Materials Inc. (WFR)

Chia-Chia Hu

Evangelos Kalogiropoulos

Pragnesh Podar

Joseph Vaccaro

Dec 2, 2008

Presentation Outline

  • Company Overview

  • Macroeconomic review and industry trends

  • Historical Financial Analysis

  • Portfolio Positioning

  • Peer group comparison

  • Relative valuation

  • Financial Projections (DCF Model)

  • Recommendation

Company Overview

  • MEMC Electronic Materials, Inc. is engaged in the design, manufacture and sale of silicon wafers

  • Based in St. Peters, MO

  • Produces both semiconductor wafers and solar wafers ranging in size from 100mm (4 inches) to 300mm (12 inches)

  • Strategy: “Continuous improvement of technology, market share, and profits.”

  • NYSE Ticker: WFR

Company History

  • Founded in 1953

    • Pioneer in wafer development & leader in supplying semiconductor wafers for over 50 years

  • 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

  • 2006: Announced the signing of $7-9 billion in contracts to deliver solar wafers (an $18 billion market at the time)

  • 2008: One of four wafer companies with 10% or more of the market share.

What is a wafer?

  • MEMC supplies silicon wafers to the semiconductor and solar power industry globally

  • 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

  • Come in different sizes (1 inch to 12 inches in diameter) and in different thicknesses

  • Wafer sizes have increased device performance and reduced production costs

50mm, 100 mm, 150mm

and 200 mm wafer

What is a Wafer?


  • Oct. 30, 2008 MEMC Announces the Resignation of CEO Nabeel Gareeb

    - Marshall Turner appointed as interim CEO

  • Potential Reasons:

    • Management overestimated targets the past 5 quarters

    • Company faced production problems

    • Stock severely underperformed the market

    • Legal Proceedings

Global Manufacturing

Geographic Revenue

Currency Risk

  • China 25%


SWOT Analysis

Wafer Industry Outlook

  • The introduction of electronics and computer technology into our daily lives is growing at an exponential rate.

  • One of the few markets that can improve device performance while sustaining steady revenue growth and reducing production costs.

  • There is a trend towards developing larger wafers (200mm and 300mm)

  • MEMC's overall success depends on the success of products that use silicon wafers, specifically semiconductors and solar cells

  • The need for high degrees of flexibility and innovation in order to constantly adjust to the rapid pace of change in the market.

Wafer Industry vs. Semiconductor Industry

  • The success of the Wafer Industry is highly correlated to the Semiconductor Industry

Solar Industry

  • Opportunities within the U.S.

    • Public Awareness of Environmental Concerns

    • Political Support

  • Global Opportunities:

    • Rise in commodity prices

  • Growth prospects in Asia

    • International Pressure for China to adopt clean energy

      (China accounts for 21% of REMC’s revenue)

Political Support

  • President-Elect Barrack Obama has a green agenda

    • Obama has proposed investing $150 billion into the renewable energy sector over the next 10 years

    • His proposal also requires that one-tenth of the country's energy be derived from renewable sources (currently 7%)

  • The summer spike in oil and commodity prices forced Americans & Congress to consider the use of alternative resources

  • Tax credits, strict adherence to state renewable portfolio standards and new leadership in Washington all may play a role in turning the economy green

  • Increasing Renewable Portfolio Standards and the carbon trading system/carbon tax in the U.S. should favor solar energy

Income Statements

Cash Flow

Balance Sheet - Assets

Balance Sheet – Liabilities

Balance Sheet – Equity

DuPont Analysis

Current Portfolio

Current Position

  • RCMP purchased 200 shares of WFR on

  • March 13th, 2008 for $78.15/share.

  • Currently WFR is trading at $12.33 as of

  • December 1, 2008 for an unrealized loss of

  • $13,164 or 84.22%

Peer Valuation

Price Ratio Valuation

Peer Valuation

Historic PE Valuation

P/E Valuation

  • 5 year average of 18.4X

  • Return to 5 year average for C2009 estimate

  • Assuming Range of 16-20, Gives a potential price range of $42-$52

  • Conservatively, at the lower end of the range, price target is $42

  • Current assets include over $900 million in cash and liquid investments.

Long-termcontracts(Solar Cell Manufactures)

  • $3-3.5B Tainergy Tech Co. LTD (Taiwan)

  • $7-8B Conergy (Germany)

    3-4B Gintech (Taiwan)

  • $7.5-9B

    Suntech Power Holdings (China)

  • Total estimated worth of contracts $15-18B over the next 10 years (10K, 2007)

  • Fixed price (dollar-per watt basis) and take or pay contracts

Growth assumptions

  • Semiconductor sales are set to slump next two years due to the upcoming recession

  • Slow down in solar industry (2008-2010)

  • Low oil price

  • Lack of funds for investments in solar energy

  • Possible relaxation of the environmental obligations until the recovery of the economy

  • Too costly now for the firms to apply the proper equipment

Application of the assumptions

"This model was initially created by David Light"

DCF Inputs

DCF model

DCF valuation results

  • Market value per share at 2-Dec-08 is $12.99.

  • 10% range $16.916-$18.697

Sensitivity Analysis

  • Range $15.828-$20.561

Correlation with RCMP Portfolio

Legal proceedings

  • On March 31,2008, two lawsuits against MEMC from a customer concerning violation of agreements by the side of MEMC.

  • On Sep. 16,2008, and on Oct. 10,2008 two class action lawsuits against MEMC and its former CEO from investors. They allege that during the Class period, the firm engaged in a scheme to inflate MEMC’s stock price by failing to certain material facts regarding MEMC’s operation and performance violation of Section (10b).


  • Buy 400 shares of MEMC Electronic Materials Inc (WFR) at the current market price

  • Our conservative analysis indicates that the stock is significantly undervalued

  • Long-term solar contracts worth 15B-18B.

  • Plenty of cash and no debt are good features under the current market.

  • One of the four largest silicon wafer producers worldwide.

Q & A

Any Questions?

Renewable Energy & Oil

-- Alternative Energy Index

-- Oil

1-year chart

10 year chart

World Semiconductor Trading Statistics

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