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November 13, 2012. MEMC. Present by. Shih-Yi Chang Patrick O’Donnell Jeewhan Shin Ting-Ying Wu. Agenda. Introduction Company Overview Stock Market Macroeconomics & Industry Review Financial Analysis & Projection Recommendation. Current Holding. March 2008

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Presentation Transcript

November 13, 2012


Present by

Shih-Yi Chang

Patrick O’Donnell Jeewhan Shin

Ting-Ying Wu

  • Introduction
  • Company Overview
  • Stock Market
  • Macroeconomics & Industry Review
  • Financial Analysis & Projection
  • Recommendation
current holding
Current Holding

March 2008

Acquired 200 shares @ $78.15

December 2008

Acquired 200 shares @ $14.43

October 2010

Sold 200 shares @ $12.41

repurchased 200 shares @ $12.02 in December

October 31, 2012

  • Current holdings 600 shares @ 2.2/share
  • Market value $1320
  • 1.05% of total portfolio
company overview
Company Overview


  • Found in 1959
  • 1995 Initial Public Offering on NYSE
  • Design, manufacture and sell silicon wafers for semiconductor and solar applications manufacturers
  • The company has operations in China, France, Germany, Italy, Japan, Malaysia, Singapore, South Korea, Taiwan and the US.
  • Acquisition of SunEdison in 2009, a major developer and seller of photovoltaic energy solution
  • Recent Change of CFO, Directors

Semiconductor Materials Segment

  • Four general categories: prime, epitaxial, test/monitor and silicon-on-insulator (SOI)wafers
  • Size ranges from 100 millimeters to 300 millimeters
  • Sell products to almost all major semiconductor device manufacturers including the major memory and microprocessor

Source: MEMC, 2011 10K

company overview1
Company Overview

Solar Materials Segment

  • Starting material for crystalline solar cells in solar applications
  • Major solar wafers are typically multicrystalline 156 millimeter square wafers
  • Utilize subcontractors to convert its polysilicon into wafers for solar applications
  • Manufacture monocrystalline wafers for solar applications internally

Solar Energy Segment( SunEdison)

  • Provides solar energy services that integrate the design, installation, financing, monitoring, operations and maintenance portions of the downstream solar market
  • As of December 2010, SunEdison interconnected over 393 solar power system representing 267 megawatts (MW) of solar energy generating capacity
  • SunEdison has a project pipeline of approximately 2.9 gigawatts ("GW") and 116.8MW of solar projects under constructions of September 30, 2012

Source: MEMC, 2011 10K

stock market
Stock Market

Source: Bloomberg

stock market1
Stock Market

The stock price movement is highly correlated to the price of polysilicon, the main input of solar power energy and the product of MEMC Solar Materials Segment

Source: Bloomberg


Macroeconomic Overview

  • The economy of US is slowly recovering from recession. General economic conditions are anticipated to strengthen as consumer income and business investment increases.
  • Projected the GDP growth rate will increase to pre-crisis level by year 2016

Source: World Bank, The global outlook in summary

industry overview


Industry Overview

The price of semiconductors moves in response to global demand and supply trends

-57.69% negative growth in 2003-2017

Price decrease of both semiconductor and silicon, which benefit solar power producers

  • Revenue growth highlight
  • 2009: -20.2%
  • 2010: 35.6%
  • 2012-2018: -0.16%

Source: IBIS World- semiconductor &circuit manufacturing in the US

industry overview1
Industry Overview

Electric Power Consumption

  • 4076 Billion kWh expected consumption in 2012 and 4431 Billion kWh in 2017
  • 0.9% Compound Growth in 2007-2012
  • 1.7% Compounded Growth through 2012-2017

Source: IBIS World -electric power consumption

industry overview2
Industry Overview

Solar Power

  • Utility customers tend to buy large amount of energy, lowering the marginal cost of the solar power plant
  • The revenue from Commercial Sector has increased over the past five years
  • High costs of solar energy relative to other types of electricity have deterred many industrial users over the past five years
  • The growth rate of Solar Power Industry remains stable over the next five years
  • Through 2017, the price of silicon will continue to decrease, lowering panel cost and driving growth

Source: IBIS-solar power in the US

industry overview3
Industry Overview
  • Concentrating solar power
  • Concentrating solar power (CSP) devices use direct heat from the sun, concentrating it on a surface to produce heat. This heat is then converted into electricity
  • On a large scale, CSP technology converts energy from sunlight more efficiently per kilowatt-hour than photovoltaic devices
  • Photovoltaic power
  • Photovoltaic devices (traditionally referred to as solar panels) use semiconducting materials to convert sunlight directly into electricity
  • Photovoltaic panels are used more for individual and commercial use because they are easily attached to buildings and offices
  • The price of silicon has dropped over the past five years, decreasing the production cost of solar panels. Nonetheless, photovoltaic power is still more expensive than CSP on a per-kilowatt-hour basis

Source: IBIS-solar power in the US

industry overview4
Industry Overview

Pricing for polysilicon and PV components continued to exhibit softness in Q2 2012 due to the persistence of the global oversupply environment that the industry has faced since early 2011.

Source:SEIA/GTM Research-US solar market insight 2012

industry overview5
Industry Overview
  • As the price of solar components and systems continue to fall significantly, the demand of solar power and the volume of PV installations are predicted to grow in the next four years
  • From 2012-2016, the forecast annual growth rate is 25% -30%

Source:SEIA/GTM Research-US solar market insight 2012

industry overview6
Industry Overview
  • The global PV installations increased from 29.2 GW(2011) to 33.2 GW(2012)
  • Germany accounts 23% installation in 2012, which is the highest in the world
  • The installations in China grew from 7% in 2011 to 21% in 2012
  • The installations in Italy decreased from 32% in 2011 to 10% in 2012

Source: EnergyTrend-Global Photovoltaic Market Overview

industry overview7
Industry Overview


Unit: Dollar in million

Source: yahoo finance

industry overview8
Industry Overview

Five Force Analysis

  • High Moderate:
  • Capital Intensive: costly equipment required
  • Growing market in solar power industry
  • High:
  • Solar power supply exceeds demand before year 2016
  • Global price competition
  • Low:
  • Decreasing price of solar components
  • Vertical integration in the supply chain
  • High:
  • Competition for government subsidies among other renewable energy
  • High cost compared to other types of electricity
  • High:
  • Global price competition
company overview2
Company Overview

SWOT Analysis

Source: Datamonitor 360

company overview3
Company Overview

Recent events-2011 Global Plan

  • Reducing the company's total workforce
  • Shuttering the company's Merano, Italy polysilicon facility, reducing production capacity at Portland, Oregon facility and Kuching, Malaysia wafering facility
  • Reducing activity with joint venture partners, resulting in impairments of some of the investments
  • Scaling back future purchase requirements of raw materials to lower future capacity
  • Supply wafers for internal consumption by SunEdison
  • Consolidating the operations of Solar Materials segment and Solar Energy segment into a single Solar Energy business unit, effective January 1, 2012

Source: 2011 MEMC Annual Report

revenue growth
Revenue Growth
  • Average Growth Rate = 5.22% Quarterly for 10 years

Source: MEMC 10K, 10Q


Company Overview

Revenue Breakdown -by geography




-by segment

key observations
Key Observations
  • Decreased in Profit Margin Due to:
    • Operating Inefficiency
    • Unfavorable Environments (Japanese earthquake, foreign currency effects, inventory charges related to suppliers, early termination fees related to customer contracts, …)

Source: MEMC 2011 10K, 10Q

business risks
Business Risks
  • Downturn in industry and market condition
    • Might be unable to generate sufficient cash inflows or outside financing
  • High initial costs for solar energy, yet uncertainty of generating revenue
  • Weak position in the supply chain
    • Few suppliers
    • Long term contracts with customers
    • Several customers account for 12-13% of revenue
  • Subject to numerous environmental laws and regulations
  • Rapid Technology Change
  • Downsizing cannot mitigate the business risks in long run

Source: MEMC 10K, 10Q

key observations1
Key Observations
  • Significant Restructuring Charges (2011)
  • Significant Goodwill/long-lived Assets Impairments (2011)
  • Significant Investments in Solar Energy
    • Mergers and Acquisitions
      • FRV, a developer of solar power project, 100% voting shares for $54.2 M on Sep 2012
      • Solaicx, 100% Equity for $101.7 M on July, 2010
    • Capital Expenditures
      • Construction of solar energy system, $425 M
  • Investigation being undertaken for tax return by IRS
  • Withdrawn Contracts
    • July 5: Wafer supply to SunTech Power (400 Million)
    • Sept 25: Wafer supply to Conenergy AG Power (600 Million)
  • Significant incentives form “Green” Power
      • California (Performance based incentives/Renewable Energy Credits)

Source: MEMC 2011 10K, 10Q

discounted cash flow
Discounted Cash Flow
  • Significantly High Discount Rate
  • Logic
    • Increased Debt (cost of firm debt nearly doubled in a year’s time)
    • Stock Holders demand compensation for risk
    • Unclear management strategy/market outlook
  • See Excel
multiple approach
Multiple approach
  • Significant Difficulties

- government owned companies

- numerous negative multiples

- unreliable “definitions of revenue sources”


  • Judgments used
  • Significant predicted drop in value
  • See Excel
  • Sell 600 Shares @ Market Price
    • Poor macroeconomic outlook
    • Questionable management decisions
  • In Regards to Portfolio
    • Transaction costs must be factored (It is not in the best interest to maintain a small position)
    • Sale Will Create Tax loss
    • Further Exposure into energy possible
  • What we learned…