Piyapong (Art) Pantipjatuporn; Liefeng (Richard) Zhang; Meiling Liu
* Introduction
* Company Overview
* Macroeconomic & Industry Review
* Financial Analysis and Projections
* Valuation
* Recommendation
[1] 03-2008: Bought 200
Shares @ $78.15
[4] 12-2010, Bought 200
shares @ $12.02
[2] 12-2008: Bought 400
shares @ $14.43
Average Down: $35.67
per share
Data Source: Yahoo Finance
[3] 11-2010: Sold 200
shares @ $12.41.
Realized loss: $4,652
[5] 10-28-2011,
Price: @ $ 6.64
Unrealized Loss:
$ 4192, 51.27%,
Cash Included
Exclude Cash
3.7%
1.2%
3.7%
5.1%
10.2%
CASH
5.6%
4.0%
ABT
15.8%
ABT
AEO
AEO
3.1%
19.1%
DO
JKHY
6.1%
MCD
68.0%
JKHY
MCD
11.6%
MOS
MOS
3.3%
DO
WAG
WAG
9.6%
WFR
17.5%
12.4%
WFR
MEMC. Inc
* 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.
Business Areas
* Semiconductor Materials
* Solar Materials
* Solar Energy
Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm
Products: Semiconductor Materials
* 4 categories: prime, epitaxial, test/monitor wafers and siliconon-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
Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm
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, statesponsored energy credits and foreign feed-in tariffs
Data Source: 10-K, http://sec.gov/Archives/edgar/data/945436/000119312511042346/d10k.htm
Revenue Breakdown- By Geography
Net Sales
2010
Dollars in millions
North America
Asia Pacific
$250.00
$1,338.00
11.2%
59.8%
Europe
Total Net Sales
$651.00
$2,239.00
29.1%
Revenue Breakdown- By Business
Net Sales
Dollars in millions
Semiconductor Materials
Solar Materials
Solar Energy
Total Net Sales
Q2-2011
Q1-2011
2010
2010(%)
$275.3
$323.1
$181.2
% of 2010: 34.8%
$251.5
$326.3
$254.8
37.2%
$992.60
$826.10
$420.50
$2,239.20
44.3%
36.9%
18.8%
Data Source: 10-K, Q1, Q2 Earning call conference; www.sec.gov
Last 3 Years Price Index
WFR Stock Price(Left)
Wafer Price Index(Right)
22
4.5
20
4
18
3.5
16
3
14
2.5
12
2
10
1.5
8
1
6
0.5
4
0
*
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
Data Source: 10-K; Bloomberg
2010: Solaicx
Enter monocrystalline for solar
market
2011: FRV US Subsidiary
Increase solar energy projects
and pipelines
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
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
*
Bright future in solar energy business as
a whole
*
Government support for renewable
energy industry
*
Strong Pipeline growth in SunEdison
THREAT
*
*
An excess supply of polysilicon wafer
Price Competition from lower cost
manufacturing countries
U.S. GDP FORECAST (2009-2019)
4
3.5
Percentage Change from baseline
3
2.5
2
Real GDP (Percentage change from
baseline) Low estimate
1.5
1
Real GDP (Percentage change from
baseline) High estimate
0.5
0
2009
2010
2011
2012
2013
2014
-0.5
Source: Department of Commerce and Federal Reserve
Effect of American Recovery and Reinvestment Act of 2009
2015
2016
2017
2018
2019
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
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
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
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
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
SOLAR POWER INDUSTRY
* Beyond 2012, government legislation is
uncertain, depends on new congress
* Housing crisis and tough economic
conditions cause reduction in electricity
power.
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
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
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
COMPETITORS

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
Source: Yahoo Finance, MEMC 10K, CapitalIQ
COMPETITORS
Company
R&D Cost (2009)
MEMC Electronic
3.50%
2,834.7
LDK Solar
0.80%
2,862.28
Yingli Green
2.50%
2,326.56
Sun Tech
1.81%
3,396.43
First Solar
3.78%
2,507.77
Shin-Etsu Handotai
3.70%
2,449.76
Sumco Corporation
3.50%
1,617.21
Source: Individual company annual report/10K, CapitalIQ
Revenue($mm)
Five Force Analysis
Threat of new Entry: Medium
• High Capital Expenditure
• Bright Future of Solar Energy Industry
Supplier Power: Low
•Producer of starting
materials for
downstream
•Business Integration of
Supply Chain
Competitive
Rivalry: High
•
•
•
Low customer loyalty
Global competition
on price and services
Low differences in
products
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
Revenue Growth Assumptions
Semiconductor Materials
Optimistic Case
Best Guess
Dow n Side
Solar Materials
Optimistic Case
Best Guess
Dow n Side
Solar Energy
Optimistic Case
Best Guess
Dow n Side
20.00%
9.00%
0.00%
15.00%
8.00%
-3.00%
10.00%
5.00%
-2.00%
8.00%
4.00%
-3.00%
9.00%
3.00%
-4.00%
8.00%
2.00%
-3.00%
60.00%
40.00%
0.00%
12.00%
9.60%
-3.00%
10.00%
7.00%
-2.00%
11.00%
5.00%
-3.00%
13.00%
7.00%
-4.00%
17.00%
6.00%
-3.00%
60.00%
40.00%
0.00%
14.00%
9.60%
-3.00%
18.00%
8.50%
-2.00%
19.00%
9.60%
-3.00%
17.00%
8.50%
-4.00%
22.00%
8.00%
-3.00%
Actual Revenue
2008
2009
2010
2011
2012
Forecasted Revenues
2013
2014
2015
2016
Semiconductor Materials
923.10
586.30
992.60
1,081.93
1,168.49
1,226.91
1,275.99
1,314.27
1,340.55
Solar Materials
1,081.40
573.50
826.10
1,156.54
1,267.57
1,356.30
1,424.11
1,523.80
1,615.23
Solar Energy
3.80
420.50
588.70
645.22
700.06
767.26
832.48
899.08
Total Revenue
$ 2,004.50 $ 1,163.60 $ 2,239.20 $ 2,827.17 $ 3,081.27 $ 3,283.27 $ 3,467.37 $ 3,670.55 $ 3,854.86
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)
ROE (CAPM)
Rf (BLOOMBERG)
Risk Premium (BLOOMBERG)
Beta (BLOOMBERG)
ROE
2.20%
8.69%
1.59
16.02%
Cost of Debt
Cost of Equity (CAPM)
Risk Free Rate
6.27% (from Bloomberg)
16.02%
2.20%
% of Debt
% Equity
22.60%
77.40%
Tax Rate
WACC
Sustainable Grow th Rate
14.84%
15%
13.60%
2%
12.69%
Net Income
Depreciation
(CapEx)
Change in NWC
FCF
TV
NPV
Value of firm
Value of firm 's equity
Price Per Share
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
131.36
144.40
149.53
164.29
269.21
312.21
193.45
190.52
188.56
187.43
187.14
187.55
(565.43)
(154.06)
(164.16)
(173.37)
(183.53)
(192.74)
102.84
18.91
35.22
45.20
(62.52)
7.73
(137.79)
199.77
209.14
223.54
210.30
314.75
Term inal
Value
312.21
187.55
(187.55)
7.73
2,812.83
(121.29)
1,876.64
1,378.14
$5.98
154.79
142.65
134.22
111.15
146.44
1,308.68
WACC
$5.98
12.10%
12.60%
13.10%
13.60%
14.10%
14.60%
15.10%
$
$
$
$
$
$
$
0.50%
6.52
6.06
5.64
5.26
4.90
4.57
4.27
$
$
$
$
$
$
$
1.00%
6.82
6.33
5.89
5.48
5.10
4.76
4.43
$
$
$
$
$
$
$
GROWTH RATE
1.50%
2.00%
7.15 $
7.52 $
6.63 $
6.96 $
6.15 $
6.45 $
5.72 $
5.98 $
5.32 $
5.56 $
4.95 $
5.17 $
4.61 $
4.81 $
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)
2.50%
7.92
7.31
6.76
6.27
5.81
5.40
5.02
$
$
$
$
$
$
$
3.00%
8.37
7.71
7.11
6.58
6.09
5.65
5.24
$
$
$
$
$
$
$
3.50%
8.87
8.15
7.50
6.92
6.39
5.92
5.49
Competitor
Shin-Etsu Co.
SUMCO
Suntech Pow er
Yingli
LDK Solar
First Solar
Min
MEMC Electronics
Max
Price Range
Min
Average
Max
Weightage
Multiples Valuation
Business Segment P/S
Semi materials
Semi materials
Solar materials
Solar materials
Solar materials
SunEd
$
$
$
P/B
P/E
0.39
0.82
0.15
0.27
0.2
1.58
0.28
1.13 N/A
0.3
0.45
0.43
1.07
0.15
0.49
1.58
0.28
0.58
1.13
1.46
5.53
15.36
30%
$3.89
$
$
$
2.77
6.03
11.16
30%
$
$
$
3.07
2.4
1.98
8.17
Forw ard P/E
N/A
N/A
N/A
11.28
13.35
5.25
1.98
19.51
19.51
5.25
5.65
13.35
4.65
0.30
0.61
2.93
20%
$
$
$
0.79
1.49
2.00
20%
* 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