1. MEMC Electronic Materials (NYSE Ticker: WFR)
Greg Bruno | Patrick Quirke | Charles Chen | Richard Wang
Thursday, March 3, 2010

2. Presentation Outline Company Analysis Solar Energy Industry
Semiconductor Material Industry
Performance Analysis and Stock Valuation

3. Company Overview Overview Net Sales by categories
Acquisition Activities
SWOT Analysis
Competitors
Management assessment

4. WFR Historical Holdings
March 2008: 200 shares were $78.15
December 2008: 400 shares were $14.43
Total Cost basis =$35.67 per share
Nov , 200 shares were $12.41.
Realized loss: $4,652
Dec , 200 shares were $12.02 
Mar (current portion):
Closed price: $ Portfolio: 2.32%
Unrealized gain: 3.64%

5. Company Overview Main business: Manufacturer and seller of wafer
Sector: Technology
Industry: Semiconductor - Integrated Circuits , and Solar industry
Products:
wafers in sizes from 100 millimerters (4 inch) to 300 millimeters (12 inch)
Intermediate product : polysilicon, silane gas, ingots and scrap wafers
Solar Energy Panels
Business segments: Semiconductor Materials, Solar Materials and Solar Energy.
Market covering: Manufacturing and research and development facilities in the United States, Europe and Asia pacific.
Customers: semiconductor device and solar cell (device) manufacturers
S&P 500 stock traded on New York Stock Exchange.
Data provided by as of October 10, 2010

6. Acquisition Activities
Acquisition of Sun Edison
November 23, 2009 MEMC completed acquisition of privately held Sun Edison, a developer of solar power projects and North America’s largest solar energy service provider. (Paid with $314 million, 70% cash, 30% MEMC stocks)
Acquisition of Solaicx
July 2, 2010 MEMC completed acquisition of privately held Solaicx. (Paid with $66 million cash, and plus $10 cash equivalent of investment in Solaicx.) The acquisition expected to be accretive to earnings per share in 2011
Acquisition outlook Based on the MEMC’s recent frequent acquisition activities, we expect more acquisition activities will be initiated in the near future
Information provided by & as of October 10, 2010

7. WFR Stock Performance 2010

8. WFR Historical Stock Performance

9. Net Sales by Region, Business Segment
Image provided by as of October 10, 2010

10. SWOT Analysis Strengths Weaknesses Vertical integration
Horizontal diversification
Strong technology base supported by strategic and efficient R&D
Strategic Long Term contracts
Weaknesses
Overcapitalization
Highly Leveraged
Accumulated inventory from 3rd and 4th at 2010

11. SWOT Analysis Opportunities Threats
Further diversification and gain share of renewable energy market
Reductions to COGS
Government support
Increasing market demand for renewable energy nationwide
Threats
Price competition in three segments
Short-term over supply of polysilicon
Imbalanced tax, regulatory, and trade policies
Opps: 2009 Acquisition of SunEdison, 2010 Acquisition of Solaicx providing access into adjacent monocrystalline solar market, SunEdison enables MEMC to participate in the development and maintenance of solar energy systems and the sale of solar energy

12. Competitors Semiconductor Materials Solar Materials Solar Energy
Shin−Etsu Handotai : market shares: 25%, revenue:9,8B in 2010
Sumco: market shares: 15%, revenue: 2.4 B in 2010
Solar Materials
LDK Solar: Cap: 1.88B revenue: 1.89B
ReneSola: Cap: 0.8B revenue: 1B
Solar Energy
First Solar Inc. Cap: 12.5B revenue:2.56B
SunPower Corp. Cap: 1.66B revenue: 2.2 B

13. Management Assessment
Extended trend of steady improvement
SunEdison delivered strongest quarter to date
Semiconductor and solar end markets remain dynamic
Increased market share in an environment of rising prices
Management expects GAAP sales in the range of $2.8 - $3.1 billion and EPS of $0.25 to $0.55
Improve execution
Continue strategic initiatives

14. Solar Energy Industry Analysis
Overview
Performance in 2009
Performance in 2010
Drivers for industrial growth
Porter’s Five Forces

15. Solar Energy Industry Overview
Solar energy products include Photovoltaics (PV), concentrating solar power (CSP), and solar heating and cooling (SHC)
U.S. PV market has grown at an average annual rate of 69% over the past ten years, rising from just 3.9 megawatts (MW) in 2000 to 435 MW in 2009
U.S. constituted only 6.5% of global PV demand in 2009, placing fourth in national installations behind Germany, Italy, and Japan. However, with continued pricing reductions and strong incentives, the U.S. could become the next major PV growth market

16. Solar Energy Industry - Performance in 2009
The U.S. was a net exporter of solar energy products in 2009, with $723 million in net exports
2009 U.S. solar installations created $3.6 billion in direct value, with 74% accruing to the U.S
Polysilicon was the largest solar product export, with $1.1 billion in exports in 2009
The U.S. ranked fourth in the world for new solar electric installations (Germany was first, Italy second, and Japan third)
Solar energy Industries Association 2009 report

17. Solar Energy Industry - Performance in 2010
U.S. commercial solar customers added 103 megawatts of capacity in the third quarter of 2010, which represents a 38% jump over the third quarter of 2009
Cost per installed watt fell under $6 (before tax breaks), with federal stimulus programs and state and local tax breaks
Worldwide, demand for just photovoltaic solar power grew 196% to 10.6 gigawatts in the first  nine months of 2010
Definite signs pointing to a strong year in 2011, in light of the solar energy tax legislation - Treasury Section 1603 Program
Solar energy Industries Association 2009 report

18. Solar Energy Industry – Growth Drivers
Federal, state, and local policy incentives
Market volatility, especially with respect to natural gas and oil
Climate change and likely carbon regulations
Energy security issues
Need for increased energy production to meet growing demand (China, India, etc.)
Interest from financial community in “next big thing”

19. Solar Energy Industry – Growth Drivers
November 23, 2009 MEMC completed acquisition of privately held Sun Edison
Sun Edison LLC owns and operates power plants in North America and provides solar-generated energy to commercial, government, and utility customers
Provides solar energy services, which include renewable power, monitoring, marketing, renewable portfolio standards, and solar tariff services
As of 2010, it has more than 390 solar deployments worldwide
In 2010 it deployed more than 160 Megawatts of solar throughout the world
Including 28 MW of ground-mount and rooftop solar projects in Ontario
In Feb 2011, Sun Edison was awarded 31 Megawatts (MW) AC of solar photovoltaic (PV) projects by The Ontario Power Authority (OPA) as part of the province's landmark Feed-in Tariff (FIT*) program

20. Porter’s Five Forces Analysis - Solar
Bargaining Power of Suppliers – Low but increasing
No any significant power given ready alternatives to solar energy in the market
US government support – At least 30 states require that public utilities generate at least 10% - 20% of power using clean energy.
Threat of New Entrants/Barriers to Entry – Medium to high
High capital commitment
Competitive industry
Bargaining Power of Buyers – High
A wide variety of energy sources leaves consumers with the ability to choose
Competitive Industry Rivalry – Medium to high
Little product differentiation
Go Green campaign by US government
High exit barriers due to high capital commitment
Growing economy – increasing demand for poly-silicon to rooftop panels
Threat of Substitutes – High
Coal (>50%), oil, other fossil fuels, wind, hydrogen, hydropower, nuclear and bio-energy
Cost of electricity low using coal
However increasing awareness of the Green House Effect makes people to prefer clean energy

21. Semiconductor Industry Analysis
Characteristics
Porter’s Five Forces Analysis
Industry Performance Indicators
Book to Bill Ratio Analysis
Growth Expectations

22. Semiconductor Industry Characteristics & Performance
Highly cyclical
Reflects erratic, short-term oriented nature of the primary end market
Streamline operations and outsource production
2010 global semiconductors sales grew 31.8% to $ billion and beat analyst forecasts of $219.7 billion
Superior inventory management
New product launches
Strength in the consumer and computing markets
Data provided by as of March 2, 2011

23. Porter’s Five Forces – Semiconductor Industry
Bargaining Power of Suppliers – Medium
Diffusion of risk over hundreds of companies minimizes individual supplier power
Increasing dependence on “foundries” for cutting-edge equipment and production skills increases bargaining power
Threat of New Entrants/Barriers to Entry – Medium, Decreasing
Chip fabrication asset (capital) intensive and technologically advanced business that requires billions of dollars in investment
Alliances formed among semiconductor companies to spread manufacturing costs
Success of “fabless” chip makers suggests that factory ownership may no longer bar entrants from industry participation
Bargaining Power of Buyers – Low
Industry segments dominated by small number of large players
Competitive Industry Rivalry – Very High, Increasing
Intense price rivalries between individual companies
Push for better, faster, and cheaper products creates short product life
Availability of Substitute Products – Low
Fundamental building blocks of semiconductor devices

24. Semiconductor Industry Performance Indicators
Two main indicators of semiconductor equipment manufacturer performance:
Order trends
Relationship between current orders and sales, known as the book-to-bill ratio
A ratio above 1.00 indicates expansion, and one below 1.00 reflects a slowdown.
North America-based manufacturers of semiconductor equipment posted a book-to-bill ratio of 0.85 in January 2011 compared to 0.90 in December 2010 and 0.97 in November
The January 2011 billings averaged US$1.80 billion, 2.5% more than the final December 2010 level of and 88% higher than billings posted in January 2010
Slowing of the semiconductor manufacturing equipment market indicates slower growth in IC capacity in 2011
IC production should continue to increase in 2011 as IC demand remains healthy
Semiconductor Intelligence believe IC capacity utilization will remain above 90% through the end of 2011
Data provided by as of October 10, 2010

25. Book to Bill Ratio Analysis

26. Industry Growth Expectations
Semiconductor Intelligence forecasts 9% growth in 2011 and 8% growth in 2012
Growth driven by:
Underlying strength of electronic equipment production
Continued moderate recovery from a deep recession
Unlikely to move into excess capacity for at least 1-2 years
Equipment billings should grow in 2011 by about 10% to 20%
IC and wafer demand will continue to grow as IC capacity grows in 2011
IC wafer starts should grow about 10% in 2011 over 2010
Growth in IC capacity should be slightly higher than growth in wafer starts
IC capacity utilization will remain above 90% throughout 2011
Data provided by HIS iSuppli Forecasts as of February 17,

27. Valuation DuPont Analysis FCF Analysis DCF Valuation
Public Comparables – Multiples Valuation
Triangulated Valuation
Recommendation

28. DuPont Analysis DuPont Analysis For the Fiscal Period Ending 2005 2006
For the Fiscal Period Ending
2005
2006
2007
2008
2009
2010
Gross Profit Margin
33.1%
44.7%
52.1%
50.1%
11.0%
15.1%
Assets Turnover
96.4%
87.2%
66.6%
68.2%
32.6%
48.5%
Equity Multiplier
151.9%
146.5%
139.4%
138.8%
161.6%
200.9%
ROE
57.2%
48.3%
47.5%
5.8%
14.7%
GPM YoY Change
35.1%
16.4%
-3.7%
-78.0%
36.7%
Asset Turnover YoY Change
-9.5%
-23.7%
2.5%
-52.2%
48.8%
Equity Multiplier YoY Change
-3.6%
-4.8%
-0.5%
16.5%
24.3%
ROE YoY Change
-104.0%
-1.9%
-97.6% %
11.4%

29. FCF Analysis Cash Flows ($ Million) Forecast 2011 2012 2013 2014 2015
2016
2017
Free Cash Flow
Net Income
312.10
311.26
263.25
196.71
268.29
338.54
336.95
Depreciation & Amortization
183.75
200.12
213.12
225.24
238.10
249.74
263.30
Gross Cash Flow
$495.85
$511.38
$476.37
$421.95
$506.40
$588.28
$600.25
Changes in Accounts Receivable
($34.04)
($29.40)
($23.35)
($21.77)
($23.09)
($20.91)
($24.35)
Changes in Inventories
($51.03)
($67.87)
($96.79)
($142.53)
($223.59)
($239.74)
($325.00)
Changes in Prepaid Expense
($122.02)
$9.12
$10.14
$12.15
$4.96
($17.13)
$3.85
Changes in Other Current Assets
($41.20)
($72.68)
$84.91
($6.00)
$3.38
($24.64)
$6.16
Changes in Accounts Payable
$177.29
$235.76
$336.24
$495.14
$776.73
$832.82
$1,129.02
Changes in Accrued Expenses
$6.52
$4.53
$3.66
$3.44
$3.64
$3.34
$3.84
Changes in Other Current Liabilities
$21.40
$14.87
$12.02
$11.30
$11.96
$10.95
$12.61
Total Change in Net Working Capital
($43.09)
$94.33
$326.83
$351.73
$553.98
$544.68
$806.13
Operating Cash Flow
$452.76
$605.71
$803.21
$773.68
$1,060.38
$1,132.96
$1,406.38
SunEdison Net Financing
$543.85
$487.88
$436.76
$383.22
$330.89
$277.95
$225.32
Capital Expenditures (Additions to PP&E)
( )
(529.51)
(593.39)
(659.87)
(696.14)
(684.63)
(738.55)
(547.24)
76.20
209.81
113.81
364.24
448.33
667.83

30. DCF Valuation Present Value of Free Cash Flows Forecast 2011 2012 2013
2014
2015
2016
2017
Discount factor
1.11
1.22
1.35
1.50
1.65
1.83
2.02
PV of Unlevered Free cash flow
(494.9)
62.3
155.2
76.1
220.3
245.2
330.2
Sum of FCF
594.36
Terminal Value
Discount Rate
13.00%
Terminal Growth/ Perpetuity Rate
4.00%
Free cash flow (2017)
694.5
Terminal value
7,717.1
PV of terminal value
3,816.1
Enterprise value
4,410.4
Equity Value Caculation
Calculation of net debt:
Current portion of LT and ST debt
72.1
Long term debt
610.6
Convertible debt
0.0
Minority interest
43.9
Convertible preferred stock
Less: Cash
707.3
Less: short-term Investments
0.1
Net debt
19.2
Total Firm Value
4410.4
Equity Value
3727.7
Shares outstanding
227.9
Equity value / Share
16.36
Risk-Free Rate
3.41%
Market Risk Premium
6.00%
Beta
1.27
CAPM
11.03%
Goal-Post k(e)
12.00%
k(d)
6.7600%
% Equity
81.4%
% Debt
18.6%
Tax Rate
35.0%
WACC
10.58%

31. Public Comparables – Multiples Valuation
Competitor
Segment
P/S
P/B
Forward P/E
EV/EBITDA
Shin-Etsu Co. Ltd.
Semiconductor
1.62
1.39
16.30
8.10
Sumco Corporation
2.28
2.09 -
11.10
ReneSola Ltd.
Solar Materials
1.33
1.97
4.49
Trina Solar Ltd.
1.15
1.79
6.60
3.90
LDK Solar Co., Ltd.
1.99
4.90
9.90
Covalent Materials Corporation
SolarWorld AG
0.99
1.14
14.40
6.90
First Solar, Inc.
Solar Energy
4.94
4.42
16.80
13.29
SunPower Corporation
0.88
1.36
8.60
6.76
MEMC Electronic Materials Inc.
1.50
1.78
13.80
16.58
WFR Ratios
2/28/2010
Normalized EPS
0.15
Book Value Per Share
1.40
Revenue
Shares Outstanding
226.90
Revenue/ Share
9.87
Multiples
Minimum
Average
Maximum
Median
8.68
19.98
48.75
14.80
1.60
2.83
6.19
2.51
0.74
1.74
2.52
2.07
9.00
Also Covalent, Siltronic, LG Siltron for Semi Conductor

32. Triangulated Valuation
Current Stock Price:
$13.15
Method
Weight
Valuation
DCF Valuation
50%
$16.36
EV/EBITDA
25%
$8.55
Price/Sales
$17.39
Weighted Valuation:
$14.67
-10%
$13.20
+10%
$16.13

33. Recommendation
Hold position of 600 shares