Download What is a Wafer?

http://www.memc.com/index.php?view=MEMC-History
Zachary (Zoujia) Chen
Justin Craigwell-Graham
Charles Gambino
Vignesh Murali
Jacob Rapp
November 12, 2009
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
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
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
What is a Wafer?
Global Manufacturing
Source: MEMC 10K
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
Competition
• Main Competition
– Solarworld AG: Solar Energy company who also
makes semi-conductors based in
Germany
– Kyocera:
– SUMCO:
Based in Japan. Products range from
Ceramic components to electronic
devices, equipment and networks
Based in Germany, makers of
semiconductor and solar cells
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
Semiconductor Device Industry Risks
•
•
•
•
•
Rapid technological change
Product obsolesence
Changes in product mix
Price erosion
Fluctuations in product supply and demand
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
Dupont Analysis
SWOT
• 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 mortgagebacked securities.
Management Performance
•
What Management Said Would Happen:
1.
Reduction in manufacturing and operating costs from 2006 levels
2.
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
3.
•
What Happened:
1.
COGS, SG&A, and R&D expenses as a percentage of sales fell from 2006
levels
2.
Capital Expenditures were 15.13% of net sales in 2008
3.
Quick Ratio has hovered around 3.0x since 2006
Assumptions for Pro Forma
Revenue Source
2009E
2010E
2011E
2012E
2013E
2014E
2015E
Semiconductor
-50%
2%
5%
10%
8%
8%
8%
Solar
-50%
2%
7%
8%
8%
10%
10%
-2%
-2%
-2%
-2%
0%
0%
0%
-40.9%
0.7%
3.7%
5.6%
5.9%
6.9%
7.0%
Sales of excess Polysilicon
Total Revenue Growth
Cost Assumptions by Year
2008
2009E
2010E
2011E
2012E
2013E
2014E
2015E
COGS/Sales
49.87%
75.0%
66.0%
58.0%
54.0%
52.0%
52.0%
52.0%
SG&A/Sales
5.58%
6.0%
6.0%
6.0%
5.5%
7.0%
5.5%
5.5%
R&D/Sales
2.00%
3.5%
3.5%
4.0%
4.0%
4.0%
4.0%
4.0%
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.