MEMC

Agenda

• Introduction• Company Overview• Stock Market• Macroeconomics & Industry Review• Financial Analysis & Projection• Recommendation

Current Holding

March 2008 Acquired 200 shares @ $78.15December 2008 Acquired 200 shares @ $14.43October 2010 Sold 200 shares @ $12.41repurchased 200 shares @ $12.02 in DecemberOctober 31, 2012 Current holdings 600 shares @ 2.2/share Market value $1320 1.05% of total portfolio

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

MEMC INC.

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 OverviewSolar Materials Segment

Solar Energy Segment( SunEdison)

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

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

Source: Bloomberg

Stock Market

Source: Bloomberg

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

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

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

Semiconductor

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

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

Electric Power Consumption

Industry Overview

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 OverviewSolar Power

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

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 Source: IBIS-solar power in the US

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 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 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 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

Company Industry Revenue(2011) R&D Cost %Revenue

MEMC Semiconductor/Solar 2715.5 87.5 3.22%

Shin-Etsu Semiconductor 13278.7 452.77 3.4%

Sumco Semiconductor 3123.1 73.3 2.35%

First Solar Solar 2,766.2 140.5 5.08%

Suntech Solar 3,146.6 38.6 1.23%

LDK Solar 2,157.8 46.5 2.16%

Industry OverviewCompetitors

Source: yahoo finance

Unit: Dollar in million

Industry OverviewFive Force Analysis

High Moderate:Capital Intensive: costly equipment requiredGrowing market in solar power industry

High:Competition for government subsidies among other renewable energy High cost compared to other types of electricity

Low:Decreasing price of solar componentsVertical integration in the supply chain

High:Solar power supply exceeds demand before year 2016 Global price competition

High:Global price competition

Strength Weakness Leading global solar energy services

provider Diversified geographic presence Focus on research and

development

High dependence on limited number of customers

Legal proceedings

Opportunity Threat Expansion into solar energy

business Recovering semiconductor industry Increasing electricity consumption

Intense competition Dependence on limited source

suppliers and subcontractors Long term supply agreements Weather Condition

Company OverviewSWOT Analysis

Source: Datamonitor 360http://advantage.marketline.com.proxy2.library.illinois.edu/Product?pid=01E4E29B-3E1F-4C86-A389-E73B154AF4F4&view=SWOTAnalysis

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

Company Overview

Recent events-2011 Global Plan

Source: 2011 MEMC Annual Report

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

Source: MEMC 10K, 10Q

Revenue Breakdown -by geography

-by segment

Company Overview

2009 20112010

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

Sources of Cash Outflow of Cash

Key Observations

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 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 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 Significant Difficulties - government owned companies - numerous negative multiples - unreliable “definitions of revenue sources”

Valuation Judgments used Significant predicted drop in value See Excel

Recommendation

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…