MEMC Electronic Materials Inc. (WFR)

Brandon Lee and David LightMarch 11, 2008

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

What is a wafer?

A thin slice of semiconductor material used to make microchips and other micro devices

All the processes of a micro device are conducted on a wafer

Come in different sizes (1 inch to 12 inches in diameter) and in different thicknesses

Wafer sizes have increased device performance and reduced production costs

A silicon wafer

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

Wafer Industry Outlook The introduction of electronics and computer technology into

our daily lives is growing at an exponential rate.

One of the few markets that can improve device performance while sustaining steady revenue growth and reducing production costs.

There is a trend towards developing larger wafers (200mm and 300mm)

Over the past 10 years, the wafer industry has consolidated and only four companies have 10% or more of the market share

Highly correlated with semiconductor industry

Wafer Industry vs. Semiconductor Industry

Wafer Market Size and Growth

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

Company Overview MEMC produces silicon wafers for the semiconductor and

solar power industry globally

Based in St. Peters, MO

Produces both semiconductor wafers and solar wafers ranging in size from 100mm (4 inches) to 300mm (12 inches)

Strategy: “Continuous improvement of technology, market share, and profits.”

NYSE Ticker: WFR

Expanding into Solar Market

Began producing solar wafers in 2007

Currently outsources production Bringing production in house in 2009 Improved margins

Has contracts signed worth $15-18BN over the next 10 years

Has current capacity for one more contract over that time worth another $2-3BN

Solar represents a 30% annual growth market

Company History:

Founded in 1953

Pioneer in wafer development & leader in supplying semiconductor wafers for over 50 years

1995: IPO on NYSE under the ticker WFR

2006: Announced the signing of $7-9 billion in contracts to deliver solar wafers (an $18 billion market at the time)

2008: One of four wafer companies with 10% or more of the market share.

Management Team: Nabeel Gareeb – President, CEO, and member of Board

of Directors Joined MEMC in April 2002 Holds a Masters of Science in Electrical Management and a

Bachelors of Science in Electrical Engineering

John Marren – Chairman of Board of Directors Has been with MEMC since November 2001 Partner of Texas Pacific Group Board of Directors of Conexant Systems, Inc. and ON

Semiconductor Corporation

Dr. Shaker Sadasivam – Senior VP, Research and Development

Has been with MEMC since 1993, serving many different roles Holds a Doctorate’s and Masters in Chemical Engineering and

a Masters in Business Administration

Statistics:

Trailing P/E: 20.83x

Forward P/E: 14.20x

ROA: 22.83%

ROE: 51.62%

Debt to Equity Ratio: .015

Current Ratio: 3.578

Investment Thesis:

Great Visibility

Strong Long-Term Solar Growth

Good Pricing Power (12-18 months)

High barriers to entry in Polysilicon

Very efficient operator

Signed Contracts not yet reflected in stock price

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

Competitors

Year 1990 2000 2005

Number of Suppliers

MEMCMitsubishiSEHSumitomoWackerKomatsuNippon SteelTISiemensMotorolaSolarexHitachiToshibaLG SiltronSiltecIBMTopsilUnisilAT&TCrystecoKawasaki Steel

MEMCMitsubishiSEHSumitomoWackerKomatsuLG SiltronSiltecToshibaNippon Steel

MEMCShin-Etsu HandotaiSUMCOWackerKomatsuToshibaLG Siltron

Total 21 10 7

Porter’s Five Forces

Barriers to Entry: Highly specialized and technical industry with very few competitors and high barriers to entry. 3 years to build a polysilicon plant, 18 months to build a wafer plant.

Bargaining Power of Buyers: Low. There used to be a lot of wafer companies, but consolidation has led to fewer competitors.

Only four companies with 10% or more of market share.

Bargaining Power of Suppliers: Low. MEMC manufactures their own polysilicon, the major raw material used in making wafers.

Threat of Substitutes: Somewhat high. Anyone making high-quality wafers is a threat to take share and increase rivalry.

Rivalry: Fewer and fewer competitors in recent years.

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

WFR vs. S&P 500 (1 Year)

WFR vs. S&P 500 vs. S&P Semiconductors Index (5 Year)

Source: 2007 Annual Report

Revenue Projection

Year Semi Revenue Growth Signed Solar Rev Add'l Solar Rev Total Solar Solar Growth Total Rev Total Rev Growth2006 1,540.6 0 0 1,540.62007 1,821.8 18.3% 0 100 100 1,921.8 24.7%2008 2,004.0 10.0% 400.0 0.0 400 300.0% 2,404.0 25.1%2009 2,204.4 10.0% 520.4 139.6 660.0 65.0% 2,864.4 19.2%2010 2,424.8 10.0% 677.2 345.8 1,023.0 55.0% 3,447.8 20.4%2011 2,667.3 10.0% 881.1 551.1 1,432.2 40.0% 4,099.5 18.9%2012 2,934.0 10.0% 1,146.4 858.7 2,005.1 40.0% 4,939.1 20.5%2013 3,227.4 10.0% 1,491.6 1,215.3 2,706.9 35.0% 5,934.3 20.1%2014 3,550.2 10.0% 1,940.7 1,578.2 3,518.9 30.0% 7,069.1 19.1%2015 3,905.2 10.0% 2,525.1 1,873.5 4,398.6 25.0% 8,303.8 17.5%2016 4,295.7 10.0% 3,285.5 1,992.9 5,278.4 20.0% 9,574.1 15.3%2017 4,725.3 10.0% 4,274.8 2,059.2 6,334.0 20.0% 11,059.3 15.5%

*Strong Growth 2008-10 due to ramp up for solar *These Growth Rates (Column T) are now used in revenue forecasts

DCF Assumptions

WACC: 13.95% Long-term growth: 5% Beta: 1.66

Fiscal Year ended 12/312007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E

COGS % of revenue 47.9% 45.0% 44.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0% 42.0%SG&A % of revenue 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%

PP&E % Growth 34.1% 35.0% 31.0% 26.0% 15.0% 15.0% 15.0% 15.0% 12.0% 10.0% 10.0%PP&E % Sales 63.0% 68.0% 74.8% 78.3% 75.7% 72.3% 69.2% 66.8% 63.7% 60.7% 57.8%

DCF Valuation

Current Price: 71.93

DCF Value: 87.10

Intrinsic Value: 78.40-95.82

Estimated Total Return: 21%

DCF Assumptions

Sensitivity AnalysisWACC

87.11 10.00% 11.00% 12.00% 13.00% 13.95% 15.00% 16.00% 17.00% 18.00%2.00% 124.21 106.60 92.74 81.58 72.88 64.83 58.42 52.97 48.282.50% 130.01 110.80 95.85 83.94 74.73 66.26 59.56 53.89 49.033.00% 136.64 115.51 99.31 86.54 76.75 67.82 60.79 54.87 49.833.50% 144.29 120.86 103.18 89.42 78.97 69.51 62.12 55.93 50.68

Growth 4.00% 153.21 126.97 107.53 92.62 81.41 71.35 63.56 57.07 51.594.50% 163.76 134.02 112.47 96.19 84.10 73.37 65.12 58.30 52.575.00% 176.41 142.25 118.10 100.20 87.10 75.59 66.83 59.63 53.625.50% 191.88 151.97 124.61 104.76 90.45 78.05 68.70 61.08 54.766.00% 211.21 163.63 132.19 109.96 94.23 80.78 70.75 62.65 55.99

Portfolio Fit

RCMP Portfolio

CASH43%

AEE5%

AEO7%

CPRT7%

DFS1%

DO3%

FR8%

JKHY3%

KMB5%

MVSN1%

SRCL6% SRZ

2%

WAG5%

WFR4%

CASH AEE AEO CPRT DFS DO FR JKHY KMB MVSN SRCL SRZ WAG WFR

Outline:

What is a Wafer? Industry Outlook Company Overview Competitors Valuation & Portfolio Fit Recommendation

Recommendation:

BUY 200 shares of WFR at market price

Approximate cost: $14,822.00

Increases total number of holdings to 13.

WFR will represent approximately 4.12% upon purchase

WFR will expose the RCMP portfolio to the semiconductor industry and alternative energy