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SunEdison (NYSE:SUNE)

Semiconductor Business IPO Conference

September 09, 2013 8:00 am ET

Executives

Chris Chaney - Director of Investor Relations

Ahmad R. Chatila - Chief Executive Officer, President and Director

Brian Wuebbels - Chief Financial Officer and Executive Vice President

Analysts

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Shahriar Pourreza - Citigroup Inc, Research Division

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Ana Goshko - BofA Merrill Lynch, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Brandon Heiken - Crédit Suisse AG, Research Division

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

David Epstein - CRT Capital Group LLC, Research Division

Operator

Ladies and gentlemen, good morning. Thank you for standing by, and welcome to the SunEdison Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Director of Investor Relations, Mr. Chris Chaney. Please go ahead.

Chris Chaney

Good morning, and welcome to our conference call today to discuss the initial public offering of our Semiconductor business. Joining me on the call today are Ahmad Chatila, our CEO of SunEdison; and Brian Wuebbels, the CFO of SunEdison. We will be displaying slides today through the webcast viewer, which can be accessed in the Investor Relations section of our website at www.sunedison.com. These presentation slides will be available only for the duration of this call.

Before we get started today, I'd like to remind everyone that our comments during the conference call may contain forward-looking statements, and information concerning factors that could cause actual results to differ can be found in SunEdison's filings with the U.S. Securities and Exchange Commission. In addition, I'd like to point out that our comments today about the proposed offering should not be construed as an offer to sell or a solicitation of offers to buy any securities.

With that, I'd like to turn the call over to Ahmad.

Ahmad R. Chatila

Thanks, Chris. Good morning, everyone, and thank you for joining us. As you are aware, we issued a press release on August 22 in the planned IPO of our Semiconductor business. Today, we'll be discussing details of the IPO, transaction rationale and what it means to SunEdison, and we will give an update on our business outlook.

SunEdison plans to separate its Semiconductor business from its solar business through an IPO, which will enable both companies to pursue a more focused growth strategy. The new SunEdison Semiconductor, Inc. or SSI will continue to be a market leader in the advanced wafering technologies. SSI has improved its market share significantly over the past 4 years under the leadership of Shaker Sadasivam, driven by an innovative and broad product portfolio, as well as a clear focus on customer service.

Our Semiconductor business has a long history of product innovation and process technology expertise from pioneering early wafer technologies to being a leader in the advanced technologies today, including FP and SOI. This subsidiary IPO will create a new structure that will allow each independent company to pursue its shareholder value-generating strategies, focus on key markets and customers to optimize capital structures and enhance access to growth capital for each company in the years ahead.

SSI will be a separate publicly traded company with an independent capital structure, a separate Board of Directors and management and will be traded under the ticker WFR. SunEdison will initially hold a controlling stake in the new company post IPO. Our management and Board of Directors evaluated a number of different options for the Semiconductor business, including spinoff, split off and sale of the business, and we determined that subsidiary IPO was the best way to maximize value for shareholders. We will continue to evaluate all options as the transaction progresses. We plan to have for SSI committed revolving credit facility and a new senior unsecured term loan at the time of the IPO, which will take place in early 2014 subject to regulatory review, market conditions and other considerations.

It is contemplated that we will recapitalize our SunEdison debt, including our senior unsecured bonds and second-lien term facility, which mature in 2019 and 2017, respectively, upon consummation of the SunEdison Semiconductor IPO. We believe this recapitalization will allow us to optimize the capital structure and fund growth going forward of both businesses. Moreover, SunEdison will support SSI with poly supply and other transition agreements, as well as licensing of IP, which agreements are expected to be in place at the time of the IPO.

SSI financials will be consolidated in SunEdison results, and minority interest will be reflected on the consolidated financial statements. Shaker Sadasivam, a 25-year veteran of the Semiconductor industry, will be SSI's CEO. Key facilities will be allocated between the businesses, with sites such as Kuching, Portland and our polysilicon facilities in Texas and South Korea remaining with SunEdison and the semiconductor factories and our shuttered polysilicon facility in Merano, Italy allocated to SSI. SunEdison will retain FBR and solar wafering technologies and will license CCZ and diamond wire to SSI for semiconductor use. SSI will continue to have tremendous semiconductor IP in crystalline wafering and materials, including FP and SOI.

We arrived at this idea of subsidiary IPO because we believe each business is now positioned to stand and thrive on their own as separate companies, which wasn't the case before. This transaction maximizes value for SunEdison shareholders by allowing each company to focus on its core competencies and optimize its capital structure. Moreover, it will enhance access to capital for each company. SunEdison will have potential to monetize its remaining ownership in SSI and use the capital to fund solar growth. This plan will be good for our shareholders, provide better transparency into both businesses and create the opportunity for investors to invest in a single industry.

Our Solar Energy business has evolved to be one of the top 3 global developers. Our focus remains on downstream solar project development to drive future value and in that context, with keen focus on our high-value flow businesses, including distributed generation, services and energy sales, which will enhance our sustainable business model. We remain committed to our 4 40 goal of a 400-watt peak module at $0.40 per watt peak by 2016 in an asset-light fashion. Based on our effective positioning and strong brand, we will continue our growth in 2014 and estimate an 80% increase in megawatts installed year-over-year up to about 8 gigawatts.

Before I turn the call to Brian, I would just like to say what a momentous day I believe it is as we begin this IPO process. I'm extremely proud of our teams and incredible progress that they have made evolving our businesses over the past few years, improving operational efficiencies, purposefully managing cash and significantly improving our market share and overall positioning. I'm excited to be taking this first step and look forward to continuing this next evolution of our business.

With that, I'll turn it to Brian to further discuss the Solar Energy business and provide our business outlook. Brian?

Brian Wuebbels

Thank you, Ahmad, and good morning, everyone. If you turn to Page 9, the information in this slide is similar to what we've shared with you during our prior earnings conference calls. Our pipeline and backlog continue to remain strong. At the end of the second quarter, our backlog was 1 gigawatt, of which just over half was in North America, and our pipeline was 2.9 gigawatts and globally diverse. From Q3 2013 through Q3 2014, we expect to deliver over 1.1 gigawatts, of which nearly 60% is supported by projects currently in our backlog. The remainder is expected to come from projects that convert from pipeline to backlog in the next couple of quarters or short-cycle distributed generation projects, most of which don't ever appear in our backlog.

While you'll remember -- sorry, while we had 200 megawatts of projects under construction at the end of the second quarter, and we shared with you on our second quarter earnings call, we now have 411 megawatts of projects under construction as of August 31. We expect our linearity in the quarterly project completions to improve starting in Q4 and into 2014, with the growth of our flow business. Our flow businesses consist of revenue from distributed generation projects, operations and maintenance of solar systems and the sale of energy.

Now if you turn to Slide 10, during our Capital Markets Day back in March, we discussed for the first time our flow business strategy, which is aimed at reducing quarter-to-quarter volatility in our solar projects business by growing more consistent revenue streams. This will enhance the solar segment margin potential and lower the working capital requirements for the business. As evidence of our growing momentum in these flow businesses, in Q4 2013, we expect about 49 megawatts of our completions to be DG projects. We feel good about our Q4 project development progress. We anticipate completing over 330 megawatts in Q4, which consist of over 68 projects. As I mentioned on the previous slide, 411 megawatts of projects are currently under construction to support this activity into Q4 and beyond. And finally, 81 megawatts will be projects retained on our balance sheet in the fourth quarter.

Now if we turn to Slide 11. I would like to discuss our outlook for the third quarter. We expect Semiconductor Materials revenues to be in the range of $220 million to $240 million versus our previous guidance of $240 million to $260 million, driven by reduced demand primarily for logic semiconductors. We expect total solar project volumes to be in the range of 60 to 80 megawatts. As we discussed on our quarterly earnings call, there were 2 large projects at risk of slipping into fourth quarter. We now expect that one of these projects will, in fact, slip into the fourth quarter. However, in addition, we have decided to keep certain projects in Asia on our balance sheet with the intent of selling them into a public vehicle in early 2014. These projects will help us achieve the critical mass needed to form and issue one of these accretive public vehicles. Solar projects retained on the balance sheet are now expected to be 15 to 25 megawatts, up from the 0 to 10 megawatts, driven by our decision to keep this project on our balance sheet. Projects completed include projects sold and projects held on our balance sheet.

For the third quarter, we now expect our total project completions to be 75 megawatts to 105 megawatts. Fully developed project ASP is expected to be in the range of $3.25 to $3.50, no change from our previous guidance, and CapEx will remain in the $30 million to $40 million range. For the full year 2013, we expect Semiconductor Materials revenues to be $920 million to $960 million, down from the $940 million to $980 million, again due to the reduced demand of logic semiconductors. Our full year 2013 project sales remains unchanged at 430 to 500 megawatts.

We are increasing our range for projects retained on our balance sheet to 75 to 100 megawatts. Project pricing is expected to be in the $3.10 to $3.40 range, unchanged from our prior estimate, and this includes all projects, both fully developed and EPC projects from earlier this year. For the full year, we now expect our total project completions to be 505 megawatts to 600 megawatts. Our CapEx forecast of $120 million to $140 million remains unchanged, and we'll continue to be focused on our Semiconductor business.

Now let's flip to Slide 12. In 2014, we are planning on selling 750 to 900 megawatts of solar energy systems, with 50 to 150 megawatts of solar energy systems, again, to be retained on our balance sheet. This would translate to 80% year-over-year growth, with total system completions for 2014 of 800 to 1,050 megawatts. We believe that we have a sustainable business model that will drive continued megawatt growth into 2015. And our target model should reach 250 to 400 megawatts per quarter at that time.

Our growth is sustainable into 2015 and beyond because of the global platform we have built, including large and growing opportunities in Latin America and Asia, in addition to new markets, such as the U.K. and Middle East. This is due: one, to continued pipeline growth. Last quarter, we added 249 megawatts to gross pipeline, and over the last 4 quarters, we have averaged 270 megawatts of gross pipeline growth for each quarter; two, building of our flow business, including distributed generation, O&M and energy revenues; and three, funding from the capital markets in the form of 1 to 2 public vehicles we plan to launch in 2014. As I mentioned earlier, we have already started to seed one of these platforms with solar projects in Asia that we'll be keeping on our balance sheet.

And with that, I will now ask the operator to open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today comes from the line of Jagadish Iyer from Piper Jaffray.

We'll go to the line of Sanjay Shrestha with Lazard Capital.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

I've got a couple of questions. First, on -- when I think about sort of the system that you guys are retaining on the balance sheet, right, can you remind us, at the end of 2013, what would be the total megawatt number on your balance sheet?

Brian Wuebbels

So at the end of last year, we had about 80 megawatts on our balance sheet, and we'll retain another 75 to 100 this year. So we'll be close to 200 megawatts on our balance sheet.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Got it, okay. Now in terms of sort of IPO of the Semiconductor business and when we look at the target business model for SunEdison, right, and thank you for all the sensibility by the way, 250 to 400 megawatts a quarter, can you, once again, talk about what should -- what is sort of the optimal capital structure in your mind after the IPO of the Semi business is done? What do you envision that to be to be able to support this kind of a megawatt of installation on a quarterly basis?

Brian Wuebbels

Yes. Obviously, there's a lot of things we can't talk about as far as the IPO due to the SEC rules and not having the final capital structure put in place. But clearly, we will look for an opportunity to optimize that capital structure post this IPO. We think that the proceeds that this will provide us, as well as the opportunity to recapitalize the business, will definitely strengthen the position of the solar business on a go-forward basis and allow us to continue to grow the business very successfully.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Okay. Okay, fair enough. Yes, we can't get into a lot of detail at this point. But one final question, guys, since I have you guys on the line here. So when we think about the OpEx distribution now between Semiconductor business and the SunEdison business, I mean, haven't had a chance to completely go through the S-1, I can probably back into it. But what would that look like from an OpEx standpoint? What is the OpEx allocation to the Semi business versus the SunEdison going forward?

Brian Wuebbels

Yes. So as we've said before, corporate OpEx, which is the standalone OpExs of the business will be exactly the same. You will have a bit of incremental cost in the Semiconductor business as a public company, pretty small number. But you will -- we have about $25 million a quarter of corporate expenses, right? So you'll see it in the S-1, but that likely allocation is probably in the 2/3 will remain with SunEdison and 1/3 will be with the Semiconductor business. It's in that range.

Operator

Next question comes from the line of Shahriar Pourreza with Citigroup.

Shahriar Pourreza - Citigroup Inc, Research Division

Let me -- there's a few moving parts here, but just on the IPO of the Semi wafer business, is the ultimate goal to completely exit your position from a SunEdison standpoint?

Ahmad R. Chatila

This is Ahmad. We have not made that decision. We will optimize this decision as time progresses. This is only a first step. It's a good step. It's a strategic step. But we have not made that consideration as a final thing yet.

Shahriar Pourreza - Citigroup Inc, Research Division

Okay. And then, let me ask you, so that's 1 of 2 public vehicles you discussed. Assuming the second public vehicle would be something similar to what a yield co is, correct?

Brian Wuebbels

Well, Shahriar, actually, the 1 to 2 public vehicles is not this IPO. We intend to launch 1 to 2 public vehicles solar-project specific in early 2014.

Shahriar Pourreza - Citigroup Inc, Research Division

Let me ask you, so with 1 to 2, are you refer -- are they regionally diverse? Is it -- I guess I'm trying to figure out, I mean, with the yield co, you need some scale. Is the question are you going to regionally, I guess, segregate these 2 vehicles? Or how are you thinking about that?

Brian Wuebbels

Great question, Shahriar. So I -- of course, a little early to give you all the details, but let me share with you 2 different ways to look at it. Absolutely regional diversity is one way to look at it. We believe certain markets and certain investors will appreciate the value of assets in their regional area, more so than on a global basis. So there definitely is a regional aspect to our efforts. And the second aspect that I would tell you is that it's based upon the types of projects, right? We participate along the entire spectrum of very small systems in commercial through very large systems in utility, and we see there to be optimization across the size of those projects as well, depending on the type of public vehicle that we pursue. So hopefully, that helps give you some color as to how we're thinking about it, and there absolutely will be more to come in future calls.

Shahriar Pourreza - Citigroup Inc, Research Division

Okay, great. And just one last question. Have you broken out your captive assets that you're holding on the books, specifically for North America and Asia?

Brian Wuebbels

We have not.

Operator

We will try to open Jagadish Iyer's line again with Piper Jaffray.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Two questions, Ahmad. So just wanted to understand, you made prepared remarks saying that this is the best time for the businesses to be separated. So how should we be thinking about long-term profitability, if you are going to be looking at greater than 250 megawatts for your business as you kind of separate out the Semi business? How should we be thinking about at least the operating margins in terms of how you see that at least over the next 12 to 18 months or beyond?

Ahmad R. Chatila

Yes. I will give this one to Brian on your first question.

Brian Wuebbels

Yes. Jagadish, I think we've talked about this before. Absolutely, as we continue to grow megawatts, we expect to get the leverage over our operating expenses that you would see in the business. We still believe targeting the model gross margins in the 20% and greater is exactly the right way to look at it. And you will certainly see leverage on the OpEx beyond what we're getting today as we continue to grow the business very efficiently. So I think we've never really given true operating margin guidance. But certainly, double-digit operating margins is not out of the question once you get to those levels of megawatts.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

And I don't know whether you can answer this question, but this relates to the Semi business. Given that your market share has hovered around, say, between 10% and 12% or in the low-teens, let's say, how should we be thinking about overall in terms of improving market share as they move to a standalone entity?

Ahmad R. Chatila

Yes. Well, thanks. Look, I mean, we have improved market share from 2009 from the single digit to now close to 12%, 13%, and we have done it through, I would call it, grind, every day coming to work doing small things right, and we will continue with that. I think probably the most important thing for investors to think about is we will improve the service and reduce the cost of the business and then continue, under the leadership of Shaker, to improve its cash flow and profit. If you think about the last 4 quarters, the team has done a great job in a very difficult market to generate cash and be profitable, unlike some other competitors that they have. So that's how you should think about it. Just incremental improvement in market share like they have done the last 4 years. I think the momentum is still there, maybe not every quarter but over the horizon and improvement in cost and service. Thank you.

Operator

Our next question comes from the line of Jeff Osborne with Stifel.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Just a couple of questions on the polysilicon side and the decision to leave that with the SunEdison side. I was always under the impression that the bulk of the Pasadena outfit went to the Semiconductor unit. So I was wondering if you can just a, address that and b, talk about if there'll be a long-term contractor or how we should think about that and just the rationale of putting it in with the solar piece of the business in the first place.

Ahmad R. Chatila

Yes. Let me share with you the rationale. If you look at the Semi business, it gives us maybe 2,000 to 3,000 tons a year of polysilicon. Solar in -- at least in '14 will use 2 to 3x that, and that will continue to rise over time. So the bulk of the polysilicon will come -- will be used in solar. And since Pasadena is very important for SPR technology, we felt that the IP and manufacturing should stay within the solar business.

Operator

And we have a question from Stephen Chin with UBS.

[Operator Instructions] Next question is from Ana Goshko with BofA ML.

Ana Goshko - BofA Merrill Lynch, Research Division

It's with Bank of America. On this legacy SunEdison solar business and in terms of the new capitalization, a couple of questions. One, the new public vehicles that you're speaking about, the yield vehicles, so I'm assuming those will be capitalized in the debt market. Just wanted to understand kind of what aspect of the debt market you're expecting to tap. And then, secondly, there's been a bifurcation of your recourse debt and your nonrecourse debt, particularly in the solar business. Want to understand what you think your recourse needs will be and what kind of liquidity you want to maintain and the incentives in the solar piece of the business.

Brian Wuebbels

Ana, thank you very much. Brian. So I'll answer the second question first, and then we'll go back to the first one. Clearly, today, the ability to raise nonrecourse debt for our projects we've been very, very successful at it and at very, very competitive cost of capital rates. So clearly, through this process, my view would be that we would continue to optimize that structure. And to the extent that nonrecourse debt is, what I would call it, at better terms today, we will continue to pursue that. And I would love to get to much less leverage on a recourse basis for the company on a go-forward basis. I think that's the right model. At least in the medium term, that creates the best answer. Now longer term, that may be a different situation. But today, we feel like getting less leverage on the recourse side is beneficial. The yield vehicles are very similar to those that have been publicly announced. So you're actually talking about a listing, an actual public listing of these assets, where you would raise the equity and get debt or leverage put on these projects on a nonrecourse basis as part of those vehicles. So that's what we speak of in those types of vehicles. We're actually talking about accessing the public markets very similar to -- at least one of the vehicles will be very similar to a deal that was announced just a few months ago. So that's the thought. Hopefully, that answers your question.

Ana Goshko - BofA Merrill Lynch, Research Division

Okay, and yes. And then, so the S-3 that was filed today, the mid shelf for the SunEdison Solar business, is that related to the public vehicles that you're speaking of?

Brian Wuebbels

Yes. I mean, look, at the end of the day, our view is that having an updated S-3 and an accelerated shelf registration is the right corporate policy to maintain. We hadn't updated that in a while, and we believe it's important through these types of transactions announcements to maintain our flexibility from a financial point of view. So that was really the motivation.

Ana Goshko - BofA Merrill Lynch, Research Division

Okay. And then I just wanted to clarify. I think it was pretty clear, but just for the removal of any doubts. So the existing capital structure, the revolver, the second liens and then the 7 3/4% notes, those are all going to be redeemed and recapitalized?

Brian Wuebbels

Yes. I mean, once the IPO becomes effective, those would be -- that would be a triggering event that would require recapitalization of those current facilities or bad debt.

Operator

Next, we'll go to the line of Krish Sankar with Bank of America Merrill Lynch.

Krish Sankar - BofA Merrill Lynch, Research Division

I had a few of them. First, on the Semiconductor business, the outlook that you guys lowered slightly, you guys said that was mainly due to logic -- weakness in logic. Last week, Sumco had an analyst briefing, where they said pricing is going to be pretty much flat. So I'm just trying to wonder, is this all demand related or is there anything on the currency side that you've seen to lower your Semiconductor outlook.

Brian Wuebbels

Yes. Krish, great question. Thank you. It's demand related. I mean, as we mentioned on our last earnings call, we were seeing a lot of uncertainty in the marketplace. There are many segments. And you guys would have seen that in your conference last week, where people were speaking strength in certain parts of the segment, and in other parts of the segment, there's just not. And I see it more as that sort of short-term kind of oddity in the marketplace right now more than anything else. The share position of the company is very good, and I don't see it as anything more than that right now, Krish.

Krish Sankar - BofA Merrill Lynch, Research Division

Got it. All right. And then, on the 2014 outlook of like roughly 800 megawatts, almost a little like 1 gigawatt, can you talk about how you see the geographical breakdown on that and how much of that would be DG?

Brian Wuebbels

Yes. Great question, Krish. It will be very similar to our current backlog makeup. A majority of these projects will be coming out of our backlog that we currently have, and the remainder will come out of our pipeline. So if you look at that, about 50% of our projects are in the United States, with up to almost 60% if you add in Canada, and then the remainder is outside the U.S. And as we've talked about before, primary markets of growth are Latin America, Southeast Asia, South Africa. These are all areas that you'll expect more project volume in 2014.

Krish Sankar - BofA Merrill Lynch, Research Division

Got it. And then just a final question on the public vehicle thing. One of them definitely sounded like an Asian solar yield co. Just trying to wonder, when you start doing those things, how do you hedge for the currency risk? Because there could be potential substantial currency risk on these yield co, when you look overseas Asian projects. Is that right?

Brian Wuebbels

Well, I mean, it doesn't necessarily -- my implication was just that, it wasn't intended. But clearly, you'll look at any time we are dealing with transactions overseas, you're dealing with foreign currency. So I don't see that risk being any different than what we have today. We pretty well effectively manage it today through different vehicles, and so we feel pretty comfortable that this is an area that we'll be able to solve. Again, being a global company like we are today, we see these risks today, and I don't see them being incrementally more of an issue if we were able to do some sort of a financing vehicle or anything else overseas.

Krish Sankar - BofA Merrill Lynch, Research Division

Got it. All right. And then just a quick one, what is semiconductor factory utilization?

Brian Wuebbels

I think at the end of the second quarter, we said our factory utilization was in the...

Chris Chaney

Yes, upper 80s.

Brian Wuebbels

Upper 80s.

Operator

Our next question is from Brian Lee with Goldman Sachs.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

I had 2 on the IPO and then just one on the outlook. So maybe starting with the IPO. Firstly, on the thought process around allocating the majority of debt to SunEdison parent versus dropping it into the Semiconductor business. Can you guys help us understand that a bit better?

Brian Wuebbels

Yes. So Brian, we haven't made any decisions yet on how much debt will be allocated to one versus the other. Clearly, in the S-1 filing that you all read today, there are rules and logic, from an SEC point of view, that you have to follow on prior financials, right? So historically, how that stuff got split out, that has nothing to do with what our forward plans or strategies would be as to how we're going to capitalize the 2 businesses. So that's still to be determined. But you just have to appreciate there are very specific rules on how historical debt has to be allocated for carve-out financials.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Okay. No, that's helpful. And then on the $250 million target, does that represent an implied target ownership stake? Or is this being structured around a target for dollar proceeds? I'm just wondering how you're thinking about the valuation sensitivity.

Brian Wuebbels

Yes. So obviously, we are still reviewing valuations with our board and with our advisors. And as that becomes clearer and as we get closer to the filing date, we put that target out there based on some preliminary valuation analysis and work that we did that had us as a minority owner in the company and at a sufficient level of proceeds attributed to the parent. So again, still deep into the weeds on valuation right now. And I think a bit too early given this was our first filing today, and there'll be subsequent SEC reviews and comments and information that we have to provide back. But over the next several months as we get much closer to a filing -- or sorry, a placement, in early 2014, we'll have a much better feeling for valuation.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Sure. Can I clarify something real quick, Brian? Are you floating a minority stake? Or are you hoping to just maintain a minority ownership stake?

Brian Wuebbels

Sorry, yes. Someone in the room just yelled at me, too. We intend, as the parent, to keep a majority stake. We are going to be floating a minority stake in the Semiconductor company.

Brian K. Lee - Goldman Sachs Group Inc., Research Division

Got it. That's what I thought, okay. And then just last one for me on the outlook. It seems like you guys are pretty confident around the visibility into volumes for next year. I appreciate the outlook for the system completions and megawatts sold for 2014. Can you guys give us any sense for what you're expecting pricing and margins relative to the mix that you've seen this year?

Brian Wuebbels

Yes. So I believe, and we've talked about this before, that certainly pricing will come down, obviously. But we feel very confident that we can maintain the 20-plus percent target margins that we've talked about in the past. When we look at the projects that are in our backlog and our pipeline today, where those projects are going to get executed and what those cost structures are, we feel very good about our ability to deliver on those target margins.

Operator

And we have a question from Patrick Jobin with Crédit Suisse.

Brandon Heiken - Crédit Suisse AG, Research Division

This is Brandon Heiken on behalf of Patrick Jobin. Can you talk about your cash flow outlook in the fourth quarter with the project development ramp, specifically your investments in working capital, the balance sheet projects and any other capital needs you may have before the public vehicles are launched?

Brian Wuebbels

Yes. I mean, I think we still feel very confident with our liquidity position this quarter, as well as heading into the next quarter. And obviously, with the much larger megawatts term-outs, you should expect positive cash flow in Q4.

Brandon Heiken - Crédit Suisse AG, Research Division

Okay. And can you talk about some of the allocation -- I need to pull up the slides, if we're able to access them. But the Samsung JV and any of the other JVs that you have, how will those be allocated between the 2 segments?

Brian Wuebbels

Yes. So the Samsung joint venture will be retained with the parent. As Ahmad mentioned, the FBR technology we see as extremely valuable. The Samsung joint venture is a classic example, right? We're able to monetize that technology, and we see more opportunities in the future to continue to monetize that technology. So that will remain with the parent. The only other joint venture is the -- obviously, the Semiconductor joint venture that we have with Samsung will remain with the Semiconductor business.

Operator

Next, we'll go to the line of Mahesh Sanganeria with RBC.

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

So one question on the Semi outlook. I mean, we have heard about inventory correction in the Semi segment, and you're definitely guiding along that line. My question on Q4, your guidance still shows a sequential increase in revenues, where we know that's Semiconductor's seasonally weak quarter. So what gives you that confidence to guide sequentially higher Semiconductor revenue in the December quarter?

Brian Wuebbels

I'll take that one. So look, as we said earlier, we're seeing short-term pressure in logic is primarily the area that we're seeing. We are seeing strength in other segments, and so that's kind of the basis of our guidance on a go-forward basis. I think the world has not behaved normally for the last 2.5 years in Semi, and the typical quarter-to-quarter cycle that we've seen have not always held in the last couple of years. So again, that's the area that we see a little bit of weakness, but we feel pretty confident about our guidance.

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

So just to follow up again on the Semiconductor business. If the demand -- like, you mentioned that the demand side has been a little bit unpredictable and if the demand remains at current level for a couple of years, so what are the levers in the business to improve the profitability considering that you have recently restructured the business? And so do you have more levers there to improve the profitability?

Ahmad R. Chatila

Yes. I'll take that one. First of all, we don't expect the demand to stay the same for 2 years, but we have levers on cost reduction. And also, as you can see that our market share has been incrementally improving over 4-year horizon, we don't expect that to stop. So because of market share improvement and cost reductions and we don't expect the overall total demand of the industry to stay flat, I think we -- there's some levers in that business.

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

So one final question on the solar material business. What's your long-term plan? Is -- do you still want to have -- besides -- I mean, besides the Samsung JV, the FBR JV, do you want to have a presence in the material business on a long-term basis?

Ahmad R. Chatila

Yes. That's an easy answer. The answer is absolutely, but in an asset-light fashion. We will not spend significant amount of money on CapEx. But with our technology and with, in a way, brain-intensive efforts, we are able to reach our goal of $0.40 per watt in 2016 yet not spend so much money on CapEx. The Samsung JV is a good example of that and potentially, more to come. So we believe that giving the development teams a forward cost curve to lock in pipeline, which allows us to grow much faster than the industry, is essential, but we don't want to spend our money on it. Really, we don't build factories that's -- with our own cash. We will not do that. We will use other people's money to do this.

Operator

[Operator Instructions] And we will go to the line of David Epstein with CRT Capital.

David Epstein - CRT Capital Group LLC, Research Division

Regarding your senior notes, you talked about refi-ing them, and obviously, they're callable at something well above par. But then also as far as the change of control put at 101, did you folks say that you were of the mind that it would be triggered? I know in the indenture, there are certain conditions like changing of the majority of the board of MEMC or the old majority no longer persists. But can you clarify if it's change of control? And what triggers that change of control?

Brian Wuebbels

Yes, David. Thank you. Yes, it's our belief right now that given the 1/3 of the business and the assets that would be part of the Semiconductor business that will now be in a separate public company, that will be a triggering event for the indenture to require recapitalization. So that's the point.

David Epstein - CRT Capital Group LLC, Research Division

Will the board -- will there be significant change in the board of MEMC?

Brian Wuebbels

I don't -- sorry...

Ahmad R. Chatila

I'll take this one.

Brian Wuebbels

Go ahead.

Ahmad R. Chatila

I'll take this one. The answer is no. SunEdison will not change its board. But the exciting thing is on the SUNE board that we can add some new personalities there that really can enhance that business. Brian will be on the board, as we said, and Shaker, and we hopefully can add some people who can add a lot of value to that business in a focused fashion.

Operator

Gentlemen, there are no further questions at this time.

Chris Chaney

Well, thank you, everyone. We'd like to conclude this morning's call, and I hope you have a great day. Thank you.

Brian Wuebbels

Thanks.

Operator

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T executive teleconference. You may now disconnect.

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