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Executives

Mark Murphy - Chief Financial Officer and Senior Vice President

Christopher Chaney -

Ahmad Chatila - Chief Executive Officer, President and Director

Analysts

Paul Leming - Ticonderoga Securities LLC

Vishal Shah - Deutsche Bank AG

Mehdi Hosseini - Susquehanna Financial Group, LLLP

Stephen Chin - UBS Investment Bank

Nimal Vallipuram - Gilford Securities Inc.

Brian Lee - Citigroup

Sanjay Shrestha - Lazard Capital Markets LLC

Richard Grasfeder - RBC Capital Markets, LLC

Krish Sankar - BofA Merrill Lynch

Edwin Mok - Needham & Company, LLC

Hari Polavarapu - Auriga USA LLC

Timothy Arcuri - Citigroup Inc

Jesse Pichel - Jefferies & Company, Inc.

Satya Kumar - Crédit Suisse AG

Theodore O'Neil - Wunderlich Securities Inc.

John Hardy - Gleacher & Company, Inc.

Christopher Blansett - JP Morgan Chase & Co

MEMC Electronic Materials (WFR) Q2 2011 Earnings Call August 3, 2011 5:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MEMC Second Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Chris Chaney, Director of Investor Relations. Please go ahead.

Christopher Chaney

Thank you, and good afternoon. Thank you for joining MEMC's Second Quarter 2011 Earnings Conference Call. I am Chris Chaney, Director of Investor Relations. With me today are Ahmad Chatila, President and Chief Executive Officer; and Mark Murphy, Chief Financial Officer. After my remarks, Mark will review the details of our second quarter results, then Ahmad will take comments -- will make comments on our trajectory heading into 2012. Both Mark and Ahmad will reference slides that we have made available in the Investor Relations section of our website at www.memc.com. Also on our website, you will find our earnings press release and the announcement of our acquisition of Fotowatio, both published today after the market closed.

Before we begin, please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statement contained in the earnings release and slides published today for a more complete description.

Mark, the floor is now yours.

Mark Murphy

Thank you, Chris, and good afternoon, everyone. Now that Chris has reviewed the logistics and cautionary Safe Harbor statement, I will provide you with a detailed assessment of our second quarter performance, then address guidance. Ahmad will then provide you with an overview of our business and a general outlook for the remainder of the year.

My comments will reflect the press release and attachments we released after market close, and will reference the second quarter 2011 earnings call conference call presentation, which we posted on our website. These documents can be found at www.memc.com.

Please turn to Slide 2. As outlined in the agenda, I will first review second quarter 2011 results and provide some detail on unusual items that affect the quarter. I will then discuss the operating results of each of our 3 business units and then address cash and our balance sheet. I will conclude with a discussion of our 2011 guidance.

Please turn to Slide 5 entitled Q2 2011 Summary Results Non-GAAP. Before reviewing the P&L, I think it's important to remind you of the non-GAAP measure introduced last year. In general terms, because we often procure the land for SunEdison projects and because the land is deemed to be integral to the land on which the project sits and because we often have an ongoing relationship with the plants we build through operations and maintenance contracts, many of our projects fall under real estate accounting rules, including both our direct sale and MEMC-financed projects. To better describe the operational performance and cash profile of SunEdison and to provide increased transparency, last year we introduced non-GAAP adjustments to revenue and certain expense items. The adjustment essentially treats all direct sales and sale leaseback transactions as if they are current-period sales under traditional SAB 104 revenue recognition. The adjustment is entirely contained within the SunEdison segment. Over time, we expect non-GAAP EPS to approximate GAAP EPS.

GAAP revenue in the second quarter was $746 million and GAAP EPS was $0.21. Non-GAAP adjustments to add back non-cash real estate accounting deferrals on direct sales and to adjust for lease accounting in the sale leaseback transactions increased non-GAAP revenue by $34 million. Non-GAAP revenue in the second quarter was $780 million, and non-GAAP earnings per share was $0.29. Both GAAP and non-GAAP revenue included $149 million from the SunTech contract resolution we announced several weeks ago. Another $29 million of deferred revenue associated with second half volume with SunTech is expected to be realized in the second half.

Non-GAAP gross profit was $197 million or 25% of non-GAAP sales. Excluding the SunTech resolution and unusual charges to be described later, our non-GAAP gross margin was approximately 19%. Non-GAAP operating income was $67 million or 8.6% of non-GAAP sales. The SunTech warrants had a negative valuation adjustment of $2 million in the second quarter based on that company's stock price. While we don't include the fluctuation of another company's stock price in our guidance, the value of these warrants reflected in our books is very low, and the valuation risk from here is limited.

After-tax effects, equity income and minority interest, our GAAP net income was $0.21 per share. Again, our non-GAAP net income was $66 million or $0.29 per share, which I'll walk through in a net income walk later in the presentation.

Overall, we were pleased with our results, especially in light of the challenging market environment, which included significantly weaker solar wafer pricing and uncertain solar demand especially in Europe. Our business units responded aggressively to the market environment, and we'll cover restructuring and other actions in greater detail on the walk slide.

Please turn to Page 6 entitled Variance (Non-GAAP). This table compares our second quarter 2011 results to our first quarter 2011 results, as well as to our second quarter 2010 results. Non-GAAP revenue declined 6% sequentially and was up 68% compared to the second quarter of 2010. Excluding the SunTech resolution, sales were down 24% and up 35% year-over-year.

On a sequential basis, revenue was down, first due to price weakness in Solar Materials. Solar industry wafer pricing overall declined approximately 40% over the last several months. Secondly, seasonally lower interconnections at SunEdison occurred, which historically tend to be much stronger in the second half of the year.

Year-over-year revenue was up 66%, driven by all 3 of our business units, especially our solar energy business units. Solar Materials benefited from the previously mentioned SunTech resolution, while higher solar wafer volumes and other product volumes were offset by pricing declines. In SunEdison, higher solar system sales more than tripled year-over-year on higher solar systems installations.

Second quarter non-GAAP gross margin was 25%, up over 700 basis points from the first quarter of 2011 and up over 800 basis points from the second quarter 2010. Gross margin was boosted by revenue from the SunTech contract resolution. Excluding the SunTech contract resolution, gross margin was approximately 19%.

Operating expenses of $129 million were $15 million higher sequentially and $56 million higher compared to the second quarter 2010. One-time charges including restructuring added approximately $19 million of costs, with the remaining increase from continuing to invest in resources to support growth, most notably SunEdison.

Please turn to Slide 7 entitled Q2 2011 EPS Walk. Our second quarter was impacted by several unusual items. The primary item was the SunTech contract resolution. This was partially offset by several charges detailed in the EPS walk on this page. Beginning with the non-GAAP net income of $66 million or $0.29 and moving to the right, the SunTech contract resolution provided a net $0.52 per share when considering the recurring portion of this transaction.

As Solar Materials market conditions deteriorated through the quarter, we initiated restructuring of 2 major contracts, resulting in a $0.16 per share negative impact. Expenses related to recovering from the Japan earthquake resulted in a $0.04 negative impact. Low production levels in our ramping Kuching wafer facility and lower wafer prices resulted in a $0.06 per share negative impact we do not expect in the remaining quarters. Lastly, a number of restructuring actions, including in Italy, the U.S. and other locations to better align our global cost structure at current market conditions, as well as other items, resulted in a $0.03 per share negative impact. Showing these one-time charges, we estimate our ongoing earnings per share at $0.06 in the second quarter.

Please turn to Slide 8 entitled Q2 2011 Segment Highlights. Now I will review the operating results for our 3 business units. Both the semiconductor and solar energy industries faced significant challenges in the second quarter; much of this we could not control. As a company, we continue to focus on what we could control; activities that will put us in a stronger position going forward.

In our Semiconductor Materials segment, we recovered from the Japan earthquake. Our facility in Japan is now operating at pre-earthquake levels. We also completed our 50,000 wafer per month manufacturing expansion in Korea, positioning us to better serve our customers and drive additional 300-millimeter market share gains. We continue to ramp our 200-millimeter facility in Ipoh in preparation for the closure of higher cost facilities. Transitioning production from higher cost facilities to our Ipoh, Malaysia factory will help us achieve our cost reduction targets in 2012.

Our Solar Materials business performed well despite a 40% decline in market prices during the quarter, and demand from SunEdison helped offset what would have been a greater solar wafer unit decline in the quarter.

In our SunEdison business, we drove strong pipeline growth, which I will discuss in more detail in a moment. We are on pace at this point to more than double megawatts interconnected this year and continue to make progress in minimizing working capital requirements.

Please turn to Slide 9 entitled Q2 2011 Semiconductor Materials. Semiconductor Materials revenue grew 9% or $24 million sequentially. This was due to double-digit volume growth despite the earthquake impact to our Japan factory in April, somewhat offset by lower pricing primarily due to mix. Second quarter revenue grew 10% year-over-year, driven by higher pricing and modest volume improvement. Semiconductor Materials operating profit declined $5 million sequentially, driven largely by $14 million in charges from the Japan earthquake and $8 million from restructuring charges related to Italy and the United States. Excluding these charges, Semiconductor Materials profit would have been up $8 million sequentially, driven by volume productivity improvement.

Year-over-year, Semiconductor Materials operating profit was down $21 million, again driven by earthquake effects, restructuring charges. Excluding charges for restructuring and the Japan earthquake the second quarter of 2011 and excluding a $1.4 million restructuring charge in the second quarter of last year, our year-over-year operating profit would have been up $8 million, driven by higher pricing and volume. We continue to make progress on our initiatives to increase productivity and improve our cost structure.

Please turn to Slide 10 entitled Q2 2011 Solar Materials. The Solar Materials business environment deteriorated significantly in the second quarter. Both pricing and volume were affected, generating volume and pricing uncertainty throughout the quarter. According to third-party industry reports, wafer pricing declined approximately 40% during the quarter. Our weighted average price decline was less at 17% as our long-term sales agreements helped reduce the impact of falling prices during the quarter and our relationship with the downstream provided leverage.

Solar Materials revenue was down $3 million sequentially as the additional revenue recognized from the SunTech contract resolution was more than offset by declines in wafer sales. The uncertain demand environment and subsequent overcapacity caused our wafer volumes to decline 40%. Operating profit was up $50 million sequentially, which includes an $82 million benefit from the SunTech contract resolution, partially offset by charges for supplier contracts, valuation adjustments on inventory and restructuring.

Excluding the net benefits, Solar Materials was $8 million, up despite sequentially lower volume and pricing. Year-over-year, revenue was up $155 million including the SunTech contract resolution as 10% higher wafer volumes were offset by price declines of 14%.

Solar Materials operating profit was up $70 million year-over-year. Excluding the previously mentioned $82 million net benefit, profit was down $8 million as higher volume was more than offset by lower pricing.

Please turn to Slide 11 titled Q2 2011 SunEdison. Because the adjustments defined by our non-GAAP metric are limited to our SunEdison business, all the financial numbers on this page are non-GAAP. Non-GAAP revenue was $181 million, comprised of $116 million of direct sales, $31 million of energy revenue and $34 million of non-GAAP adjustments. The non-GAAP adjustment of $34 million is comprised of $23 million of direct sales and $11 million of sale leasebacks. Non-GAAP revenue was down $74 million and operating profit was down $22 million sequentially, driven by lower interconnections that had come at this time of the year.

Historically, solar energy industry revenue is second half loaded. We expect this pattern to repeat in 2011. Going forward, one of our primary efforts is to drive better project revenue linearity from quarter to quarter. Quality pipeline acquisition, differentiated low-cost component inputs to that pipeline and then the staging of that pipeline for an execution is the means by which we intend to accomplish this.

Operating profit was lower sequentially due to fewer megawatts interconnected combined with higher operating expenses. Operating expenses increased for the quarter as we continued to invest for growth. With our second half SunEdison interconnection volume ramp, you will see a leverage on the operating expenses.

Year-over-year, non-GAAP revenue nearly tripled on strong solar energy system sales. Operating profits swung to a profit in 2011 second quarter from a loss from a year ago on significant volume growth, offset by a somewhat lower pricing.

Please turn to Slide 12 entitled Q2 SunEdison Pipeline Installations. The left side of the slide shows historical construction in our interconnections, while the right side shows a breakout of our pipeline by region and project size. Our pipeline grew again in the second quarter and stayed at 2.5 gigawatts on June 30. After careful consideration, we have decided to tighten our definition of pipeline. We consider a project in our pipeline when SunEdison has a signed or awarded PPA or other energy offtake agreement or has achieved each of the following 3 items: site control; an identified interconnection point with an estimated -- with an estimate of the interconnection cost; and an executed energy offtake agreement or the determination that there is a reasonable likelihood that an energy offtake agreement will be signed. We are doing this for conservatism and to better reflect the realities of our increased utility scale business and international expansion. We believe our more restrictive definition better represents the realities of the business situation.

Megawatts under construction have ramped substantially from 11 megawatts in the second quarter of last year to 160 megawatts in the second quarter of 2011. This metric provides an indication of second half interconnection trajectory. The construction ramp gives us better near-term visibility and greater confidence in our second half revenue. We interconnected 50 megawatts in the first half of the year and expect to interconnect over 280 in the second half.

Approximately 65% of our pipeline is in North America, the region with the most stable incentives. Approximately 22% of our pipeline is in Europe and Latin America and 13% in emerging markets, predominantly Asia. Our pipeline has become more diversified by size with approximately half of our pipeline in systems that range from 10 megawatts to 100 megawatts. Approximately 28% of our pipeline in systems of 1 megawatt to 10 megawatt, 11% less than 1 megawatt and 12% greater than 100 megawatts.

Additionally, today we announced the acquisition of Fotowatio Renewable Ventures, Inc. FRV is the leading producer, operator and owner of solar power plants. The company's solar portfolio includes 42 megawatts in operation with the U.S., including 14 megawatts at Nellis Air Force Base. In addition, FRV has 28 projects currently in various stages of development, providing SunEdison with up to 1.4 gigawatts of solar projects in the United States. This acquisition is not included in the figures on Slide 12.

FRV will significantly enhance SunEdison's market position -- positioning for solar energy, particularly in the U.S. utility market. The acquisition is expected to close in the third or fourth quarter of 2011, subject to customary closing conditions, including the receipt of regulatory approvals.

Please turn to Slide 13, Free Cash Flow. In the most recent quarter, we generated operating cash flow of $199 million. The combination of operating profit and working capital improvements were the largest driver of operating cash flow in the quarter. Accounts receivable fell by $112 million. And during the quarter, we continue to shorten the cash cycle for SunEdison projects by driving improvements in construction time, shortening turnaround periods and extending account payable terms.

Accounts payable balance at the end of the second quarter was $89 million higher compared to the prior quarter. In the second half of the year, we expect to support the significant ramp of SunEdison projects increasing through short-term working capital and construction financing in addition to a nonrecourse debt financing.

Capital spending was $103 million in the second quarter, about 1/2 that of the first quarter. The majority of this year's CapEx spend is now behind us as Kuching continues its ramp, and we've completed our 300-millimeter capacity expansion in Semiconductor Materials.

SunEdison project financing and construction of solar energy systems were both significant drivers of cash flow in the second quarter. Project financing includes cash proceeds from nonrecourse debt, as well as short-term construction financing.

Construction of solar energy systems consist largely of cash outlay related to the project construction for sale leaseback and debt-financed projects. Total construction spend in the second quarter is $174 million. We expect cash activities from both financing and construction spend to increase through the second half to support construction of SunEdison projects.

Now turn to Slide 14, Balance Sheet Highlights. We continue to remain disciplined and focused on maintaining a healthy balance sheet, with an emphasis on prudent cash management. At quarter end, our cash and cash equivalents stood at $652 million and combined with our $400 million credit facility, we had over $1 billion in liquidity from which to fund our growth.

On the liabilities side, our debt offering accounts were $550 million to $1.3 billion debt. Of the $716 million of nonrecourse debt, most of that is related to sale leaseback, solar energy systems of the assets on the left. We invest in areas where we know we have a competitive or technological edge, and we have a disciplined process in place to deploy our capital.

Now please turn to Slide 15, Non-GAAP guidance. Due to the volatile market conditions during the second quarter and the impact the environment had on our various segments, we are updating our 2011 outlook. Our revenue expectations of $3.4 billion to $3.7 billion is being revised to $3.3 billion to $3.6 billion. Our EPS guidance is also being revised to $0.80 to $1, down from our prior guidance of a $1 to $1.30.

There are several factors that could influence our results for the second half of the year. Among the risks that we see are solar wafer price and volume weakness and uncertain demand for semiconductor wafers. We also see some positive influence as well such as the demand pull and lower input cost at SunEdison and cost savings from the Semiconductor Materials restructuring and productivity initiatives. We will maintain tight control of our spending in cash during the second half.

We continue to believe we can have -- maintain a cash balance at year end comfortably over $500 million, and we will significantly lower our capital spending for the back half of the year relative to the first half.

That concludes my prepared remarks. I will now turn over the call to Ahmad for comments on his trajectory of MEMC.

Ahmad Chatila

Thank you, Mark. Good morning, and thank you for -- good afternoon and thank you for sharing your time with us today. I would like to talk about our outlook for the second half, our trajectory looking into 2012 and recap our businesses. This will give you a better picture of where we stand in the industry and why we are optimistic about the future.

Please turn to Slide 18. The business environment weakened in the second quarter in both our Semiconductor and Solar Energy businesses. We demonstrated a great deal of resiliency based upon the business model we have built over the past 2 years. That resiliency will add to our performance during the second half of the year. We are confident that the second half of the year we will expand our cash generation, drive net income of greater than $100 million and continue to grow our SunEdison pipeline. This momentum will carry into 2012.

And in 2012, we expect to further expand our cash generation, increase net income year-over-year and continue to grow our SunEdison pipeline. SunEdison's pipeline is growing quickly, offering us increasing stability in a volatile business environment. This pipeline is critical to the resiliency of our business model, and we're beginning to see it bear fruit. Overall, we are well positioned for the second half of the year and for improved performance in 2012.

Now please turn to Slide 19 titled Net Income Growth. The business has proven resilient under severe headwinds. This first half of 2011, the industry saw a 40% decline in solar wafer pricing, we recovered from the effects of the tragic earthquake in Japan and favorably closed a Semiconductor Materials lawsuit and digested indications of Semiconductor market softness in the second half of 2011. Despite these headwinds, we continue to forecast significant year-over-year improvement in net income in 2011. We will grow net income substantially in the second half of the year, and we expect this momentum to continue in 2012.

Now please turn to Slide 20. Historically, our Semiconductor business has been the core of the company. The legacy of technology and innovation is critical to all 3 of our business units. We have rejuvenated our Semiconductor Materials business and while it has not yet met our aspirational goals, improvement is significant. We have grown market share over the past 2 years, we further grow share in 2011 and expect to sustain those gains through 2012.

We have done this while improving ASP over the past 2 years. Segment operating margin has increased substantially and will continue to improve in 2012. We will generate positive free cash flow in second half of 2011 and expect us to grow in 2012. With carefully targeted investment, our Semiconductor Materials business is becoming a cash-generating engine for the company.

Now we'll discuss the Solar Materials business. Please turn to Slide 21. The present solar materials business environment is difficult. We cannot control an oversupply situation, so we focus on what we can control by building a resilient business that can thrive through industry volatility. We have invested strategically over the past 2 years to lower costs and reduce our reliance on third-party vendors. We have driven internal technology development and deployment from polysilicon through ingot wafer sell and module. We have done this internally and with partners, maximizing capital efficiency. This is enabling us to reduce dependency on external suppliers. We are on track to drive an optimal mix of internal versus external sourcing in 2012, balancing internal capacity utilization with cost management. This is revitalizing our manufacturing base. Hence, what is most important to gauge our progress is our module costs. We expect to drive fully blended module costs to less than $1 per watt in 2012. These costs includes SG&A, cost of working capital and interest expense. We will have solar wafer capacities scalable to 3 gigawatts with limited capital spending. And with investments made, we will substantially reduce capital spending in 2012 and drive positive free cash flow.

Controlling our supply chain costs is critical. It helps us enable our SunEdison business. A great deal of pipeline growth is enabled by having a long-range view of module and balanced system costs. All of this ensures lower input costs and higher project returns with a growing pipeline, helps us navigate industry volatility.

Now discussing SunEdison business, please turn to Slide 22. A strong pipeline enables our solar energy business. In the second quarter, we grew our pipeline substantially. As of the end of June, our pipelines stood at almost 2.5 gigawatts. We believe that geographic and market segment diversity are critical to business visibility and stability. Over 60% of our pipeline is in North America. The remainder is -- of our pipeline is spread between Europe and Latin America and emerging markets, predominantly in Asia. Historically, SunEdison has excelled in commercial system installations. You can see that our market segment diversity is now more optimally spread across small, medium and large-scale systems. We participate in all market segments and have proven our ability to do so with systems as large as 70 megawatts. To remind you, that data does not include Fotowatio acquisition made today.

Please now turn to Slide 23, the significant turn that many of you have expressed in the scalability of the business model. A key metric to track is operating expense per watt. We have built a business that leverages operating expenses. Our OpEx declined substantially with increasing installations. We have shown this into 2011. It will accelerate through the second half of the year and continue in 2012. This is critical for scalable business, and we think we will offer an advantage over business models that neglect this key relationship.

Now on Slide 24. We'll talk about the networking capital optimization effort that we've been going through. Another significant concern many of you have expressed is management of working capital-intensive business in a high-growth environment. So on Slide 24, we'll show you that we have addressed this aggressively and have driven construction cycle time and term out cycle time down substantial. We are also optimizing payment terms to the value chain to better manage cash. With these primary levers, we will drive a significant reduction in our cash-to-cash cycles through 2011. This is obtainable and will enable rapid growth as we execute on projects from our pipeline.

Now on Slide 25, I want to review our investments over the past 2 years. We have focus on capital efficiency, differentiated technologies and integrated solar energy platform. The investments we have made reflect execution on a strategy we have defined. They've enabled us to build a resilient, scalable and flexible company. The pieces are now in place. Our investments will enable us to grow faster than the industry and substantially lower capital spending going forward.

And finally, Page 26, I want to give you a summary. Our investments have capitalized on the best-in-class technology, flexible capacity and capital efficiency. Our Semiconductor business is growing share and generating cash. Our solar energy business have established a technology-driven, industry-leading platform on a robust pipeline. We are now focused on refining the business model to drive sustained cash generation while growing rapidly. We have come a long way over the past 2 years, we will build on this going forward, and we are very optimistic about the long-term future of the company.

Now we'll be happy to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question from the line of Stephen Chin with UBS.

Stephen Chin - UBS Investment Bank

I had a couple of questions on the Fotowatio acquisition first, Ahmad. I guess the first question was can you share how much the Fotowatio portfolio has PPAs? I guess if we tried to count it, it looks like about 250 megawatts. Is that kind of in the ballpark? And of the 1.4 gigawatt pipeline, how much of that is in your category of over the 100-megawatt segment?

Ahmad Chatila

All right. I'm not ready to answer these 2 questions. We will get back to you on that. We actually did not put it in our numbers on purpose because we need to review the pipeline in a little bit more detail to make it fit into our own model. I think your numbers could be in the ballpark, but we need to get back to you on that, Steve, okay?

Stephen Chin - UBS Investment Bank

Okay. And then just a follow-up question on the full year guidance, Ahmad. If I do the math, it looks like you need to print an operating margin of around 13% or so in the second half to hit the midpoint of the EPS guidance for the year, which looks a little bit higher than the long-term model. So I was wondering if you could share some color on how you think you can make that happen. Is it mostly coming from SunEdison and Semiconductors and could that be enough to offset solar?

Mark Murphy

Yes, I'll take that question, Steven. We are expecting margins to improve in the second half of the year, a combination of factors, productivity initiatives in all businesses: Semi, Solar and SunEdison. As we talked about just increasing leverage on our fixed cost is probably the biggest driver. We have, as you can see, large installations of SunEdison systems to be completed in the second half of the year and really not much of a cost increase. So that's the primary driver.

Operator

We'll go to our next question. That is from the line of Sanjay Shrestha, and he is with Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets LLC

Kind of a follow-up on the Fotowatio sort of proposed acquisition here again. So what was sort of the rationale here for you guys in terms of going forward with this? Was this sort of to add to the pipeline? Or did you feel like you folks needed additional numbers in your team that can diversify the portfolio from residential/commercial to the utility side of the business? What led you guys to sort of make this move here?

Ahmad Chatila

Well, actually it's both. Fotowatio, as you know, the team in North America is an elite team and definitely, they bolster our utility efforts. The second thing is the pipeline is pretty healthy. We will share with you a document at some point to show you what Steve actually asked before, which we didn't answer today like the sizes of the projects and all that. But it's actually very healthy. If you look at the IRR's potential, especially when feeding them with our own cost structure, they become pretty healthy. So a very, very good pipeline, very good team.

Sanjay Shrestha - Lazard Capital Markets LLC

Okay, great. So that brings me to a follow-up question, Ahmad. So you guys talked about potentially scalable 3-gigawatt DC Solar Materials capacity, right? So now, and that CapEx of less $500 million, I get that, but given the environment we're in with the massive oversupply of the -- on the wafering side and SunEdison and you guys being in the driver's seat with PPAs and benefiting from the low-margin cost, why would you even consider expanding on the wafering capacity side? Why not just be the buyer of wafer and module in this market or maybe just completely transfer it to SunEdison and capture a much better profit opportunity? What's sort of the thought process there for you guys?

Ahmad Chatila

Well, Sanjay, you've said it right. Frankly speaking, we don't need to add the capacity and we won't, meaning in case SunEdison becomes a very large business -- also that kind of strategy is a 50-50, inside and outside kind of strategy. So with the outside, we get help on working capital payment terms. If the costs are okay, even with a collapsed market, they're okay. I think we can do a lot better inside. As you can see from our fully blended costs of the module, you can see that and compare it to other people and add the SG&A and their interest expense and all that, and you can see it's probably very competitive. But absolutely, we don't have to add capacity. And if anything, now we have built the engine. So you're going to see -- even with the Fotowatio acquisition, you're going to see us generating cash going forward.

Operator

And our next question from the line of Vishal Shah with Deutsche Bank.

Vishal Shah - Deutsche Bank AG

Ahmad, if you look at the conversion rate of your existing pipeline, it looks like you've converted about 25%, around 25% of the pipeline and into the year into interconnections. And if I take a look at your guidance for pipeline activity in 2011 and add Fotowatio pipeline, it looks like you can do close to 1 gigawatt of installations in SunEdison in 2012. Am I reading that correctly? And can you also maybe talk a little about the pricing environment in the semiconductor business?

Ahmad Chatila

In the Semiconductors, Vishal?

Vishal Shah - Deutsche Bank AG

Yes.

Ahmad Chatila

Okay. Let me say 2 things. One, definitely, we're in the driver's seat. We're not saying today we're going to do a gigawatt next year by any means. We'll give you a guidance in the future. But we're in the driver's seat with building our own pipeline organically and acquiring Fotowatio. That allows us to decide whatever we have to decide. So we'll look at the environment, we'll look at the interest rate next years, we'll look at the overall working capital and we'll make that decision and will give you a guidance. But however, we're in the driver's seat. The Semiconductor business, the taxing environment, actually is very good. I'll tell you today that our pricing in Q3 and Q4 will be up, at least in Q3 for sure, and in many cases, both because we have negotiated for 6 months. The issue with Semi today is a wobbly demand. The markets are softening up in June, and we're not going to meet our growth potential that we want to meet, let's say it this way. But Semi business will substantially improve in the second half of the year versus the beginning of the year because of the earthquake and all that.

Operator

And we go next to the line of Satya Kumar with Credit Suisse.

Satya Kumar - Crédit Suisse AG

Just a little bit of a high-level question on Fotowatio again. Implicitly, you're saying that the ROI on buying Fotowatio is even better than accelerating your own internal pipeline, and that's despite the big declines that we're seeing in the market for panel pricing. Can you sort of walk through the cost of capital thought process that you've gone through as to why you want to deploy capital than the buy the asset as opposed to accelerating internal megawatts?

Ahmad Chatila

Yes, so let me tell you how, Satya, you should think about it. We actually mix between internal and external. Sometimes the size of the project is large, and we actually acquire pipeline. So that question actually was asked of me many times, I think that Jesse Pichel asked me many times before and I said the same. We buy projects from the outside. But this one was such a big one that we have to announce this. We think actually that many projects with our own cost structure, they look very healthy on an IRR perspective, so that's why we are looking at them. And we will continue to look at more. We're becoming more of an aggregator in the market. So people will respect our execution, they respect how we've been funding, they respect our cost structures. So they know we will make it. So when a project is there, they know that we have a good chance of executing.

Satya Kumar - Crédit Suisse AG

On the Solar Materials side, I was wondering that if I exclude the Suntech settlement, the onetime charges with the utilization and the purchase obligations, I get an operating income of about 4%, and I think you mentioned that your pricing was only down 17% versus market down 40%. I was wondering how you're thinking about the assumed margins in the Solar Materials business for the back half of the year in your guidance? Specifically into Q3, what are you assuming for pricing for you and volumes in Q3?

Mark Murphy

We haven't given specific guidance on the segment margin, but I will say that we do have lower average prices assumed in the third and the fourth quarter, still slightly above market but closer to market. So the price decline you saw 17% was an average price over the period versus the total drop, which is 40% for the industry. And third and fourth, we have built into our guidance that decrease to market, slightly above market actually.

Operator

And our next question from the line of Tim Arcuri with Citigroup.

Timothy Arcuri - Citigroup Inc

First of all, Ahmad, you had said that solar wafer volumes were down about 40% quarter-on-quarter. So it looks like you did maybe 250 megawatts versus like 415 megawatts in Q1, but if you look at all the customers there, production is flat to up. And so I'm wondering, did the majority of that product go into inventory because that was up quite a bit so you could almost account for all of that in inventory? And I'm wondering if that is where it went.

Ahmad Chatila

I really don't know where it went. I really don't know the answer. Are we talking about our own customers' inventory or our own inventory?

Timothy Arcuri - Citigroup Inc

No, I'm just kind of talking about -- you were sort of at a run rate, exiting Q1 of like 410 megawatts of wafer shipments, and you only shipped like 250 megawatts in Q2. And most of your customers' production was basically flat to up. So I'm wondering why your wafer volumes were down so much when your customers' production was flat to up.

Mark Murphy

Yes, Tim, we did have some inventory build, not a severe amount and an amount that we think we're going to be in this quarter and a very good position on inventory. So we did have some slight inventory build, but not an issue for third quarter.

Ahmad Chatila

Maybe the way you need to look at it, Tim, is we did not chase every volume that we can get. So actually if anything, we shut down a lot of our subcontractors and some spot market we used to buy so we don't have to sell every wafer that we can sell.

Mark Murphy

And Tim, just if we had had a -- if inventory had been a severe problem, we would've had a market price -- we would have a price below market, and we did not.

Timothy Arcuri - Citigroup Inc

And then, Ahmad, just to basically clarify the slide that talks about 2012 outlook, you're saying that net income will be up. Does that imply even off the high end of the range? So in other words, EPS guidance for 2012 is basically above $1 non-GAAP?

Ahmad Chatila

I'll get Mark to answer that one, Tim.

Mark Murphy

Tim, we'll provide 2012 guidance later in the year.

Ahmad Chatila

I mean, the thing that I wanted to show you is we're making a lot of reference in the second half and next year is going to be better than 2011. We'll give you a guidance end of the year.

Timothy Arcuri - Citigroup Inc

Q4?

Mark Murphy

Yes. You'll get some indications.

Operator

And our next question from the line of Krish Sankar with Bank of America Merrill Lynch.

Krish Sankar - BofA Merrill Lynch

Two questions. Ahmad, in your full year guidance for this year, the delta's almost $100 million. Was the downward revision on revenues predominantly Semi and Solar Materials or did you actually see any uptick in your SunEdison business?

Ahmad Chatila

I think that most of the hit really was in Solar Materials. Frankly speaking, the price -- as I told you in the Capital Markets Day, we assumed the 20% decline in Q3. That's what I said and that's our plan. And then what happened is as I told you that the market's starting to become a little bit weak, but I didn't expect it to drop as much as the market dropped, which is 40% drop. So all of a sudden, multiply whatever volume you want by much lower price, that has a big impact.

Krish Sankar - BofA Merrill Lynch

And in terms of your SunEdison pipeline, I know you redefined it, but can you tell me what was in the pipeline, did it actually have signed EPA LOI?

Ahmad Chatila

I don't have it on me. Do you have it, Mark?

Mark Murphy

I don't have it, Krish, but what we'll do is we have a lot more detail. Part of -- we had indicated that we're going to increasingly provide you detail on pipeline. Part of that process was going back to our pipeline, revisiting every aspect of pipeline development. That was part of the driver for the new definition. We think that definition is narrower, easier for us to control and also better reflects the utility markets and the international markets. We're going to continue to provide you more disclosure. We're going to provide you answers to questions like how much percent PPA and things like that in the future, but don't have it for you at this time.

Krish Sankar - BofA Merrill Lynch

And the final question is, Ahmad, you mentioned that next year, CapEx should be down. Are you factoring in your Samsung in JV for the poly, too, or is this just pure all MEMC related?

Ahmad Chatila

Yes. The answer is we're factoring the Samsung JV for poly.

Operator

And our next question from the line of Brian Lee with Goldman Sachs.

Brian Lee - Citigroup

Just had a couple. If I take the SunEdison revenues in the first half and you're guiding for interconnecting about 280 megawatts in the back half, it would suggest SunEdison's going to get to you -- get you to about half a year non-GAAP revenue guidance for the year. Is that the right read? And if so, I guess my question is, is all the incremental weakness coming from solar wafers?

Mark Murphy

Yes, you've got it directionally right, Brian. I mean, the largest contributor to the second half for us is clearly SunEdison. There are very important contributions by Semi as far as productivity in that business, and then Solar Materials as well with the productivity as Kuching ramps, but by far the clearest -- the largest driver is SunEdison.

Brian Lee - Citigroup

And then just to clarify on the guidance, is the $0.10 EPS impact from Suntech in 3Q and 4Q, is that factored into the new 2011 EPS guidance?

Mark Murphy

Yes. All of the Suntech effects and the restructuring and everything and the expected Suntech for the third and fourth is in the guidance.

Brian Lee - Citigroup

And a quick follow-up to that, I guess. What should we be modeling as the cash flow impact from that same issue over the next several quarters?

Mark Murphy

The cash flow effects from Suntech specifically, there was no cash flow impact for Suntech in the second quarter. And then in the third and fourth quarter, it's approximately equal to that $30 million.

Brian Lee - Citigroup

$30 million per quarter?

Mark Murphy

No, total, the second half.

Operator

Our next question from the line of Chris Blansett with JPMorgan.

Christopher Blansett - JP Morgan Chase & Co

Ahmad, you mentioned you expect semi wafer pricing to actually improve in the second half, which is kind of in contrast to your commentary about the demand being a little wobbly and also to what some of your competitors have said recently. So I was hoping you could reconcile that?

Ahmad Chatila

Yes, no problem. What happens is you negotiate a given price and that negotiation happened before the market softened. That's what it is.

Christopher Blansett - JP Morgan Chase & Co

And so I mean, usually, my impression was these prices will tend to be relatively flat or constant over the contract -- or the term but is that not -- that's not necessarily true?

Ahmad Chatila

Well, when you go -- I mean, some of our customers negotiate over an annual number and some of them 6 months and some of them over 3 months. The 3 months is very limited. So the -- most our customers are 6-month period kind of negotiations. These happened in May, most of them, some of them in June. By then, no one had foreseen that the market's going to be a little bit softer than they thought. That's why it is like that.

Christopher Blansett - JP Morgan Chase & Co

Then the second question was tied to the Solar Wafer business. Obviously, we're seeing some pick up in demand on that side. And how should we view your business? You mentioned you were very selective in the second quarter. Should we assume, just on a volume basis, trend up or down for you? Or is that really going to be determined by the pricing dynamics you see?

Ahmad Chatila

The volume is going to be up. We compete also. It's not like we're shy from competing. But some volume and some deals in Q2 were just ridiculous because at that moment, if you walk into the factories that people are making cells and modules, they were like not producing at some point. They might have shipped their inventory that they have built in Q1. It's a bullwhip affect, so you don't see it immediately so some of these guys while ship, they really didn't run some of their factories. And no matter what price you gave them, they didn't want it; except if it's 0 price, anyway. That's what we walked away from. In Q3 and Q4, the volumes are up.

Christopher Blansett - JP Morgan Chase & Co

And then the last question I have is tied to the incentive payments for Fotowatio, what is the timeframe we should expect those payments to be paid out if they are -- if those achievements are hit?

Mark Murphy

Yes, I mean, we'll give more guidance on this in the third quarter certainly since the deal has not closed pending regulatory approvals, but you can expect this to be 2012.

Operator

And we go next to Hari Chandra with Auriga.

Hari Polavarapu - Auriga USA LLC

Regarding the Solar business, you talked about deals coming in, but with the Fotowatio pipeline that you have taken in, it looks like you actually geographically increased the risk in over 80% of the pipeline exposed to the U.S.?

Ahmad Chatila

The answer is 60% is in the U.S., and U.S. actually is a very stable market for regulatory point of view as compared to Europe.

Hari Polavarapu - Auriga USA LLC

And in terms of reducing the capital intensity of the business, you talked about lower CapEx and also working capital optimization. So what kind of CapEx range should we see as a percentage of sales versus like 10% to 15% guidance that was there previously? And also in terms of working capital, how much cash do you need to run the business going forward?

Mark Murphy

I think what you'll see is as we move through this year and into next year, our CapEx as a percent of sales will decrease. As far as working or as far as cash required to run the business, we believe that we can grow the business at the sustained rate that we've laid out in our guidance and maintain above the cash levels we've indicated on guidance. So we've indicated we'll end the year at over $550 million in cash. So that should give you directionally indication of how we expect to see the cash usage of the business.

Hari Polavarapu - Auriga USA LLC

Can you give a range for the CapEx in terms of the percentage of sales?

Mark Murphy

Yes. I think we had 15% roughly, but declining.

Ahmad Chatila

Did we give a number for CapEx for 2011 like the range or anything? We have not done that, right?

Mark Murphy

No, just indicating declining activity.

Operator

We go next to the line of Jesse Pichel with Jefferies.

Jesse Pichel - Jefferies & Company, Inc.

It looks like the purchase of Fotowatio is quite opportunistic and looks to me like the lowest price paid for projects to date, so congratulations on that. Is this a commentary on liquidity drying up? Or is it applying a higher discount rate to projects that may have lower PPA prices going forward?

Ahmad Chatila

I don't think it is the lowest price to date. I don't want to say that. My team says that to me. I would say that it is good for Fotowatio, and it's good for us. From a Fotowatio perspective, they know that we will execute as much as -- as good or better than anybody. And from our point of view, we are conservative how we look at pipeline. We are kind of -- if we don't think it's going to happen, we don't consider it. Of course there's a yield but going into anything, we want to really take projects that's going to happen. So based on that, I think we had like a Venn diagram. Both of us agreed on a given number. They think they're going to make good money with us. I mean, there's a lot of other guys probably that were bidding on the business, even maybe more potentially, but reality stands on money because they know they're not going to execute well. So that's how you should see it, Jesse. Of course, some people have overpaid. I'm not going to count those. Those were crazy numbers that gave illusion to certain developers that the price per watt for development is super high when the reality it's not sustainable. Those I discount. But in terms of the leading corporations in the United States, I think it's in the range maybe a bit lower by -- but not by much.

Jesse Pichel - Jefferies & Company, Inc.

That's great. Do you have any idea what the investors of Fotowatio pumped into the company in terms of equity since Fotowatio paid $20 million for the business in '09 when they had 35 megawatts in operation in the 400-megawatt pipeline, then you're buying it with over 1 gigawatt more pipeline. Do you have any idea what the equity put in was since early '09?

Ahmad Chatila

I really don't. Not on me, at least. I'm sure that Tim knows, but I don't. I'm sorry.

Jesse Pichel - Jefferies & Company, Inc.

Last question on Fotowatio is they've publicly stated that they had 250 megawatts of PPAs in development in North America. And I'm wondering whatever the number winds up to be based on your scrubbing the numbers, do you get to book that all as revenue when you do the leaseback structure?

Ahmad Chatila

In the future, if we do the leaseback structure, we'll use the same accounting we use on other things that we do today, yes, Jesse.

Jesse Pichel - Jefferies & Company, Inc.

And that would hit in the second half or you think that's mostly for '12?

Ahmad Chatila

Yes, I mean, these projects, you should think about 2012, '13, '14. We're starting -- and remember Jesse, you used to ask me, I think you were telling me about the -- how many years ahead are we looking at the pipeline? We're starting to fill up also '14 and '15. So some of it will happen in '12, some of it will happen in '13 but we're starting also to get projects into '14 and '15, and Fotowatio acquisition is part of that strategy, Jesse. Because time flies and by end of '11, early '12, we'll start thinking about '14 very, very aggressively.

Operator

And a question from the line of John Hardy with Gleacher & company.

John Hardy - Gleacher & Company, Inc.

I just wanted to try to understand a bit better the difference in the project economics of the pipeline for '12 and '11. It seems like you're -- if I take the pro forma number you're at like a 10% operating income margin in SunEdison at, let's call it $1.30 per watt module price going into the second half, just assume that they remain at that 10% level. And then I look at your full burden cost of $1 per watt next year. Obviously, the majority of your pipeline is in North America where, Ahmad, as you said, the legislative background is a bit more solidified. So it seemed to me like that alone could get your operating margins in that business to sort of the high teens. Is that too simplistic? Or are there other inputs I should be thinking about there if I look at the economics of the pipeline for next year?

Ahmad Chatila

Well, look, John, I have to admit that I have looked at -- when we bought SunEdison, you published a paper talking about tech margin that I looked at. And you've done something the last few weeks that I looked at, too. The way you think about it is the way I think about it. Now I'm not saying that your numbers are correct, but the whole strategy is to feed the pipeline through low cost so that the margin expands over time. But remember also that part of our mix is we buy externally the modules, John. The reason why we do it because we get good payment terms and the net working capital for the business becomes pretty good like I showed you. It's around $30 million the last 6 quarters, which is not bad for the net working capital. So I want to continue using that. So I can't give you the exact number for next year, but you're thinking about it how I think about it.

Operator

And we go to Theodore O'Neil with Wunderlich.

Theodore O'Neil - Wunderlich Securities Inc.

Ahmad, you may have answered this indirectly, but as the poly [ph] prices keep falling, is there some point at which you defer some of the CapEx expansion of the Solaicx equipment and material coming out of that?

Ahmad Chatila

Yes, so look, one of the things -- one of the key metrics that we have is the ratio between selling wafers and installing. And as you can see from one of my slides, that ratio used to be 10:1. This year, it's 4:1. Unfortunately, at some point in Q1 and Q2, it wasn't 4:1, it was higher; so let's say, 6 or 7:1, whatever the number is. As time progress, we will try to focus our capacity to ensuring that SunEdison gets a good price and a good payment term. Now that doesn't mean that we'll make everything inside from a module perspective so we will sell wafers into our customers who make fill-in modules and they in turn, they will sell into our projects. So based on that thinking, we do not need to spend a lot of money going forward. We will selectively put capacity like on Solaicx because it gives us a high efficiency cell. In combination with Dusond [ph], that would give a much better balance of system costs. Now let's think about it for a moment. If my cost for a module, and remember next year, Dusond [ph] has not ramped in a big way yet. It's less than $1. With Dusond [ph], hopefully it will be even lower, and that will have yet another impact on balance systems, and that will differentiate us from the standard multi- and also the thin-film technologies in a big way on the balance system. So we will selectively continue to spend some CapEx on improving the efficiency of the modules that we have so that our projects become a lot more profitable. That's how you should look at it. But by no means -- we already made the investments to restructure the company. Now we are on solid ground, we're going just to take advantage of it. So we're going to try to generate cash as much as we can going forward.

Operator

And we go next to the line of Mehdi Hosseini with Susquehanna.

Mehdi Hosseini - Susquehanna Financial Group, LLLP

One follow-up regarding CapEx. Is the remaining $104 million payout for Fotowatio baked into your cash assumption for second half?

Ahmad Chatila

The answer is...

Mark Murphy

It's baked into the guidance.

Mehdi Hosseini - Susquehanna Financial Group, LLLP

How about the construction spending? Is that also baked in?

Ahmad Chatila

Let's -- Mehdi, there's 2 numbers. One is what we gave upfront, and one was what we said the earn-out potentially will be next year, right? So the numbers upfront is baked in into our generating cash, yes.

Mehdi Hosseini - Susquehanna Financial Group, LLLP

And then, Ahmad, I want to ask a rather big picture question. And excuse my ignorance, but what is your company becoming to? It seems to me that a pure-play manufacturer is now part construction and part manufacturer. Or maybe we just still haven't figured out how to value the company. Maybe you can elaborate on this. And then secondly, what are the right metrics that you're looking at? Are you looking at a return investment and what are your projections or expectations for return investment above and beyond the cost of capital? And this story, I think, from a big picture can better help us understand the reasons behind the decisions that you've been making.

Ahmad Chatila

When we looked at a strategy or our position in the industry in 2009 and looked how the world will evolve, of course that time, certain people are making a lot of money when others are not and vice versa. The industry is not very efficient. Factories are built in their own countries. Even in certain countries, the labor count was very high. The costs are high because also people are using me-too technologies. So based on all that information, we felt that the solar industry actually overall is in jeopardy. And one day, we're not competing against each other. Actually, we're competing against other sources of energy. And if we don't have a path to grid parity that is very aggressive, our business will be harmed. So then the way we thought about it is the best way is to be vertically integrated with limitations, of course, because we don't want to build all their factories by ourselves. But we want to control the costs and in some case, show the way of how to make solar energy cost effective. So the way you need to look at our company is we will continue to build pipeline and feed it with low-cost technologies, albeit modules or other things. So the more we build pipeline, the more we control price and volume. And we will feed that pipeline with low cost, so then you control all pieces of the equation. The metrics I look at is how much pipeline I'm building because that will give me stability and visibility over the future, both my price and volume. The other metric is my manufacturing costs, the more I ramp internally. Like I wish I had Kuching fully ramped in Q2, but it's not the case. The more I have that, the more then that might -- my costs are lower feeding into my pipeline, which controls the volume and the price. So that's the equation and the metrics I look at is the pipeline generation and the costs getting into it. Another metric I look at is cash generation. And where there, our most focus is happening on cash-to-cash cycle and ensuring that the net working capital of the whole company is very low so that it's scalable. So between then controlling volume, controlling price, controlling costs and ensuring that the working capital is low, the returns will be pretty high for the business. So that's how you should look at it. On the surface, it looks very complex because there is no model that other people had before for you guys to use a framework that says, "Okay, this company looks like x, y or z.". But believe me, step by step, you'll see that this model's going to make a lot of money, and for us it's very simple to see.

Operator

And we go to Paul Leming with Ticonderoga.

Paul Leming - Ticonderoga Securities LLC

First thing I wanted to just clarify is the Suntech gain in the quarter, $0.23 net all of the charges plus basically $0.10 in each of the next 2 quarters. So all in, there's $0.40 to $0.45 of gains from Suntech x the charges embedded in your full year guidance. Do I have that right?

Mark Murphy

Yes. Paul, just to clarify, we've got $0.23 is the second quarter effect. And then for each of the -- for the remainder of the year, we've got about $0.10.

Paul Leming - Ticonderoga Securities LLC

$0.10 held for 2 quarters, so more $0.05 per quarter?

Mark Murphy

Exactly.

Paul Leming - Ticonderoga Securities LLC

Second thing, given the drop in wafer volumes in the quarter, I'm just curious what you did with your polysilicon operations during the quarter. Did you keep running the poly plants full? And if you did, did you inventory? Did you build polysilicon inventory? Or were you selling polysilicon into the spot market in the quarter?

Ahmad Chatila

All right, Paul, I'll take this question. We said before that we mix and match between making our own polysilicon and buying some on the outside. So we basically reduced the procurement of polysilicon. It's not a big number, but we have stopped that. So because of that, we didn't have to build inventory on polysilicon.

Paul Leming - Ticonderoga Securities LLC

And then finally, as I look at the Solar Material business, which is really where your poly -- the economics of your polysilicon business are largely captured today, if I back out the nonrecurring items and think about your economics of producing poly versus what it looks like wafers were being sold at, it looks like if I kind of break things apart, polysilicon manufacturing versus wafer manufacturing, that you are actually in the red on the wafering part of the business, transferring poly from the plants -- from the poly manufacturing plants over the solar wafering plants. Am I thinking about that the right way?

Mark Murphy

I think, Paul, one thing to consider is that we will make decisions on how much poly we consume internally, what we sell in the spot market and optimize our poly position. We expect our Solar Wafering business to be profitable through the second half as we -- as prices stabilize, as Kuching ramps and becomes more cost competitive and I'll leave it at that.

Paul Leming - Ticonderoga Securities LLC

Let me just -- if I can clarify, you said you expect your Wafering business to be profitable in the second half. You're saying that vis-à-vis your internal transfer price of poly not rolling the poly profits into the wafer plants?

Mark Murphy

Correct.

Operator

And we go next to the line of Nimal Vallipuram with Gilford Securities.

Nimal Vallipuram - Gilford Securities Inc.

Just 2 questions, and I'll try to make it quick. First is on a longer-term basis, if you look at MEMC, you had a history of going through the semiconductor cycles. And now you have diversified into Solar business, and it does look like we are looking to another downcycle in Solar business as well. You've taken some strategic action not to have to go through the same actions you have to go through the Semiconductor business. Is it possible how much you contrast these 2 businesses and see how the solar downcycle is going to be different to MEMC as opposed to what the semiconductor cycles have been in the past?

Ahmad Chatila

So look, it is very different business, very different market and our position, as you said, is very different. On Solar, the more we ramp SunEdison pipeline and hence installation, the more we'll become immune, not totally, to cycles. So that's one. On semi, on the other hand, we follow the semi cycle, but the semi industry has improved significantly over the last 5 to 10 years. You would notice that most companies used to be in the in the red in a big way during a downcycle. Today, you don't see it as much. So because of that, we're also going to be more resilient in that regard. Add to that, that our factories mostly are ran in Asia. Our cost structure's pretty good so even in a downcycle, we will make good profits.

Nimal Vallipuram - Gilford Securities Inc.

Just if I may, just another question. Going back to Mehdi's question, you have a history with this, so I'm going to be careful asking this question. Your stock is trading below onetime book which is rather obvious. Some investors like rightfully believe that you have the technology exposure and the market share to be trading much higher than that. However, given your history about taking being private to buy financial buyers, from an MEMC point of view, hypothetically, if there is any such inquiries from any buyers, would MEMC have -- take a stand one way or another? Or would you look at it the situation rather more opportunistically?

Ahmad Chatila

Well, thanks for the question, but no comment.

Operator

And we go to Edwin Mok with Needham.

Edwin Mok - Needham & Company, LLC

So first question for you, Ahmad, just to be rally clear, beyond the Suntech settlement that you expect to come in, in the second half, what are the onetime charges you might expect in the second half? For example, you mentioned about some more restructuring on the semi side. Do you expect more charges? And if so, can you quantify those?

Mark Murphy

No, we haven't and we haven't given any more guidance on that. The only thing -- noteworthy nonrecurring item is the -- or it's recurring in this case is the Suntech remaining $30 million income in the second half.

Edwin Mok - Needham & Company, LLC

And then on the SunEdison construction, it looks like you guys continue to grow that. Just curious, of the project that you finished or in construction in the first half of this year, can you quantify how many -- how much of those projects you expect to be able to revenue this year? And you're obviously still doing more construction, right? Do you expect some of those -- some of the construction in the second half to also be revenue this year?

Mark Murphy

Yes. I mean, some of that construction in the second half will convert to revenue in the second half. Was that the question?

Ahmad Chatila

Maybe, Edwin, the way should look at it, as Mark said, we've done 50 megawatts so far. We'll do another 280. That's how you should think about it.

Edwin Mok - Needham & Company, LLC

I see so you use those numbers as a baseline for that. Okay, great, very helpful. And then one last question I have on the solar wafer side. So looks like you guys have moderated volume on the second quarter because of the market condition that you talked about your price is likely to be closer to market price in the third quarter and beyond. Is it -- is that possible that you guys actually continue to moderate your volume? And I think, Ahmad, you talked about converting more to be used for the SunEdison side of your business. Is it possible to build a scenario where perhaps you could be selling less solar wafer in 2012 compared to 2011?

Ahmad Chatila

2012, 2011, I mean, there is a scenario. I don't see it today, but there's always scenarios like that. It all depends on the overall market next year, what's going to happen in Europe and the United States. What we're confident about is our own execution on our own pipeline, but we don't know about other people. And since the ratio is not 1:1 between our wafer and installation even next year, we cannot say. So just as a hypothetical, there's always scenarios. I'm not counting on such scenarios.

Edwin Mok - Needham & Company, LLC

So just one quick clarification. Do you guys sell any module, or is it all wafer still in the solar material?

Ahmad Chatila

All wafers.

Operator

And we go next to the line of the Mahesh Sanganeria with RBC Capital Markets.

Richard Grasfeder - RBC Capital Markets, LLC

It's Rich Grasfeder in for Mahesh. Just one question for you on the Solar Materials side, how should we think about volumes and ASPs given that foundry wafer starts have been declining in Q3 and where you see some cuts in the DRAM side as well? Can you give us any color about how to think about that for the back half of the year?

Mark Murphy

I mean, there's seasonality effects, of course, in semi. But we generally see flattish to slightly up volumes in semi in the back half of the year. And we also see, as I believe Ahmad mentioned, prices stable to maybe slightly up, depends on our mix, but we see semi improving through the year. Most importantly, we see productivity improvements in our semi business in the back half of the year.

Richard Grasfeder - RBC Capital Markets, LLC

And how much of your volume's in consignment?

Mark Murphy

We did build some consignment in second quarter. I can't give you a specific number. I just know it increased, but we don't expect it to really increase in the third. That build was largely in the second.

Operator

[Operator Instructions]

Mark Murphy

Operator, if there are no more questions, we'd like to conclude the call, please.

Operator

Okay. Yes, thank you. And ladies and gentlemen, this will conclude our conference call for today. We thank you for your participation and for using AT&T's Executive Teleconference Service, and you may now disconnect.

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