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Executives

Chris Chaney - Director of Investor Relations

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

Brian Wuebbels - Chief Financial Officer

Analysts

Krish Sankar - BofA Merrill Lynch, Research Division

Satya Kumar - Crédit Suisse AG, Research Division

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Stephen Chin - UBS Investment Bank, Research Division

Vishal Shah - Deutsche Bank AG, Research Division

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

Edwin Mok - Needham & Company, LLC, Research Division

MEMC Electronic Materials (WFR) Q3 2012 Earnings Call November 7, 2012 8:00 AM ET

Operator

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

Chris Chaney

Thank you, and good morning. Thanks, everyone, for joining our -- the MEMC's Third Quarter 2012 Results Conference Call. I am Chris Chaney, Director of Investor Relations. With me today are Ahmad Chatila, President and Chief Executive Officer; and Brian Wuebbels, Chief Financial Officer.

After my remarks, Ahmad will provide an overview of the significant events and commentary on the company's third quarter performance, and Brian will then review the financial results. Brian's discussion will reference slides we have made available in the Investor Relations section of our website at www.memc.com.

Our discussion today will refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures has been provided in our earnings press release financials published earlier this morning.

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 press release and the slides published today for a more complete description.

And now, I will turn the call over to Ahmad.

Ahmad R. Chatila

Thanks, Chris. Good morning, everyone. My remarks today will be brief, and then I'll turn it over to Brian to review the quarter in more detail. Overall, the third quarter was in line with the targets we laid out a quarter ago. While our results are generally in line with expectations, the business environment remains difficult, and much work remains to be done. We will continue to drive improvements from the restructuring, which has shown good results so far. We acted early and decisively in implementing our plan about a year ago. And we have driven significant improvements in operating costs and enabled cash generation in both business units in Q3.

In our Semiconductor business, the team has done a great job taking out costs and recorded $40 million in EBITDA in the quarter. I'm very pleased with how they performed. After showing signs of recovery in the second quarter and most of the third, the semiconductor market weakened again towards end of the quarter. We expect this weakness to continue into early 2013. While a full market recovery may be delayed, the team has improved our positioning to navigate a soft environment and laid the groundwork for incremental operating leverage when the market recovers.

In our Solar Energy business, the team has improved operations. The solar wafer business and the business unit as a whole were cash flow-positive in the quarter. Our strategy, focused on downstream, continues to show its value. While many upstream competitors are facing significant challenges, our upstream material business is structured primarily on cost-effective internal sourcing, which will help our long-term positioning.

SunEdison continues to be one of the premier brands in the industry. We executed 74 megawatts in Q3 and maintained our pipeline at 2.9 gigawatts. We have redeployed some of our people from Europe to more promising growth markets, and we are being more efficient with working capital needs. I'm proud of the team's accomplishments. In a difficult solar market, we remain focused on continuous cost improvements.

The solar market environment is tough. We worry about irrational wafer pricing behavior where companies sell products below fully loaded cash costs. We worry about industry model suppliers’ quality and remain vigilant on quality to ensure that suppliers offer modules that meet the same high-quality standards that we require of ourselves.

In addition to our cost reduction and operational improvement efforts, we are intently focused on cash flow and on strengthening our balance sheet at the company level. Cash flow is our greatest focus. I'm proud of the team generating cash in both business units in Q3, excluding a couple of nonoperational items. We are also improving our working capital management, further strengthening our balance sheet. And we secured $200 million in financing during the quarter, providing additional flexibility.

In this type of environment, our customers and other partners appreciate our focus on cash flow and efforts to strengthen our balance sheet. Maintaining this focus will continue to be a differentiating factor and allow us to gain more business and grow revenue and profits faster.

Our priorities for the remainder of the year have not changed. They are to improve liquidity while not limiting the long-term growth potential for the company and fully realize gains from OpEx reduction and restructuring actions. MEMC is a strong company in a difficult industry environment. We have steadily gained semiconductor market share over the past 3-plus years through quality and service improvements. We have a powerful technology portfolio, which will be increasingly driven by innovation such as Perfect Silicon, low-cost silicon-on-insulator, diamond wire, high-pressure silane and FBR polysilicon. And we have a best-in-class downstream solar business that is globally deployed.

While the business environment remains difficult, our strong technology and industry positioning, combined with a continuing focus on operations, cost reduction, cash flow and our balance sheet, will enable us to navigate through this environment and position us to thrive with additional leverage in the future.

I would like now to turn the call to Brian for additional insights. Brian?

Brian Wuebbels

Thank you, Ahmad, and good morning, everyone. My comments today reflect information found in the press release and financial tables distributed earlier this morning. My remaining comments will reference the third quarter 2012 results conference call presentation posted in our Investor Relations section of our website.

Chris has already reviewed the Safe Harbor statement, so I will begin with a brief summary of our third quarter commitments and our actual results.

So let's begin on Slide 4 in the presentation titled 3Q 2012 Review. In the third quarter, we delivered on all the targets we committed on our last quarterly call. Great execution in our Semi and Solar business allowed us to generate solid operating cash flow. Semiconductor Materials delivered improved operating leverage and profits. Our solar upstream is cash flow positive, and the downstream margins are nearing our targets.

Now, I would like to briefly discuss each of the metrics that you see in this table.

First on cash. Our cash and liquidity in the third quarter were both better than expected even excluding the proceeds from our debt placement. Our cash balance at the end of the quarter was $610 million. Excluding the net proceeds from the term debt we raised in the quarter, cash would have been $425 million, exceeding our guidance of roughly $380 million due to stronger operating performance.

On the Semiconductor revenue, in August, we expected our Semi revenue to grow 3% to 8% in the third quarter. We grew at 3%, mostly on higher volumes, and generated an operating profit largely due to our restructuring efforts earlier in the year. We sold 74 megawatts of solar projects in the quarter, exceeding our 40- to 60-megawatt target. As we have said before, the precise timing of project sales is very difficult to determine, and in the third quarter, we were able to accelerate the timing of a large project, which helped us exceed our goal. On the ASP front, our third quarter solar project ASP was $3.87, within our guidance of greater than 350 (sic) [$3.50] due to a couple of above-average price projects which closed ahead of schedule.

On the OpEx front. Our OpEx ended up at $86 million, which is a pro forma excluding the net benefit of the Evonik settlement, was down sequentially and within our guidance of less than $100 million. Our restructuring is on track and contributing to improvement that you see here.

Our capital spending continues to be judicious, and it ended up at $24 million for the quarter, which was also within our guidance of less than $30 million, and it was focused primarily on our Semiconductor Materials business.

And on interest expense, we again achieved our target of less than $25 million by delivering $17 million of expense.

Now let's turn to Slide 5, the 3Q '12 summary results. Third quarter 2012 non-GAAP revenue was $709 million. Solar Energy represented about 2/3 of this revenue and Semiconductor Materials the remainder. Our non-GAAP gross profit was $113 million or about 16% of sales.

The benefits of cost-reduction programs in our Semiconductor business were offset by lower solar project volume. Operating expense of $28 million reflects the restructuring benefit of $58.3 million, due largely to the settlement of our TCS supply contract with Evonik as announced earlier in the quarter. Excluding this benefit, our operating expense would have been the previously mentioned $86 million.

Non-GAAP EPS was $0.30 a share. Included in the $0.30 is a $0.40 per share in net benefit largely associated with the restructuring activities, primarily the TCS contract settlement with Evonik and the termination of the supply contract with Conergy. Adjusting for these 2 items, non-GAAP EPS would have been a loss of $0.10 per share.

So now let's move on to Slide 6 and the period comparisons. The third quarter delivered sequentially better results in our Semiconductor Materials segment and, as forecasted, weaker results in solar energy segment due to the drop in our project sales versus the previous quarter. Non-GAAP revenue fell 24% sequentially, driven by lower project sales. Semiconductor Materials revenue grew 3% while Solar Energy fell 33%.

The non-GAAP gross margin increased sequentially from 15% to 16%. This increase was driven by Evonik and Conergy benefits and partially offset by lower overhead absorption driven by the lower solar project sales volume, which declined from 169 megawatts in Q2 to 74 megawatts in Q3. The operating margin more than tripled from 3.7% in the second quarter to 12% in the third quarter, mostly due to the net benefits of Conergy and the TCS contract settlement with Evonik but also due to greater operating leverage in our Semiconductor business as we see increasing impact of our 2011 restructuring actions taking hold.

So now let's move on to Slide 7, and we'll review the Semiconductor Materials segment. On Slide 7, the results shown are GAAP. Operating profit is shown at GAAP and adjusted reflects restructuring and other related charges. The Semiconductor segment grew revenue at 3% sequentially in an increasingly difficult environment as we exited the third quarter. Prices were flat, but volume increased 3%, mostly due to increasing shipments in our large diamond wafers. Semiconductor sales in the third quarter softened in September as the semiconductor market began to slow heading into what is typically a stronger season. We expect softness to continue into the fourth quarter, and thus, we will focus on customer-driven initiatives and cost reductions to help mitigate the effects of a softer semi market.

That said, our December 2011 restructuring actions are beginning to gain traction. Although sales grew about $8 million sequentially, our operating margin increased from $4 million lost to almost $9 million in profit or a swing of about $13 million. The increasing operating leverage is a result of not only higher factory utilization but also a tremendous effort from our semi team to hold down costs while growing volume. Although we have made great progress, we will continue to work hard, as much work still remains.

Semiconductor Materials remains a core business for MEMC, and we will continue to invest the majority of our CapEx and our R&D dollars into this segment.

Now let's turn to the Solar Energy segment on Page 8. Because the adjustments defined by our non-GAAP metric pertain only to the Solar Energy business, all the financial figures on this page are in non-GAAP. Solar Energy outperformed our guidance during the third quarter, delivering better-than-forecasted megawatts sold during this quarter, while the Materials business also performed above expectations. As a reminder, the Solar Energy segment consists of our solar project business, sales of solar material products such as wafers and modules and various other revenue streams from O&M in our projects business and energy revenues. Our restructuring efforts have been designed to reduce our exposure to the commodity wafer and module markets while optimizing our flexible supply chain and production capability for our internal material needs. Of the $469 million in Solar Energy segment non-GAAP sales, solar projects represented $286 million, solar materials represented $155 million and the remaining $28 million consisted of O&M and energy revenues.

Our solar project business delivered 74 megawatts in 18 different projects, all in North America, in the third quarter. This compares to 169 megawatts delivered in the prior quarter. As we mentioned on our last call, we made a decision earlier this year to conserve cash and preserve liquidity as we work to sell several European projects in the first half of 2012. Thus, the slower development spend negatively impacted our project sales in the third quarter as we had expected.

As you can see from the slide, our revenue from this segment fell 33% sequentially, and our adjusted operating profits grew, driven by the Evonik and Conergy settlements. Virtually all decline was due to lower project sales. Note that the numbers in 2012 first quarter and second quarter presented here also include an immaterial noncash, timing-related inventory adjustment of $6.7 million and $16 million, respectively.

Our materials business actually performed quite well, generating positive EBITDA and positive cash flow during the quarter. Solar module sales were higher sequentially due to opportunistic sales in Canada where our modules are qualified for local content. Solar wafer sales were flat. Solar modules were profitable and generated cash in the quarter while solar wafers broke even but also generated a small amount of cash. Although upstream solar materials market prices continue to erode, our restructuring actions have transformed our materials business from a position of significant cash burn into one that is cash-neutral to positive. And our solar project business now benefits from not only an increasingly competitive internal material supply chain but also lower external market prices.

So now let's turn to SunEdison's pipeline and installations on Page 9. As Ahmad mentioned earlier, our pipeline at the end of the third quarter remained at 2.9 gigawatts. Interconnections for the quarter were 47 megawatts, and we currently have 117 megawatts of projects under construction at the end of the third quarter. From a regional perspective, nearly 60% of our pipeline remains in North America with 45% of that in the United States and 14% of that in Canada. Because we believe diversification is prudent longer term, the remaining 40% of our pipeline is outside the United States where we believe opportunities for more rapid growth still exist. Our pipeline is also well diversified from a size perspective with 40% in medium to large-scale utility projects exceeding 50 megawatts with about 1/2 of the projects being between 1 and 50 megawatts and the remaining 10% in small projects less than 1 megawatt.

We believe there is a great opportunity for growth on a global basis from the distributed generation, and we believe our products and capabilities are ideally suited for this segment, and we have continued to plan -- we continue to focus on growing our DG presence in the coming years.

As a reminder, our definition of pipeline for SunEdison is when SunEdison has signed or awarded a PPA or other energy offtake agreement or has achieved each of the following 3 items: Number one, we have site control; number two, an identified interconnection point with an estimate of the interconnection costs; and three, the executed energy offtake agreement or the determination that there is a reasonable likelihood that the energy offtake agreement will be signed.

Now let's move on to Page 10, and we'll talk about cash. On Slide 10, we present a simple view of our change in cash balance from the second quarter to the third quarter. Our cash increased 166 -- excuse me, our cash increased $166 million. When we back out the debt placement proceeds, the earn-out of the FRV and the Evonik and Samsung payments, one can see that our ongoing operations actually generated over $60 million in cash. At the start of the quarter, we stated we expected cash to be near first quarter levels or about $380 million, which was down sequentially, primarily due to the expected decline in project sales and the FRV earn-out of $66 million. We ended the quarter exceeding our original expectations, even excluding the term debt due to better operational performance. As previously disclosed, we have EUR 60 million of payments due over the next 4 years as part of our Evonik settlement. Although that could have been funded out of our existing cash balance, we thought it was prudent to raise external capital to provide maximum balance sheet flexibility. More importantly, the capital we raised wasn't earmarked for any particular capital spending activity but, rather, will be used to reaccelerate our business. Having a strong cash and liquidity position allows us to attract additional capital and new business, helping to enable our future growth.

The SunEdison business continues to operate on plan, and as we grow megawatt deliveries, we should see further operating leverage in that business.

Now let's move on to Page 11, and we'll take a moment to review our balance sheet. We remain committed to maintaining a strong balance sheet. To that end, we raised $200 million of 5-year term debt during the quarter. The net proceeds gives us additional flexibility going forward, and we intend to use this cash to generate greater -- returns greater than its cost. A strong balance sheet gives us financial flexibility, increases our business partners' confidence in us and allows our business to thrive. At the end of the quarter, we had $1.3 billion in solar energy assets, offset by $1.5 billion in nonrecourse debt.

It is important to understand the nature of the nonrecourse debt and how it is tied to our sale-leaseback projects. Unlike the corresponding asset, this debt is non-amortizing and is extinguished upon the last lease payment, typically 20 years after the project is sold, at which time a GAAP gain will be realized. These projects have been sold and are generating energy revenue at or in excess of their debt service requirements.

Our liquidity position was strong at the end of the 3 -- third quarter at $880 million, which exceeds our minimum liquidity requirements in the third quarter by $480 million. During the quarter, we also added another bank to our nonrecourse revolving construction financing facility in North America, bringing the total availability up to $150 million from a previously announced $110 million. This facility is used as we construct solar projects and is repaid as the projects are sold. Because building solar projects consume large amounts of capital, having this facility helps reduce the strain on our working capital in a cost-effective and efficient manner.

Now let's turn to our outlook for the remainder of the year on Slide 12. On Slide 12, you will find our fourth quarter outlook. For 2012 fourth quarter, we expect Semiconductor revenue to be down 4% to 11% sequentially. This decline in revenue is much different than from our previous Q4 review from earlier in the year when we expected fourth quarter revenues to be up. By taking decisive actions late last year, our lower cost structure -- on our lower cost structure, we are better prepared than before to withstand a weaker semi market. We expect to sell 90 to 120 megawatts of solar energy systems at an ASP exceeding $3.50 per watt in the fourth quarter. The wide range reflects uncertainty in predicting the precise timing of project closures and also includes our expectation that we will sell the 14-megawatt Spanish project in the quarter. As I mentioned earlier, our flexible supply chain and significant cost reductions we have put in place in our Solar Energy segment will allow us to benefit from lower upstream materials prices.

We expect operating expenses to be less than $90 million and in line with third quarter. Our CapEx will be less than $35 million and will largely be focused on our Semiconductor Materials segment. We continue to expect non-GAAP interest expense to be about $25 million.

And finally, we expect to generate positive cash in the fourth quarter. The magnitude of that growth depends highly on where we finish in terms of project sales for the quarter.

And my final comments. Our key priorities, as Ahmad mentioned, have not changed for the year, from our last few calls as well and reflect the need to navigate depressed end markets while building on the improvements and company transformation that we initiated in 2011. First and foremost, we want to continue to focus on cash flow and maintaining adequate liquidity. Number two, execute on our restructuring plan and position the company for when the markets recover. Number three, continue to gain semiconductor market share and expand our margins during the recovery. And number four, optimize the growth of our downstream Solar Energy business.

With that, we will now open the call up for questions. Operator, you may begin the Q&A session now.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go to the line of Krish Sankar with Bank of America Merrill Lynch.

Krish Sankar - BofA Merrill Lynch, Research Division

I actually had a couple of them. The first one is, Brian, what are the cash outflows you have for Q4? Is it just Evonik? Or is there anything else coming up on the pipeline?

Brian Wuebbels

No, the nonoperating cash, so the 3 that we broke out here with the FRV earn-out, the Evonik and the Samsung, we will have another -- as we stated in our previous disclosed 8-K, there will be payments to Evonik in the fourth quarter, and there will also be invest -- payments that we have to make for our Samsung joint venture in the fourth quarter. None of these are unchanged versus any amounts that we've previously disclosed.

Krish Sankar - BofA Merrill Lynch, Research Division

Got it, got it. All right. And then the other question I have is like when you start looking at overseas projects, do you need to get separate financing given the fact that your $150 million revolver is just for North America only? And given your recent experience with European projects in emerging markets, are you looking specifically to make sure that you have some specific take-out financing before starting new projects?

Brian Wuebbels

That's exactly our practice, Krish. We will look for construction financing as well as take-out financing prior to starting construction of those projects. That is correct.

Krish Sankar - BofA Merrill Lynch, Research Division

And then just a final question. If I look at your current financing capacity, including the cash on the balance sheet, I mean, I don't know how much of that you're willing to put up for financing SunEdison, and when I look into 2013, do you think you can grow megawatts year-over-year given the way the current financing is? Or do you think you have to go raise additional cash?

Brian Wuebbels

I think we feel very comfortable with our liquidity position in the company. We also believe that, that strengthening of our balance sheet and our liquidity position will allow us to attract more and sufficient nonrecourse debt that we need to execute on our pipeline and our backlog in our Solar Energy business. So we feel very confident that we will be able to attract that nonrecourse capital required to build out those projects.

Krish Sankar - BofA Merrill Lynch, Research Division

So you still feel comfortable of growing your megawatts year-over-year into 2013?

Brian Wuebbels

Obviously, we haven't given any guidance on 2013, but I think we feel very comfortable with our position to continue to execute on our backlog.

Operator

Next question is from Satya Kumar with Crédit Suisse.

Satya Kumar - Crédit Suisse AG, Research Division

I have a few of them. The former one, the earlier question on cash flows, I think last quarter you'd given a guidance that at the end of the calendar year your cash balances would be similar to what it was at the end of Q2, which was around $450 million. Now you've done an external capital raise, and it seems like some of the things have tracked better, some are worse. Can you give us a sense of what the cash balances would be at the end of Q4, assuming that you don't have any additional raises? Can we think that it should be closer to $650 million?

Brian Wuebbels

Yes, I mean, I think, Satya, that nothing has changed in our view of where we think the cash is going to end for the end of the year. I think, as we’ve mentioned, we expect to generate positive cash flow. Yes, you have to add on the $185 million of capital that we raised to those numbers, but again, we feel pretty confident about our position to generate cash in the fourth quarter.

Satya Kumar - Crédit Suisse AG, Research Division

So Brian, I guess, like is $650 million is the right sort of level to think about ending the year?

Brian Wuebbels

Yes, I mean, again, I think nothing has changed versus what we previously had thought about what's going to end -- excuse me, how the end of the year is going to end.

Satya Kumar - Crédit Suisse AG, Research Division

Okay. And then on profitability of your Edison businesses as we look into Q4, can you give us a sense first on the Semi side if you're going to -- just how should we think about operating margins and EBITDA? And then on the project side of things, can you give us a sense of what the 3 parts are going to look like, material sales, and now you have the Conergy projects, how the O&M is going to track not just in Q4 but for a few quarters after as well? And on the project side, related to this $3.50 ASP you're talking about, how should we think about where you are in terms of costs? Are you starting to realize these big panel price declines that we are seeing in the market? Can you give us a sense as to how to model the profitability for these 2 businesses?

Brian Wuebbels

Sure. So for the Semiconductor business, clearly as revenue softened, as we'd stated, heading into the fourth quarter, there will be pressure on the margins. We still absolutely expect to be positive EBITDA and continue to improve our profitability as we have done in the past. And so I think we feel really good about the actions that we've taken in that business, and we fully expect that business, even with our expectations of lower revenues in Q4, to generate positive cash flow as well in that business. And so, again, the margins are going to be a little bit under pressure, but I don't think we see that as anything that we wouldn't expect, and we fully expect positive EBITDAs and positive cash flows out of that business, even in the fourth quarter. On the Solar Energy side of the business, as we'd mentioned, we expect between 90 and 120 megawatts of business at greater than $3.50 ASP, and we feel really good about the projects that we have lined up. Almost all of those are in North America. So financing for those has been well lined up, and we think that as -- what I would tell you is that our implied module prices that are in our projects are comparable to the markets that we participate in. I think they're very competitive. So there's nothing in our module pricing or in our profitability in our Solar Energy business that is out of market at this point in time, given the improvements that we've made in the solar -- our own internal supply chain as well as our flexibility to take advantage of lowering prices. But be reminded, most of our projects are in -- are for the rest of the year in North America -- in the U.S., so you have to be mindful that panel pricing is not the same everywhere in the world. It's relative to the market that you participate in. So I think that's very critical. I think on the Solar Energy, the solar materials side of the business, I think we would continue to want to see our margins improve in that business. Now the challenge is our costs are improving, but as Ahmad mentioned earlier, there's just a lot of irrational behavior going on in that part of the segment. So our view is, right now, invest in that -- keep the minimal investment that we have going on in that business to maintain the flexibility that we have, generate positive EBITDAs and cash flow in that business. On the solar project side of the business, we continue to see margins expanding. We are approaching our target margins, and we expect that we will continue to do that as we see pricing improvements continue throughout the balance of system as well as module pricing. So we feel pretty good about our operating leverage in that solar energy part of our business. Hopefully, that helps.

Operator

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

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Kind of follow up on that solar energy side of your business. When we look at your 2.9 gigawatt of pipeline, right, given that a bunch of these projects are at different stages and on a global basis, can you guys actually help us understand with your sort of cost-out strategy, what do you think is the total cash generation potential from that pipeline?

Brian Wuebbels

I mean, obviously, you can -- it's not a number that I'm going to be able to disclose, given the amount of disclosure that we're giving currently on the pipeline. Potentially, as we've talked about in previous calls, clearly as we head into 2013, one of our goals is to provide a lot more color and transparency on our pipeline. You can look at our pipeline on a cash basis and look at a blended cost per watt of what other companies have been selling their pipelines for. There is a range of anywhere -- we paid teens cost per watt for FRV. We've also seen companies paying $0.80 to $0.90 per watt for further down projects. So there's a blended average somewhere in there. But look, we think there's significant amount of profit and cash flows in the future that will come out of that pipeline.

Ahmad R. Chatila

Yes, Sanjay. Thank you, Brian. Let me tell you how you should look at it. This is -- if you look at it as an asset only, you're missing the point, in my view. You should look at it as a continuous business. We continue to add more pipeline. The strength -- our strength is in the brand. Yes, if I go sell the whole pipeline, maybe the price could be $0.25 a watt, I don't know. And we have tremendous amount of value locked there. But this is a running business. It has all the time, it will grow over time, and we'll continue to invest in it. Okay? A running business really.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

I agree with that 100%. I guess the only reason I'm even pointing that out is the huge discrepancy between your stock price versus what the value of that pipeline alone probably could be.

Ahmad R. Chatila

Let me -- you're correct. Let me tell you how I look at it, Sanjay. We have -- the way I look at it, we have like really 4 divisions. I mean, at the very high level, if I'm the investor, I look at it as 4 divisions. We have the Semi business, which has positive EBITDA, generating cash, beautiful business. We have the solar materials business where it used to be historically very profitable for us, and we got crushed by it, I have to admit. And because of that, we restructured it, and now, it’s generating a little bit of cash, a little bit of EBITDA. And then we have the SunEdison business, and then we have corporate. And the minute we are installing at a given number per quarter, then we are home free. And right now, we're just trying to digest the restructuring and what happened in 2011. But at some point, we're going to get back on track, and we're going to be installing in a good number per quarter. And at that moment, we'll recover the OpEx from corporate, which is really only a loss. That's the fourth division. So that's the discrepancy. If you add all this up, maybe the stock is what it is. But my view is as you raise the volumes that are on installation, then we're home free.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

Got it, got it. One final question for you then, guys. So when we look at the OpEx number, great progress there. So how much is left with the current restructuring program? And where could that go? And is there more to do in terms of sort of further streamlining that OpEx? And then also if you could just quickly comment on sort of your view for the CapEx going forward. You're investing on the semi side, understandably so, but from a maintenance CapEx standpoint, what that number can be on a sustained basis going forward?

Brian Wuebbels

Sanjay, thank you. So on the OpEx front, I would say, and as we've previously disclosed, most of the benefit of our restructuring from last year would start taking hold in Q3 and Q4 of this year. And we're on track. I'd say we are very much there. We gave, I think, last quarter, some perspective on -- about an $85 million run rate, and we're pretty much there. So I think there's probably a little bit more to go. Obviously, you're never done. My mind, we will always look at our competitiveness, our positioning in the marketplace, where we think we can make fine tunings and improvements, and we will continue to look at that. But we also want to get to a level where we also know that there is some investments that we need to make in certain areas. So we don't want to get into a position where we disadvantage ourselves in a certain area by cutting in the wrong places. So it's about pruning. And I think we are getting it to a point where we feel really happy about what work has done, and we're at a level that we think makes sense. So that's kind of where I see the restructuring sort of ending up.

Sanjay Shrestha - Lazard Capital Markets LLC, Research Division

And the CapEx?

Brian Wuebbels

CapEx. Yes, on the CapEx front, I think what we've always said is that 10% to 15% of revenue of the Semi business is a good, steady state of CapEx for that business, and I don't think that model has changed. We must continue to invest for maintenance capital in there. We also are making, as we mentioned earlier, investments in 300-millimeter to support our customers, and we think those are very important. We have great strategic relationships with the critical customers in the semiconductor market, and we feel it's very important to continue to support them. So I think that's where we're at. On the solar material side, I'd love to tell you that the number is 0. There is going to be a small amount of capital for maintenance, but it's very small. Our model in that business is not to invest further any capital assets in that part of the business. So that's how we look at CapEx.

Operator

Next question is from Stephen Chin with UBS.

Stephen Chin - UBS Investment Bank, Research Division

A question on the opportunistic module sales. Will you do opportunistic module sales in 4Q or '13, and could you share color on what region this is for and how profitable this is, since it is likely -- it seems that there are excess modules out there?

Brian Wuebbels

Yes, great question, and thank you for the question. The answer is we're always going to look at opportunities that make sense for us in the market. The ones that we've had to date have been in Canada. So as we've previously announced, we have 2 module factories that -- our relationship with Flextronics, one in Malaysia and one in Canada. The Canada facility, obviously, meets local requirements. And there's local content requirements that exist in the Ontario projects, and our facility meets those requirements. And with the building out of the Canadian projects that exist up there, there are many companies who have an interest in cost-competitive modules for the Canadian market. So look, with the local content requirements and the tariff rate that is available in Canada, these are not modules that you would see available at unbelievably crazy prices that you may see in other places of the world because they don't -- if they're not locally manufactured and don't meet the requirements, you can't put them in the projects. So there's a different economic that exist in that arena, and we happen to have capability and capacity there. And we have some great relationships that our Canadian team has developed throughout the value chain up there, all the way from the energy providers through the component manufacturers up there. And to the extent that we can look for opportunities where we can help them balance some of our capacity for our project timings, absolutely, we'll look at it. This is not something, though, that we're sitting here saying there's going to be a consistent amount every quarter because it's not really something that we can predict. It's more of if we've got capacity, we believe -- we know we are competitive, and we'll take advantage of those opportunities. So hopefully that helps explain kind of our dynamic there. It's not an overt effort to go sell modules and compete at less than cash cost prices. That makes no sense.

Stephen Chin - UBS Investment Bank, Research Division

Got it. Also, a question on SunEdison system-based profitability. So if you did not do these opportunistic module sales, what would be the standalone traditional SunEdison non-GAAP operating margin would have been?

Brian Wuebbels

So for just the downstream part of the business side, I assume, you're asking? Is that correct?

Stephen Chin - UBS Investment Bank, Research Division

Right.

Brian Wuebbels

Yes, so I think we've always previously stated that our gross margins in that business we fully expect to be in the 20% range. And I'll tell you that in Q3, we were a little bit less than that, and most of that was driven by noncash intangible amortization associated with our acquisitions of the pipelines of the past. If you would have stripped out that noncash intangible, we would have been pretty much right at that targeted gross profit range. So I think that's what we fully expect to continue to see in that business.

Stephen Chin - UBS Investment Bank, Research Division

Okay, great. Question on cash and liquidity. So what do you think is your average liquidity level on a normalized basis going forward?

Brian Wuebbels

Sorry. Can you please repeat the question?

Stephen Chin - UBS Investment Bank, Research Division

Sure. Could you give us some color on what is your average liquidity level required on a normalized basis?

Brian Wuebbels

Average liquidity? I guess I don't understand the question. Can you repeat -- maybe rephrase the question?

Stephen Chin - UBS Investment Bank, Research Division

Sure. So on a normalized basis going forward, what -- how do you think you'll manage the company? What kind of liquidity level would you manage?

Brian Wuebbels

Got it. Yes, and I think we've previously stated that, obviously, having above $500 million of cash, not liquidity, but cash, has sort of been a target that we think is prudent and appropriate. Clearly, we're above that now, and we think that's a -- given the market and the environment that we're in right now, we think it's prudent to maintain a little bit higher than our average cash and liquidity position. So we feel very comfortable with where we're at right now. And I'd say this is -- we're in a good place right now.

Operator

Your next question is from Vishal Shah with Deutsche Bank.

Vishal Shah - Deutsche Bank AG, Research Division

Just wanted to clarify the pipeline of 2.9 gigawatts mentioned. What is the duration of that pipeline? I mean, it looks like more than 1.5 gigawatts of the projects are less than 50 megawatts. I would assume duration would be less than 12 months. So if you could give us some more color on by when you need these -- some of these projects, and are you planning to also explore options to sell some of these [indiscernible] projects as well?

Brian Wuebbels

I missed that last piece of the question. I understood the first part of the question, which is 1.5 gigawatts is less than 50 megawatts, and so when do we expect to build out those projects. And please repeat the last part of the sentence?.

Vishal Shah - Deutsche Bank AG, Research Division

Yes, I wanted to understand if you were looking to sell some of these projects for construction as well.

Brian Wuebbels

Got it. So I'll address the first one. So we believe when we look at our pipeline, obviously, there is a portion of that pipeline that we'll be able to build -- be built out in the next 12 to 18 months and another portion that would likely to extend out 3 to 4 years. And so you're right. The smaller projects clearly have a shorter window, which they have the capability to be built out in. But in a lot of those cases, even projects that are 25 to 50 megawatts, you still have utility scale projects in there that have longer interconnection and cycle times like that. So I don't think looking at the less than 50 and saying they're all should be in the 12-month range is probably correct. It's probably more like a blended average that's 24 months is probably a more reasonable expectation.

Vishal Shah - Deutsche Bank AG, Research Division

Okay. So is there any plans of selling some of these projects or pipeline? Or are you planning to build all of them?

Brian Wuebbels

Look, we believe that the pipeline is unbelievably valuable for us to build out. But as we've stated previously, to the extent that there are individual projects or groups of projects that make sense because the economics are matched up, because for whatever reasons somebody has a much higher valuation on it today, and they're willing to pay us an unbelievable price for it, then we're willing to sell. And we've always stated that. We've said it's not our goal to sell our pipeline because we believe the maximum value that we can accrue from it is to build it out. But to the extent that there's opportunistic ones here and there, absolutely, we will explore those.

Vishal Shah - Deutsche Bank AG, Research Division

That's helpful. And then how do you think about the pricing of some of these projects? If you think about where prices are today, and we are hearing prices in the low $2 per watt levels for some of these systems in North America, whereas you guys are talking about high 3s, and I'm trying to understand whether it's because some of these products were legacy PPAs or whether you have some other dynamics that are helping you, whether it’s Canada projects are helping you as well?

Brian Wuebbels

Great question. I think -- very astute point. Absolutely, if you are competing in large-scale California 2015 and '16 projects, I think the number that you mentioned is exactly where you need to be at to compete. So we believe that the reason our average is a little higher is exactly that diversification. We are not dependent upon the large-scale North America utility projects in our pipeline. We have a very diverse pipeline. Canada absolutely has the higher ASP. Other developing countries have different ASPs, and we believe that's the differentiation that SunEdison provides to our competition is that we have a very diverse size and geographic mix that allows us not to be dependent upon one market or one size of project to dominate our business. We're very diverse, very flexible, and we feel that positions us well going forward. So you're right. If you have to compete in a very specific space, life could get really tough in 3 to 4 years at those prices, but those prices are real.

Vishal Shah - Deutsche Bank AG, Research Division

That's helpful. And then one last question on the Samsung JV. Can you just clarify where you stand today on that? And is that plan going to be still for Solar? Or is it going to be for Semis?

Brian Wuebbels

Yes, thank you for the question. The project is progressing along as planned, and it's only going to be Solar, as we mentioned. We have no plans to make semi-grade poly at that. So progressing along well. Still expect to produce silicon late next year.

Vishal Shah - Deutsche Bank AG, Research Division

And when do you expect to receive payments from Samsung as part of the JV?

Brian Wuebbels

Well, that is part of all of the cash flows that we've previously disclosed. So as we deliver equipment -- obviously, we got an intellectual property license upfront in 2011. We disclosed that. And then as we go along, we both contribute to the construction of the facility on a pro rata basis, 50-50. And then as we deliver equipment that we've said, which is proprietary and our technology, then we get paid back from the joint venture for those monies. So as we've previously disclosed, over the life of this deal, it will be cash flow neutral to MEMC.

Operator

Next question is from Brian Lee with Goldman Sachs.

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

First off, how big was the pipeline at the beginning of 2011 and also at the start of 2012? I guess, as a follow-up to Vishal's question, I'm trying to better understand the philosophy of deployment here and if that significantly changed.

Ahmad R. Chatila

Okay. At the beginning of '11, it was around 1.6 gigawatts. We added 1.4 in 2011, and it's been flattish all year long. We aggressively pursued pipeline in '11 because we felt the material market is going to collapse. So that's why we did it. We're happy that we have it. It gives us a great potential for the future. And now, in this year, we spent a lot of time on restructuring and rebalancing the company. So we added projects equivalent to the amount that we installed. That's how you have to think about it. But in the future, that would change, too. We will grow the company, and the pipeline, hopefully, will increase.

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

Okay, that's helpful. And then for you Brian, can you elaborate a bit on the prior answer around liquidity levels of $500 million? Is that number due to covenants? Or is that the level that you think would be needed to deploy volumes in SunEdison at some internally derived minimum target run rate? I'm just trying to better understand the $500 million number.

Brian Wuebbels

No, great question, Brian. Look, $500 million for us is more of a -- what's that level that we believe will allow us to absorb any shocks or any -- and still maintain a healthy growing business that we have right now. So there's no science -- I mean, there's no -- there's some -- it's kind of like some science, some art. We believe that there's a lot of perception based on this number as well that when you're in an industry like semi and solar and there are ups and downs, that your ability to be viewed as a strong -- have a strong balance sheet and a liquidity position through all parts of the cycle are critical. And so by having sort of this perspective on where we want it to be, it's more about that than anything else, Brian. It's yes, we have numbers that we think we must have to maintain liquidity in our Semiconductor business to be able to make the right CapEx investments, to be able to make the right working capital investments. Clearly, there's a model for -- that you can lay out that you say, hey, if your minimum sort of breakeven like we talked about last quarter is 75 megawatts or so per quarter you can kind of lay out at $2 to $2.50 a watt of total cost what that working capital need is. So yes, there's absolute science in how we get to that number, but there's a little bit of art as well, which is what's the external perception of our company from a stability point of view. And that's how we sort of get at this $500 million number. So hopefully, that helps.

Operator

Next question is from Edwin Mok with Needham & Company.

Edwin Mok - Needham & Company, LLC, Research Division

I'd like to come [ph] forward [ph] on the ASP, just kind of talk a little more near term. If I look at your year-to-date number, it's at a high 3s, but you still just guided -- keeping your guidance at $3.50. Does it imply a lower ASP in the fourth quarter? And if so, is it just because of mix? Or what's the driver behind that?

Brian Wuebbels

It's a great question, Edwin. A little bit of it, I’d tell you, is absolutely mix. So as you mix in DG projects versus some Southwest U.S. utility projects, you're going to see a little bit lower mix that's going to come out of this. It depends on the type of projects, whether they’re Canada or U.S. as well. So a little bit of it is mix, which is why we continue to reiterate that we feel comfortable with where our profitability is, even at a lowering ASP because in a lot of cases when the ASP lowers, the balance of system and over the system cost is definitely lower as well. So it sort of moves in tandem with one another. And I would say a little bit of good old-fashioned, make sure we're prudent in our estimates.

Edwin Mok - Needham & Company, LLC, Research Division

I see. That's fair. And then just quickly on the pipeline. As we kind of think about 2013 and '14, right, how do we kind of think about -- at least how do you think about conceptually how the pipeline will progress? I mean, right now you have a very high exposure to North America. Do you expect that to change? And also in terms of the size, do you expect still this kind of even -- relatively even distribution of sizes of projects? Or do you expect a higher mix of small or larger projects? How do you think about that?

Brian Wuebbels

Great question. I think -- look, I think North America will continue to be a robust market in solar going forward, at least for the next several years. But we also believe that our position in some of the emerging markets is also a differentiator, and we believe that, that will continue. And having -- as Ahmad mentioned earlier, we are currently -- we don't see Western Europe as an opportunity space in the short run. We just don't. And we've redeployed some of our top resources out of that region to other areas. And so I think what you're going to see is, I think, the aggregate mix probably isn't going to change much. You'll have -- in any given quarter, you may have a small mix change given a project coming in a developing region or from the North America. But our overall focus, as a company, I don't think is going to change. On the size, I think, over time, you will see that change. I think you're going to see less reliance on -- we have minimal, what we consider, reliance compared to a lot of our competition on large-scale projects, and I think that will continue. And I think DG we think is a place where we started SunEdison, and we’ve continue to be a strong player in that market. And we think that is certainly a place where we'll participate in the future. So I think you're going to see the diversity you see today. It may mix a little here and there from quarter-to-quarter, but we believe that our prudent mix of country versus size is absolutely a differentiator and absolutely something we'll stay focused on, on a go-forward basis. So hopefully, that helps.

Edwin Mok - Needham & Company, LLC, Research Division

Yes, that's helpful. One last question. So we start to hear more talk about solar leasing, right, in the residential side and, in fact, start to see that in the commercial side as well, right? I was wondering what's your thought about that, and are you guys considering doing that for some of the commercial applications?

Brian Wuebbels

Sorry, repeat the question?

Edwin Mok - Needham & Company, LLC, Research Division

Yes, so on the residential solar market, right, we hear a lot about leasing, right? I mean, SunPower talks about it a lot in their call as well, right? And we start to hear that even on commercial installation, right, even larger-scale commercial installation, companies start to pitch that as a different way of structuring deals, right? Have you guys done anything like that? Or are you guys looking to do anything like that?

Brian Wuebbels

So for residential -- so obviously, the answer is yes. SunEdison is the one who developed the model of doing the sale-leaseback transaction for the commercial market. Yes, we were the innovator 5 years ago to that model. That's the $1.5 billion worth of nonrecourse debt that's on our balance sheet is sale-leaseback transactions for the commercial market. So we are a significant player in that space and an innovator in that space. As far as residential, we believe that is an interesting market. We think there's a lot of change that's going to happen in that space over the short and medium term, and we continue to be interested in participating. But as far as leasing as a solution, yes, we absolutely think it's a model that makes sense, and we were the innovator.

Operator

And we'll turn it back over to our speakers. Please go ahead.

Chris Chaney

Thank you very much. We wanted to just thank everyone for joining the call with us today, and have a great morning.

Brian Wuebbels

Thanks, everyone.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

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