SunEdison (NYSE: SUNE) Semiconductor IPO

SunEdison to Split off Business

By Jon Carter
Friday, August 23rd, 2013

The solar field has gone through its ups and downs, but some in the private sector refuse to give up on this lucrative sector.

It can be a profitable field; it is just a matter of knowing where to look.

solarOne company to start with is SunEdison (NYSE: SUNE) – considered by far the largest American supplier of wafers for solar cells and semiconductors.

Formerly known as MEMC Electronic Materials Inc., SunEdison has taken a new direction in the energy field. It's headquartered in Belmont, California, but it has a global presence across the U.S., Europe, Japan, and South Korea.

The company provides solar products and services for the government, homeowners, utility companies, schools, and businesses.

But things are about to change for the better.

Corporate leadership has decided to split the company into a different branch: SunEdison Semiconductor Inc.

This branch of the company will be an independent unit, with its own board of directors.

This board of directors will sell a minority stake to the public, with revenues received from the IPO going toward solar ventures, corporate governance, and to pay down any debts incurred.

Registration papers are expected to be filed with the Securities and Exchange Commission in the third quarter of this year.

But why is the company devoting an entirely separate company to semiconductors?

SunEdison is doing well in the semiconductor trade, despite a slump in the solar wafer market, but it also sees long-term growth in solar.

Still, it needs capital to fund solar excursions, and I think this strategy can be successful.

Although the two are not mutually exclusive, juggling solar and semiconductors in one company does not allow each field to fully flourish. Semiconductor materials include wafers for solar cells, as well as chips used in cars and computers.

With a separate company devoted to semiconductors, the company can satisfy investors interested in this field, while pouring more funds into enhancing solar projects separately. And this strategy will draw in more investors not previously interested in the solar field.

A separate company would give solar enough finance breathing room, and vice versa for the semiconductor department.

There is profit to be had in both sectors, but the two areas are essentially crowding each other out within the company.

Company Performance

SunEdison shares gained 15 percent to $7.90 as of Friday morning. On Thursday, the stock jumped 23 percent upon news of SunEdison Semiconductor Inc., the fastest surge since August 2012.

In its second quarter report, revenue declined overall, but the semiconductor business rose by 2.7 percent to $239 million. The solar portion fell 72 percent to $162 million.

The company fully acknowledged the extended slump in the semiconductor wafer market was responsible for the fall in revenue, but it did manage to churn out a slight profit. It may seem as if solar is unprofitable for SunEdison, but there is a saving grace.

There was a cash increase of $16.4 million – thanks to solar project financing and an improvement in capital management.

At least in the case of SunEdison, solar looks more profitable going forward; solar related ventures did well in terms of pipelines and backlog, according to the official report by the company.

By the second quarter, SunEdison finished with a project pipeline of 2.9 GW, up from 218 MW in the previous quarter.

Overall, SunEdison has connected 989 MW of solar power throughout the world.

Over 200 MW of power are still in a state of flux, stemming from backlog and pipeline projects not fully operational.

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Is it Worth it?

This company’s IPO is definitely worth jumping on.

SunEdison is forging partnerships abroad, including a recent endeavor with Brazilian energy giant Petrobras (NYSE: PBR) in the construction of one of the largest PV plants in Brazil. Construction is expected to begin at the end of 2013.

And with sudden demand growth for solar installations in China and Japan, SunEdison is slated to do well in future quarters if it focuses on a more global strategy.

Other solar companies like Sunpower (NASDAQ: SPWR) and Canadian Solar (NASDAQ: CSIQ) are reaching full capacity to meet Asian demand.

The supply glut of cheap, Chinese panels will be with us for another year or two, but this can work to the advantage of SunEdison.

Other companies like First Solar (NASDAQ: FSLR) have entered the solar farm business because of low panel prices, and SunEdison hopes to do the same.

Global installations are projected to double to 35 GW in 2013.

The Chinese Development Bank has cut off most of its financial support to its domestic solar industry, and the EU is set to impose tariffs on Chinese panels, so we won’t have to worry about another supply glut anytime soon.

But the Chinese government is looking to create domestic demand, and Japan will be investing more heavily in solar to compensate for the shutdown of most of its nuclear reactors.

With the new branch of SunEdison set to debut, the company will be in a perfect position to excel in the semiconductor business while generating enough capital to meet growing solar demand, both abroad and domestically.

Stay tuned for the company’s third quarter report.

 

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