SAN FRANCISCO— Solar panel provider Suntech Power Holdings Co. Ltd. agreed to pay silicon wafer supplier MEMC Electronic Materials Inc. $120 million to terminate a long-term wafer supply agreement between the two companies, MEMC said Friday (July 1).
Under the terms of the agreement, signed in July 2006, MEMC was to supply solar wafers to Suntech over a 10-year period, with pre-determined pricing, on a take or pay basis beginning in January 2007. As part of the original supply agreement, Suntech advanced funds to MEMC in the form of a loan/security deposit and MEMC received a warrant to purchase up to a 4.99 percent equity stake in Suntech.
MEMC said that since the market downturn in early 2009, issues with respect to Suntech's price and volume purchase obligations under the supply deal created challenges. The two companies amended the agreement twice in 2009, then agreed to terminate the deal altogether this week, MEMC said.
In exchange for MEMC's agreement to terminate the supply agreement, Suntech agreed to forfeit to MEMC $120 million, including $53 million in cash deposited previously by Suntech with MEMC and another $67 million irrevocable letter of credit established by Suntech for the benefit of MEMC, according to the company.
Suntech has gone from accounting to more than 50 percent of MEMC Solar Materials' business in early 2009 to just over 2 percent in the first quarter of 2011 to zero in the second quarter, said Ken Hannah, president of MEMC Solar Materials, in a statement.
"By putting this behind us, we look forward to establishing a new and beneficial commercial relationship with Suntech," Hannah said. "MEMC's overarching strategy in solar, which includes wafer production, a diversified wafer customer base and a strong downstream pipeline through SunEdison, remains unchanged."
MEMC said it is still assessing the financial impact on its second quarter and full year 2011 earnings of the Suntech termination, related contract termination charges, and other restructuring actions being implemented by company management in response to the market downturn.