Suntech Power Holdings Co. Ltd. and MEMC have agreed to mutually terminate a solar wafer supply agreement originally entered into in 2006 with a term through 2016. Suntech says it made the move due to rapid changes in the market for silicon wafers.
In connection with the termination, Suntech will relinquish $53 million in prepayments previously made to MEMC, and pay an additional $67 million in four equal installments to be made between July 2011 and April 2012.
In addition, Suntech will take a non-cash accounting charge of approximately $92 million resulting from the write-off of unamortized cost associated with warrants previously issued concurrently with the supply agreement in 2006. In total, Suntech expects to incur $212 million of expenses related to the terminated supply agreement in the second quarter of 2011, of which $67 million will be additional cash outlay.
As a result of the termination, Suntech is no longer required to purchase approximately 4.6 GW of wafers between 2011 and 2016. This change will allow Suntech to optimize its silicon sourcing strategy, including maximizing internal wafer production, and lead to estimated cost savings of over $400 million in the next five years, the company says.
Separately, Suntech will discontinue its investment in CSG Solar AG, a subsidiary of Suntech dedicated to the research and development of specialized crystalline silicon thin-film technology, and incur a one-time, non-cash charge of approximately $24 million in the second quarter of 2011.