MEMC Electronics Materials Inc. (WFR) will get about $120 million under an agreement with Suntech Power Holdings Co.'s (STP) Singapore unit to terminate a long-term supply agreement.
The companies signed a 10-year supply agreement in 2006 under which MEMC was to supply solar wafers to Suntech. As part of that deal, Suntech advanced funds to MEMC in the form of a loan or deposit and MEMC received a warrant to purchase up to a 4.99% stake in Suntech.
But MEMC said Friday that issues tied to Suntech's price and volume purchase obligations since the market downturn in early 2009 have created challenges.
China-based solar-panel maker Suntech anticipates a write-down of about $92 million and expects total second-quarter expenses of $212 million related to terminated contract. It also expects charges of $24 million related to plans to discontinue its investment in a research and development unit focused on solar thin-film technology.
Suntech's American depositary shares were down 2.2% at $7.70 in recent premarket trading. They are down 17% in the past year.
MEMC, which makes silicon wafers for the solar and semiconductor industries, will retain $53 million it previously received from Suntech under the supply pact and receive from the China-based solar-panel maker a $67 million letter of credit, which can be tapped in four equal installments starting July 8 and ending in April.
Suntech expects cost savings of over $400 million in the next five years, partly owing to maximizing its internal wafer output.
Ken Hannah, president of MEMC's solar-materials business said the company began to diversify its customer base in 2009 and that the contracted wafer sales to Suntech had fallen to just 2% of the segment's total in the first quarter from more than half in 2009.
Suntech in May reported that its first-quarter earnings rose 54% as shipments and revenue surged though currency hedging losses and concerns over sales in Europe weighed on the bottom line.
MEMC in May said its first-quarter loss narrowed, though adjusted results still missed analysts' estimates. Revenue jumped sharply, helped by strength in its solar segments.
MEMC shares closed Thursday at $8.53 and were inactive premarket. The stock is down 24% this year.
-By Tess Stynes, Dow Jones Newswires; 212-416-2481; Tess.Stynes@dowjones.com