Suntech and MEMC terminate long term silicon wafer supply agreement

SAN FRANCISCO, USA & WUXI, CHINA: Suntech Power Holdings Co. Ltd, the world's largest producer of crystalline silicon solar panels, announced that due to rapid changes in the market for silicon wafers, Suntech and MEMC have agreed to mutually terminate a solar wafer supply agreement originally entered into in 2006 with a term through 2016. Suntech also announced that it will incur a one-time expense related to the discontinuation of CSG Solar's research and development operations.

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 4.6GW of wafers between 2011 and 2016. This 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.

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.

Dr. Zhengrong Shi, Suntech's chairman and CEO, said: "The termination of this agreement with MEMC will bring greater flexibility to our sourcing strategy and help us benefit from the continuing drop in silicon and wafer prices. While we have brought closure to this legacy agreement, we look forward to continuing collaboration with MEMC in areas including mutually beneficial supply relationships that support the growth of both companies. The closure of CSG will allow us to better focus on what we do best – supplying high performance and reliable crystalline silicon solar panels to global markets.

"While these charges are significant, they are all non-recurring and our core operations continue to perform well. We are seeing growing opportunities for utility-scale solar projects throughout the world and we are on track to meet our shipment guidance of low single digit sequential growth in the second quarter of 2011."