Semiconductor and solar technology provider
MEMC Electronic Materials Inc.
) reportedly resolved a supply dispute between its Italian unit and
specialty chemical company, Evonik Industries.
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Germany-based Evonik Industries supplied trichlorosilane (or TCS,
which was used as a raw material for the production of silicon
wafers) to MEMC's Italy-based polysilicon facility for producing
ultra-pure silicon chips. But MEMC terminated two long-term supply
agreements with Evonik, as it had decided to abandon the 6000
(metric ton) MT polysilicon plant in Merano.
Under the terms of the settlement, MEMC will pay €70.0 million
(roughly $88.0 million) to Evonik for resuming supply of TCS to
MEMC's polysilicon facility located in Merano, Italy. However, MEMC
is not planning to resume its production soon. Of the total
obligation, €10.0 million will be paid in the coming quarter, while
the rest will be paid in five quarterly installments. The Italian
arm of MEMC also announced its decision to acquire Evonik's TCS
manufacturing plant in Merano. But financial details regarding the
takeover were not mentioned.
Earlier, in December 2011, MEMC announced a major restructuring
effort in order to reduce costs and improve cash flow. The agenda
of the restructuring initiative included reduction in global
workforce across its business segments, scaling back production
capacity and uniting the poorly-performing Solar Materials segment
with the Solar Energy segment.
To deal with the oversupply situation in the semiconductor and
solar markets, MEMC decided to idle its 6000 MT Merano polysilicon
facility, reduce production capacity at its Portland, Oregon
crystal facility and limit capacity at its new Malaysia solar
wafering facility to 300 MW (mega watt).
These actions were mainly aimed at cost control. MEMC plans to keep
these two plants idle till some cost-related issues get cleared
with the Italian government.
Though the solar industry is going through tough times, MEMC's
solar business continued to do well in the last quarter, aided by
higher sales of solar systems. If the trend continues in the coming
quarters, the reopening of the Merano plant could prove to be
beneficial as MEMC will be able to produce polysilicon (raw
material for producing solar chips) at a cheaper cost.
Though the solar system sales trajectory looks impressive, we are
concerned due to cessation of MEMC's long-term solar wafer supply
Suntech Power Holding Co. Ltd.
), lack of new long-term supply agreements and stiff competition
from the likes of
JinkoSolar Holding Co. Ltd
First Solar Inc.
Currently, MEMC has a Zacks #3 Rank, implying a short-term Hold