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  • floppy_6 floppy_6 Mar 25, 2006 8:59 PM Flag

    Wendy IPO

    In June 2005, ESLR entered into short-term supply agreement (18 months) with MEMC. Under the term of first part of supple contract, MEMC would supply ESLR with 10 Metric tons of silicon. The second part of contract called for the delivery of 90 MT silicon. In return, ESLR provides with significant upfront fee with "reduced" subsequent pricing. A breakup clause specified the reimbursement of "excess payments" if MEMC failed to deliver. MEMC informed ESLR that it will not fulfill the remaining delivery obligation of 52MT and that MEMC intends to return the "excess payment". To counter this supply disruption, ESLR has sourced chunk silicon.

    In Nov. 2005, Everygreen has entered a long-term 7 years agreement with REC "the world largest manufacturer of solar-grade silicon. Under the term of agreement, REC agreed to provide ESLR with 60MT of silicon and provide 190 MT annually. In addition, REC became a partner/shhareholder in Evergreen/Q-Cell/Rec jv partnership.

    Note: MEMC supplied ESLR's massachusett's plant. REC is to supply their JV venture in German. The latter one is ESLR's future.

    The reason why MEMC breaches the contract:

    1) By signing and partnering with REC for EverQ German fab, ESLR sent a strong message to MEMC - You are not our long-term choice of supplier. Since it is only short-term, why MEMC has to stick with the agreement.

    2) It looks like that ESLR secured a contract by paying a "significant", "excess" upfront fee. And penalty to breach the contract is no more than returning the "excess" fee. So MEMC has no reason not to breach the contract once they realized that later "reduced" pricing no longer satisfactory in current market.

    As to the implication to SPWR, I believe that all suppliers signed agreement more or less in the manner like ESLR did with MEMC. The binding obligation is really very little as far as the finance is concerned. However, with the parent company as CY and a sincere inclusion the silicon supplier as a long-term partner, I don't see any need for SPWR's silicon supplier to breach the contract.

    The binding power is more relying on the long-term mutual-benefited relationship than any short-term financial advantage. IMHO.

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