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Executives

Thomas Young – VP, IR

Jifan Gao – Chairman and CEO

Terry Wang – CFO

Zhiguo Zhu – SVP and President, Module Business Unit

Analysts

Kelly Dougherty – Macquarie

Mark Bachman – Avian Securities

Vishal Shah – Deutsche Bank

Shar Pourreza – Citigroup

Aaron Chew – Maxim Group

Satya Kumar – Credit Suisse

Pranab Sarmah – Daiwa Capital Markets

Jim Medvedeff – Cowen & Company

Trina Solar Limited (TSL) Q3 2012 Earnings Call November 20, 2012 6:30 AM ET

Operator

Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trina Solar Third Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to hand the conference over to your host today, Mr. Thomas Young, Vice President of Investor Relations. Sir, you may begin.

Thomas Young

Thank you. Good day to all, and welcome to Trina Solar’s third quarter 2012 earnings conference call. This is Thomas Young, Trina Solar’s VP of Investor Relations. With us today are Trina Solar’s Chairman and CEO, Jifan Gao; Chief Financial Officer, Terry Wang; and SVP and President of Trina Solar’s Module Business Unit, Zhiguo Zhu.

Before I turn the call over to Mr. Gao, may I remind listeners that in this call, management’s prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today and therefore, we refer you to more detailed discussions of the risks and uncertainties in the company’s filings with the Securities and Exchange Commission.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 20, 2012. Trina Solar assumes no obligation to update these projections in the future as market conditions change. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days at the Investor Relations section of Trina Solar’s website at trinasolar.com.

And with that, it’s my pleasure to turn the call over to Trina Solar’s Chairman and CEO, Mr. Jifan Gao, for our third quarter opening remarks.

Jifan Gao

Thank you, Thomas, and thank you, everyone joining us today. During the third quarter, the solar TV industry continued to present challenges as supply-demand imbalance, high inventories and irrational pricing practices by our larger and smaller competitors. As a result, greater than expected ASP declines adversely impacted our gross margin, overall shipments and bottom line.

To address this and market conditions, operating instances for the third quarter included retaining all the customers, managing working capital, streamlining our organization to reduce OpEx per account and operating costs. As part of this streamlining, in the third quarter, we instructed our global operating into distinct module and system business units. We did this to better manage our modules business, the foundation of technology, driving innovation and cost leadership.

We have seen some efficiency businesses around the world. Over less than six months, we have made progress on our growing system business in the domestic market.

Most recently, we have obtained the land use rights for a large scale, multi-phase solar power project in Eastern China, where we’ll continue to expand our downstream operations to enhance our profitability from added customer service and product implementations.

Our assumption then is we’ll cover the increasing percentage of our total revenue in the coming years. Our target for 2013 is 20%. To increase our market penetrations to new regions in the third quarter, expand our presence into Latin America by establishing a sales and business development office in Santiago, Chile and putting to formal operation our APMEA headquarters in Singapore.

Amidst the challenging industry condition, we continue to be committed to improving our manufacturing and product quality. In the third quarter, we achieved that the Carbon Footprint Verification from BSI and became the first PV company to be awarded the CTDP certification by UL.

In summary, Q3 was streamlining our operations and expanding into profitable markets strategy maintaining leadership as the PV industry works through consolidation. We’re also encouraged by increasing product development for China’s PV market growth, which we believe can support we are developing.

With that, I would now like to hand the call to our CFO, Terry Wang, to share our third quarter 2012 financial results and other updates. Terry?

Terry Wang

Thank you, Mr. Gao, and welcome, everyone, to our call today. I’d like to present our overview of our third quarter financial results, followed by our commercial organization updates and our company guidance for the fourth quarter the full year of 2012.

Average selling price of PV modules continued to decline in the third quarter due to worldwide supply imbalance linked to the reduction and the transition of our feed-in tariffs program to PPA-based investment models, existing and newer PV solar markets.

Related to market factors, as we have discussed shortly, our third quarter shipments were approximately 380 megawatts compared to our revised guidance of 375 megawatts to 385 megawatts.

Our gross profit was $2.4 million. Gross margin was 0.8% compared to the revised guidance of zero to 1.5% and to 8.4% in the second quarter of 2012. Gross profit includes a non-cash inventory write-down totaling $13.3 million and a reversal for prior provision for anti-dumping and countervailing duties in the United States totaling $25.8 million.

Excluding the result of the anti-dumping and subsidies provision reversal and non-cash inventory write-down, gross profit and margin were negative $10 million and negative 3.4% respectively. Operating expenses in third quarter, which include one-time tax and organization restructuring charges totaling $15.2 million, was $78.3 million, a decrease of 27.2% sequentially.

Overall, we incur a $76-million operating loss in the third quarter corresponding to negative 25.5% operating margin. We realized a third quarter net currency exchange gain was $18.2 million compared to a net loss of $22.5 million in the second quarter. Reflecting our geographic diversification, euro-denominated revenues represented approximately 51% of total sales in the third quarter compared with 59% in the second quarter. And U.S. and other currency were 27% and 22% respectively in the September quarter.

Our third quarter net loss was $57.5 million, representing a net margin of negative 19.3%. Third quarter loss per fully diluted ADS were $0.81 compared to $1.30 loss in the second quarter. Due to lower capacity utilization, our non-silicon manufacturing costs increased from $0.52 to $0.54 in the third quarter, primarily due to the higher unit depreciation in energy costs resulting from reduced output. From a long-term contract renegotiation purchases, our third quarter silicon costs was improved to 13% sequentially. This lowered our P&L cost in the 22 per kilogram range.

For fourth quarter 2012 and forward, we expect our silicon cost to fall further, but at a milder pace than in the recent quarters, as we work further through our inventory and continue negotiation with our long-term and short-term suppliers.

Moving to our financial condition, our cash and cash equivalent and restricted cash balance was approximately $703 million as of September 30 versus $841 million in June. Working capital balance decreased to $361 million from $545 million previously, reflecting $96 million improvement in a sequential inventory balance to approximately $367 million.

To our capital structure in the third quarter, we’ve reduced our short-term and long-term borrowing balance by approximately $44 million and $35 million respectively. We also repurchased additional $14.9 million of July 2013 senior convertible notes. This results in a $1.8-million gain while lowering the convertible principal balance to under $89 million, which we feel is quite manageable forward.

This brings us to our guidance for the fourth quarter and fiscal year 2012 as follows. For the fourth quarter of 2012, we expect now shipments to be 380 to 400 megawatts. We expect now overall gross margin will be similar to that in the third quarter of 2012. Such guidance is based on average FX rates between euro and U.S. dollar as of November 20, 2012.

The company revises its expectations for total PV margin shipments to be between 1.55 and 1.6 gigawatts for the full year of 2012 compared to 1.75 to 1.8 gigawatts previously, representing an increase approximately 2.6% to 6% from 2011.

Our third quarter CapEx was limited to $11 million, approximately equal to that of previous quarter. As such, we expect now significant reduction from our previous quarter for full year 2012 capital expenditure estimate, approximately $200 million to a figure closer to $170 million.

Operationally, we have solidified our project system business teams while increasingly active in America, Europe, China and our APMEA regions, evaluating and negotiating at various stages to regional pipelines for commercial energy, utility scale projects for 2013 and beyond. In China, we are encouraged by increasing flow of supportive solar target programs where we recently signed a land use agreement to support our large scale, multi-phase utility-scale projects in Eastern China.

Our American project development team has performed 100 to 200 megawatts of utility scale PPAs that will be built in the 2013 and 2014 with a three-year goal to increase to 300 megawatts or more by 2015. We are advancing this and other regional projects soon to make project-specific press announcements, specifically where significant impact is expected to our 2013 business.

Lastly, as Mr. Gao introduced, I would like to focus on our recent organization structure and streamline initiatives. Extended from our four regional commercial restructuring discussed on our last call, we have separate our PV module and systems business units and assets, and the TSL parent company. We will view this as a strategic requirement to efficiently and profitably respond to meet our customers’ increasing segments and business models as PV power generation approaches, as well as to align our service offerings and the internal support functions required for our increase in project system involvement, which are approached and financed differently across our geographically operational regions.

Our restructure partners were accompanied by a reduction in management head count both within outside China to better allocate our resources to capture profitable commercial opportunities and to control expenditures amid current industry conditions. The result of the streamline we anticipate will improve to our annualized OpEx in the middle range of $20 million. Further, we will continue to identify cost reductions opportunity into 2013, which we can update on our next call.

And with that, I would like to turn the call to Zhiguo Zhu, our Global Head of Module Business Unit. Zhiguo?

Zhiguo Zhu

Thank you, Terry. Hello everyone on the call. As the Head of our newly formed Module Business Unit, it’s my pleasure to update you on our commercial and market environment today. It is important to highlight that despite our sequential shipment decline, demand production of Solar brand was still strong in the quarter, as measured by quotation requests and negotiations.

Given overall market supply and demand impacts, the following integrated conditions impact negatively to our results. Firstly, continued ASP declines in excess of our key material cost reductions. Secondly, the presence of irrational pricing by our competitors, especially those at risk of financial insolvency.

Certainly, case by case decision to focus all opportunities if price, customer credit, quality are under commercial terms fails to meet our request. To address this challenge forward, we are focusing on sales and marketing efforts to end user segments and sub-segments, who they will add the premium to our recognized and trackable quality and performance.

As well, our balance sheet strength of cash, cash-related expenses we are also focusing commercial attentions to customers with increased requirement for our globally-recognized quality of testing and transparency as recognized by British Standards Institute, Underwriters Laboratories and SBTC’s solar snow cart.

To further appreciate our offerings, we continue to increase shipment of new innovative technology-driven products, including our technology-based modules, and our recently introduced Trinasmart AC module solution, which has been successfully received in both Europe and the Americas.

And now, I would like to turn the call back to Thomas to commence Q&A.

Thomas Young

Thank you, Zhiguo. And we would like to request those participating today to limit questions to two each with a short follow-up to offer all those in the queue access. Operator, you may now proceed to open the line.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Kelly Dougherty with Macquarie.

Kelly Dougherty – Macquarie

Hi guys. Thanks for taking the question. With the increase in non-poly costs in the third quarter due to underutilization and then you’re expecting a similar slightly higher shipment level in the fourth quarter, how should we think about that goal of getting below $0.50? Is that on kind of a pre-underutilization basis or maybe not from an accounting perspective going to be attained for the end of the year or how should we think about that?

Terry Wang

Hi, Kelly. This is Terry. I think that’d be $0.02 higher than previous quarter and mainly due to – that we point due to the underutilized capacity. And with the second quarter, we fueled up the inventory. We want to reduce the inventory. So, that’s come up.

But if you look at the cost reduction area, it’s picked up to that part aside in the company. They’re actually coming down. So, you put it in the full capacity utilized and that’s coming down. And so to answer your question about if we are targeting end of $0.50 and that would be achievable in this quarter in the fourth quarter if the capacity if fully utilized. But even with this time, so we have a chance to cut down our non-poly process cost down approaching $0.50 as much as we can in this quarter.

Kelly Dougherty – Macquarie

Can you help us think about how to quantify underutilizations? So, I appreciate at 100% or close to 100%, you’d be below 50%. But it’s probably not going to be at those levels in the fourth quarter. So, can you help us think about where you see you’re going to produce from a utilizations standpoint or maybe how much you think underutilization could weigh on the results in the quarter?

Terry Wang

Sure. The point is that right now in the power, we will $0.05 per watt. Now, it’s about $0.08 and approximately (inaudible) depreciation. For now, we only have approximately 50% utilization. If we come back and so we can ship more and fully utilize, we can come back to the depreciation by approximately $0.05.

So, use that as a – if it further comes down in utilization, if we could do that, and you’ll be on this basis. So, use that as a reference, so you can calculate what the sensitivity when points coming down are hard. But for the utilization, the point of view, we pretty much in a stabilized mode before we ship – we target the shipment, the slabs and versus the last quarter, in this quarter. So, I think that pretty much in the same range when we’re going to pull our basis depreciation.

Kelly Dougherty – Macquarie

Okay, great. That’s helpful. Thank you. And then just wanted to sort of switch to the project side. I see that the project should account for more than 20% of 2013 revenue. Just want to see if you could give a little more detail on that. What’s the size of the pipeline? Where are they located? I think you mentioned something about 100 to 200 megawatts of U.S. PPAs. So I wondered if there are things you’re bidding on, if there are things that are signed. Any kind of help you can give us on that would be great.

Terry Wang

Okay. When Mr. Gao pointed out the strategically, we will – one side was focused on build up strong our module business. But the same time, we think that the downstream is going to go into our future efforts.

If next year, we’re going to put a lot of effort on globally, across the border in the U.S. and Europe and China and Asia. In the U.S. the project, basically we are building up some of the projects that are already actually in our pipeline. And again, our PPA already the things that we need to build up next year. And approximately, we’re targeting approximately 100 megawatts there.

And in China, I think that the market there’s going to be tremendous growth we can see from this year to next year. And especially on the project base and we are aggressively and locating some of the land license and top line, we are special on this quarter. And we guess a couple of hundred megawatts.

You can see that we signed the land use agreement in the Eastern part of China and our land can accommodate several hundred megawatts project for several years and for the utility scale, but also the rooftop, a couple of more hundred megawatts in projects there. So if we are so pretty confident next year, we could deliver several hundred megawatts in project base. So now, if you translate it into revenue, that it is 20% of total top line.

Kelly Dougherty – Macquarie

Great. Just one quick follow-up on that for me then. How should we think about profitability of these projects, though, because we’re hearing that everybody wants to get into the project business these days? And particularly in China, profitability is a little tight. So, can you help us think about maybe a 20% revenue, but how should we think about it from a growth or an operating margin perspective?

Terry Wang

Okay. Number one, manufacturing side, we see the margin of manufacturing, we’ve been a few quarters of loss and manufacturing – because the pricing dropped drastically, then the price profitability is squeezed. But we are pretty confident we could get back when pricing stabilize. But more importantly on downstream, we haven’t seen any projects, success of projects that have a loss yet.

But the project we have said in the guidance for will have a pretty much in a project return and the net margin as a target. So for example, it’s a combination of both the module and the balance system in that half in China in selling price to have a gap as approximately the net margin about 10%.

So I think that the – we think is going to be still remain in that range going forward because – and project development is now like in manufacturing. And you need permits, approval and this is actually sort of hurdle for other competitors. So that project-wise, you can get the profitability going forward.

That’s one of the reason we move down to that direction because you know that you mentioned that a lot of company want to do that way. But the point is, we have an advantage that’s been given – we had quite two to three years experience in project development in the PC area and U.S. has been good a couple of years.

In China, we have three assets in China permitting and processed. We have advantages in that area. So think that for the company, we’ll get that delivered. In other company would do that, but it’s all – we believe we have competitive advantages in this area.

Kelly Dougherty – Macquarie

Thanks, Terry. I’ll jump back in the queue.

Terry Wang

Sure. Thank you, Kelly.

Thomas Young

Thank you, Kelly.

Operator

Your next question comes from the line of Mark Bachmann with Avian Securities.

Mark Bachman – Avian Securities

Yes. Hi, gentlemen. Yes, hi. Terry, Thomas, thanks for taking the call here real quick. Terry, I just want to understand your gross margin guidance here a little bit more fully. If I consider your commentary about declining ASPs and also assuming here that you’re going to avoid any anti-dumping and countervailing duties in the U.S., when you say the gross margin’s going to be similar to Q3, are you really saying here that gross margin’s going to be a negative 10% again in Q4?

Terry Wang

No, it’s not that. We’re talking about the...

Mark Bachman – Avian Securities

Terry, I’m sorry. Down 3%, not down 10%. It was minus $10 million in the quarter and minus 3% on the gross margin line.

Terry Wang

So, yes. Thanks for the clarification. We’re talking about overall gross margin. We didn’t say that exclude the anti-dumping diversion. We’re talking about the overall gross margin and targeting in flat. But you know that the market fluctuated and still all with that risk, but we’re targeting. We think we have some reason to continue to lower the cost and the pricing especially in China and U.S. is well and stabilized.

The thing that we want to do is to expand ourselves in Japan and Australia, the place in reaching the high ASP. In Europe right now, a little bit nasty, but we will see. We want to expand other region sales instead to offering potentially the sales numbers. Hello?

Mark Bachman – Avian Securities

Okay. Yes. Thanks for that, Terry. One other question on your shipment performance this quarter. The Trina mindset has always been market share, market share, market share. You’ve always talked about this idea of taking market share and you’ve always seemed to do this at basically any cost. In other words, the Trina is willing to chase the ASP declines down, the ASP declines in the market.

What was the mindset in this last quarter that allowed you to miss your previous guidance by up to 100 megawatts? Why didn’t you chase this again and why didn’t you go after this idea of market share again if the availability was out there?

Terry Wang

This one that the market share expansion that we were talking earlier is in a conditional profitability. And now, we – because if we’re chasing more and you lose more, we will not do that.

So now, we turn to our coin the different side I want to say, the profitability is number one and surpluses for now. So we have to some degree, we even a little bit get rid of the orders that I may lost – even furthermore lost. So that will reduce the (inaudible).

But again, at third quarter in U.S. also have some sort of an impact on the – because of the anti-dumping and the subsidies that the market got impacted. And thus, the – we were short on the shipments in the U.S. side.

But going forward, again the profitability and we are – we should pay a lot attention in there, the market share is going to be secondary. We we’re not going sacrifice too much effort on profitability for shipments.

Mark Bachman – Avian Securities

Okay, excellent. Thanks, guys.

Jifan Gao

Okay. Thank you.

Thomas Young

Thanks, Mark.

Operator

Your next question comes from the line of Vishal Shah with Deutsche Bank.

Vishal Shah – Deutsche Bank

Hello?

Jifan Gao

Hi, Vishal.

Vishal Shah – Deutsche Bank

Thanks for taking my questions. Two questions. First, can you maybe talk about the shipments mix guidance and the fourth quarter guidance? What percentage of your shipments are going to be in Europe and U.S.? And I have a follow-up.

Jifan Gao

Okay. I turn this call, the question to our – to Zhigou, yes.

Zhiguo Zhu

To help with your forecast, quarter four, maybe we have 40% delivered to Europe and 15% are delivered to U.S.

Vishal Shah – Deutsche Bank

Sorry, 40% to Europe, 15% or 50% to the U.S.?

Zhiguo Zhu

15% to U.S.

Vishal Shah – Deutsche Bank

15% to the U.S. and the rest to China or?

Terry Wang

(Inaudible) about more, 25% to China. The other places, roughly 20%.

Vishal Shah – Deutsche Bank

Can you also help me, I must have missed the Q3 mix. Can you quantify what – you mentioned your euro-denominated sales are 50%, what percent of these shipments were to Europe?

Terry Wang

China to Europe could be 50% but in quarter four, obviously China market is growing and we have more delivery to China market.

Vishal Shah – Deutsche Bank

Okay. 60% of your Q3 shipments were in Europe, and that number was down 40%? Is that right?

Terry Wang

Yes, 40%, even less, yes.

Vishal Shah – Deutsche Bank

Okay, then what percentage of your Q3 shipments were to the U.S.?

Terry Wang

Yes, our estimation could be 15% or something, 15% to U.S.

Vishal Shah – Deutsche Bank

Okay. And what about...

Terry Wang

Vishal, and to add on that, the other balance then because of China marked in the fourth quarter very strong so we add more shipment in China and also other countries such as Australia, and some India, and other countries that we have some increase in share of shipment. So that come out with the total is flat shipment compared to what’s in third quarter.

Vishal Shah – Deutsche Bank

Okay. That’s helpful. And then could you talk about how you see the China market developing? What percentage market share do you think you have in China this year and what do you think – it’s too early, but what do you think the expectations are with the China market for next year?

Terry Wang

Go ahead, okay.

Zhiguo Zhu

Talk about the China market because in China market, the price is not good enough. So we didn’t really spend time on this market. We didn’t focus on China market in Europe. Now, obviously, China market is growing, becoming more an important part. So we’re spending more time and focus and we have set up one team and a separate regional team in the China market.

This year, we have remarkable achievement in China. We were happy. And next year, we will have better achievement. So talk about the China market is how much percentage, percentage market share, it’s very difficult to estimate, roughly maybe 5% or something. And it’s very difficult to judge because in China, a lot of projects there but not really connected with their power network yet.

Vishal Shah – Deutsche Bank

Okay. So what do you think, what’s your estimate of China market this year? Do you think it’s going to be 5 gigawatts or more or less than that?

Terry Wang

It’s a combination of project development and installation, and our target is 5 megawatts – or 5 gigawatts range. Next year – yes, next year, I think that given current Chinese regulatory policy and incentives just announced a couple weeks ago, talking about the upgrade for the commercial rooftop, the project, the large initiatives and that was expanded to multiple gigawatts for next year. So that’s – we estimate could be even 10-gigawatt market by that time, and most likely we’ll be number one in the market, in the world.

And the thing I want to add beyond the market share, what we’ll take. We actually have both – not just on module shipment but also, don’t forget, we have our assets in the project development and power project development construction, and those that will take a big significant portion of our shipment in China.

Vishal Shah – Deutsche Bank

Okay. Thank you very much.

Terry Wang

Thank you, Vishal.

Operator

Your next question comes from the line of Shar Pourreza with Citigroup.

Shar Pourreza – Citigroup

Hi, everyone. As you start to focus a little bit more of the business shifting downstream, how can we think about how you’re splitting the resources between systems and modules? And then the second question I have is how are you approaching these projects from a financing standpoint?

Terry Wang

Okay. This is in September. We did streamlined, re-org and tried to number one, to not just have a four-region business unit, but also we build up by product, like our module business unit and our system business unit. And we – the purpose of that is to streamline, an organization be more efficient, and the resources more focused, and allocate wisely or efficiently different business unit. But you know the module is our – is become not more than 90% of resource.

And now, we will keep the same time that we want to – we allocate some of the resource and personnel and high experienced staff and allocate some of the – even cash, we’ll build up the sales, P&L, balance sheet scenario for the business unit to manage their entire unit. And I think that that will cover four areas and that’s include Europe and U.S. and China and Asia Pacific.

And I think so far, we do see the progress and because business unit, they have their own target and that target is composed of the four regions. And that will be – we do see the progress that we make and the approach the project by – would suffer the frontier staff and to get the – locate the permits, the license permits, environment permits. And in U.S. also, the PPAs. And here in China, you have to get the government and central – provincial governments and Central Government approval. That’s the final approval in the process. So we build up the entire network on that. I think that so far, we’re making progress.

Shar Pourreza – Citigroup

Okay. Thank you.

Thomas Young

Okay.

Operator

Your next question comes from the line of Aaron Chew with Maxim Group.

Aaron Chew – Maxim Group

Hi, good evening. Thanks for the question, guys. Two quick housekeeping ones and then a follow-up. Terry, thanks for highlighting the CapEx update. Wondering if you could highlight what operating cash flow losses are year-to-date, am I right around like 200, 250 or a little off-base there? And did you recognize any revenue or shipments for projects in 3Q and roughly how much would those have been?

Terry Wang

Not too much because we keep some of the Italy projects on hand, very high return projects there. And we did ship a couple megawatts project and it looks very favorable.

Aaron Chew – Maxim Group

But mostly modules, though?

Terry Wang

But going forward – yes, most of them modules. But some module sales, we call the strategic module sales that we partnership with the other panels and we build a team, we’re a minority, we share some of the profit. But we recognize sales of the module in revenue. But going forward, with the module built, definitely we will, on-site we will build, we could keep therefore a little longer time and we get the electricity bill the same time, and if we find off-taker, we could still sell it to off-taker. But we still build up a pipeline for that.

Aaron Chew – Maxim Group

Okay. And year-to-date operating cash?

Terry Wang

Operating cash, the third quarter, we had approximately over $20 million negative operating cash. But that’s third quarter. Now, for the quarter, we are – I think we will have a chance to get the positive operating cash in the fourth quarter. That’s our target right now. I think that given the efforts made to (inaudible) collections, inventory reductions, and especially on the customer prepayment requirement, I think we have a chance to get positive operating cash in the fourth quarter.

Aaron Chew – Maxim Group

Okay. That’s helpful. And then if I could just ask a bigger picture question here. Obviously, current economics are really not sustainable and not while you guys are in this business. When you look past all the madness and you’re making your bigger picture, strategic corporate finance decisions, I mean, how do you guys at this point envision what the future normalized economics of solar are at this point?

I mean clearly, the days of 30% gross margins are done and zero percent isn’t exactly sustainable but hard to see how pricing is going up if subsidies ultimately disappear. And costs clearly are running out a bit of room and your peers tend to catch up a few quarters down the line but are you, I mean are you thinking, do gross margins settle in the 10%, 12% range? And if so, how do you cope with that from an operating expense perspective and if you think it’s going to be higher, just wondering how you can achieve that from a poly and a conversion cost perspective? I know, a big question but would appreciate any insights. Thanks.

Terry Wang

Okay. Yes, okay, thank you for that big question. But if I look at one side, the macro level, and economics, and also the industry trends, and given the consequence of the fast growth of the investments in the past few years, past few years that built up as a result of that and then the overcapacity in the current situation. And the thing is how to regain the supply-demand the most. And we do see right now and we suffer a couple – quite a few quarters, the demand and supply and the ASP drop, and a quarter basis, it’s 10% each quarter. I mean, that the tremendous decline that squeezed our profitability out of manufacturers’ hand, the suppliers.

So in order to do, going forward, in one side we do believe that the profitability is high, gross margin high, the margin for the manufacturing module business, those days are gone. But optimistically, we think that because we do see the ASP trend stabilize and the cost come to the floor, and the consolidation as a result of that will occur and the smaller companies shutting down the product line and regain and gradually regain the demand and supply situation.

So in our case, by next year, and as the China market coming down next – second half next year, and that we do believe that the ASP could be flat or slightly up. So by that time I think that’ll still change. And longer term, in the gross margins, you got to have approximately middle teen, so that you can have a positive net margin.

So in our case, we have to – one side, to continue to cut down our cost, as much as we can by improved efficiency operation and at the same time to convert our efficiency and the sales so that the (inaudible).

And the other part that we were looking at from company point of view for impacting entire supply chain value in industry, we do believe that downstream and people think well, everybody do downstream. But we have the advantages in that area, and so downstream, point out, they’re hard to financing, that’s the key.

Given that our balance sheet, the best balance sheet out there in China and also the project success rate that we have, will gain some creditability from other banks. So I think that we have financing as a strong support in the resource area and also we have a couple of years and really be hands-on experience in local in our hands, so we can get it done.

I think that’s the – have to go in that direction so that we can get positive net margin going forward. And that’s the way we have to go, we have to gain advantages and ourselves in those area.

Aaron Chew – Maxim Group

Okay, I appreciate the insight there.

Terry Wang

Thank you.

Operator

Your next question comes from the line of Satya Kumar with Credit Suisse.

Satya Kumar – Credit Suisse

Yes, hi. Thank you for taking my question. Terry, what was the absolute dollar value of the depreciation in Q3, and what’s the targeted OpEx dollars in Q4?

Terry Wang

We have some, a little bit, the impairment, I think that’s approximately over $20 million and so for third quarter. And the...

Satya Kumar – Credit Suisse

The depreciation was $20 million?

Terry Wang

Yes, over $20 million, over $20 million – high 20s.

Satya Kumar – Credit Suisse

Quarterly basis?

Terry Wang

Quarter basically, quarter, third quarter.

Jifan Gao

So Satya, what’s the other question you asked?

Satya Kumar – Credit Suisse

What is the target for OpEx in Q4?

Terry Wang

Okay. That’s a good question. So we’re talking – we have, as a result of the streamline and re-org, we’d be able to have our normal OpEx savings, annualized $20 million per year. So in other words, that’s talking about $6 million a quarter, and just calling things, that’s what basically we’ve done. But we believe that that process is still continuing as far as we found our most efficient way to run business.

So efficient, operational driven is our continuous efforts, so we have to. So going forward, and in the fourth quarter, what I think we should be cut down compared to the third quarter and this is more than $10 million with other expenses reduction. But you have to take that’s a normal, talk of a normal OpEx. And keep in mind, in third quarter, we’ll have a $15 million one-time expenses should be – should not be in there in Q4.

Satya Kumar – Credit Suisse

So just to clarify, the Q3 OpEx, if I exclude the $15 million one-time restructuring charge, it was about $63 million? So you’re talking about $53 million OpEx level for Q4?

Terry Wang

Yes. No, I’m talking about at least a $10 million cut compared to the Q3. So in other words, it’s going to be – yes, approximately is going to be a lower $50 million range.

Satya Kumar – Credit Suisse

Low $50 million range. Okay. Is that the level that you expect to maintain for next year as well?

Terry Wang

It all depends. That include some freight and shipments and that’s then how many megawatt shipment next year. But the normal OpEx exclude the freight and warranty at least we have to keep this way. At least we have a further improvement program running. I believe we’ll have more room to go in the OpEx area.

Satya Kumar – Credit Suisse

Okay. And then I know you mentioned 20% of your revenue as target for systems in 2013. Will that primarily be from China on the systems side or are you targeting system revenue from other regions also? If you can give a sense of the geographical target revenue mix for next year from systems.

Terry Wang

The system lies more I think that the – and I think that if you put it in the revenue line for installations which is different thing because revenue have to ship the sale, the power project. The installation, you don’t have to sell, but you actually put it into the field. So I think that in China, we’re more in the range of build up the project, and that take us longer times, not doing too much sales but more installation in China.

And more sales come from the U.S., they’re more because we have PPA, the project that we build and we found off-taker already, and we can sell that next year. And Europe also, and we have a couple of projects running, such as some large projects right now in process, and that we can build and sell the same year. So that’s more coming generally from overseas but if we look in long-term and in China, there might be large area for us to build our power project.

Satya Kumar – Credit Suisse

Okay. What are the approximate economics of the system projects in China? I know you mentioned a 10% net margin target and you mentioned multiple hundred megawatts of installations next year for your system business in China. I was wondering if you could give a sense of the ASP range for the systems. Are we talking about RMB 8 to RMB 10 or RMB 10 to RMB 12 or some kind of range of?

Terry Wang

And again, China project, as I’ve said, I didn’t say several hundred, I said globally several hundred megawatts we’ll build. And in China, it might be a couple of hundred and – but we build, so cost-wise, this depends on which area and current pricing. Now, it’s approximately RMB 10 or a little bit below RMB 10, approximately, which include the VAT. And you can use that as a reference when you make a model, 10% net margin, you should be below 9%, in the range of 8%, middle 8% in the cost side, so which includes the module and the other balance of system.

Satya Kumar – Credit Suisse

Okay. Thank you again. Appreciate it.

Terry Wang

Thank you.

Operator

Your next question comes from Pranab Sarmah with Daiwa Capital Markets.

Jifan Gao

Hi Daiwa.

Pranab Sarmah – Daiwa Capital Markets

Hi. Thank you very much for taking my question. My first question is on – since your installation rate is relatively low, do you think that you may have to take some asset impairment charges on 4Q, especially end of annual results?

Terry Wang

We had a inventory write-down, $13.3 million in the third quarter and our impairment on the equipment side, we did some in the second quarter already. So we evaluate increment and evaluation on a regular basis and it all depends how the market heading, and we don’t forget that part.

But this time it’s hard to say, we don’t for certain have that. But we’re pretty prudent on that as much as we can. I think that if we have that, we don’t have a lot, in my view, on the impairment equipment side. But I think that we will continue to have the inventory provision for the basis, because the pricing drop – the pricing drop and (inaudible) have to reserve some of the inventory reserve. Okay?

Pranab Sarmah – Daiwa Capital Markets

Got you. Yeah, got you. And next question is on your reductions on shipment guidance. If you can – specifically, you have revised down about 200 megawatts from previous guidance for whole year. So which of the, part of the global leads or geographical location you have seen most weakness in last few months?

Terry Wang

Hello? Pardon? Can you repeat the question?

Pranab Sarmah – Daiwa Capital Markets

Yes, you have lowered down your overall shipment guidance by 200 megawatts over the last two quarter.

Terry Wang

Yes.

Pranab Sarmah – Daiwa Capital Markets

And from where this weakness has come? Which geographic region globally you have seen this weakness?

Terry Wang

Quarter by quarter, the shipment...

Thomas Young

Pranab, this is Thomas. So just to clarify what I believe you’re asking is that so, given the revised year guidance which is 200 megawatts approximately less, you’re asking like from which countries or which markets might be more pressure that contribute to that? Is that correct?

Pranab Sarmah – Daiwa Capital Markets

Yes, exactly. Which market you are seeing more pressure so that you are not willing to ship your product?

Thomas Young

Okay.

Zhiguo Zhu

Right, right. Actually, a lot of area has changed, in Europe like Italy and Spain, nearly zero delivery. And in fact, the U.S. – our UK market is growing and German market has declined. And Japan market is, and Australia market is a bit increased. So India market is decreased. So generally, you can say China, Australia, Japan, UK, these four countries increased, the others decreased. So very difficult to say which continent or which region is better, but U.S.A. similar, it’s keeping in the same level.

Pranab Sarmah – Daiwa Capital Markets

Okay, got it. Thank you very much.

Jifan Gao

Thank you.

Operator

Your final question comes from the line of James Medvedeff with Cowen & Co.

Jim Medvedeff – Cowen & Company

Good evening, thanks for taking the call. I wonder – just kind of down in the weeds a little bit, how many of the modules that you sold this quarter were done with in-house cells and how many were done with purchased cells?

Zhiguo Zhu

It’s all about production and inventory, actually we don’t have any purchased module, okay? All our modules are made by ourselves. But we purchase some cells from Taiwan to support...

Jim Medvedeff – Cowen & Company

That was my question. How many cells did you buy in the quarter?

Zhiguo Zhu

Very little. About, 7 to 8 megawatts, yes.

Jim Medvedeff – Cowen & Company

7 to 8?

Zhiguo Zhu

Eight only this quarter.

Jim Medvedeff – Cowen & Company

Less than 10? Okay. Thanks.

Thomas Young

Correct, less than 10.

Zhiguo Zhu

Yes, yes, yes.

Thomas Young

(Foreign Language).

Zhiguo Zhu

Okay. In purchased, we are now – we did some purchase and outsource in Taiwan cell. So we ship to U.S. that’s a cover and some of them are already in U.S. already and will be sold to the third quarter in the U.S. market. And also the gap that we’re outsourcing and less in third quarter in China. So that purchase is for the U.S. market only.

Jim Medvedeff – Cowen & Company

Okay, thanks. And then the inventory, good job in reducing it, but it’s still persistently high. Turns look to be around just some – about close to three inventory turns. And I’m wondering, if you can give us sort of a breakdown of what’s in the inventory?

Terry Wang

Let me give...

Jim Medvedeff – Cowen & Company

(Inaudible).

Terry Wang

Zhiguo will give you more color on that.

Zhiguo Zhu

Breakdown is about like, if you compare to last quarter, which is about 85% of finished goods now coming down 10% down, to approximately about, over 70% finished goods in total manufacturing, other inventory area. So that’s the area. That’s the result of a cutdown of capacity utilization and that’s – we think that will continue to fall throughout the fourth quarter of this year.

Jim Medvedeff – Cowen & Company

Okay, thanks. But can you tell me how much of that inventory is finished goods, and how much is raw materials and how much is work in process?

Terry Wang

That’s what I said. It’s approximate about 75%, which is $280 million of our finished goods and 31% in raw materials, 35% work in process.

Jim Medvedeff – Cowen & Company

Okay, thanks. Thanks for the clarifications.

Terry Wang

Thank you.

Thomas Young

Okay. Well, on behalf of the entire Trina Solar management team, we want to thank you for your interest and participation on the call today. If you’re interested in visiting us at our Changzhou PV Park, please let us know. That concludes the Trina Solar Third Quarter 2012 Earnings Conference Call. Thank you. Operator, you may now disconnect.

Operator

Thank you for your participation. This does conclude today’s conference call. You may now disconnect.

Terry Wang

Thank you.

Thomas Young

Thank you.

Zhiguo Zhu

Thank you.

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