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Trina Solar Ltd. (NYSE:TSL)

Q4 2008 Earnings Call

March 3, 2009 8:00 am ET

Executives

Jifan Gao - Chairman & Chief Executive Officer

Terry Wang - Chief Financial Officer

Sean Tzou - Chief Operating Office

Steven Zhu - Vice President of Business Development & International Procurement

Arturo Herrero - Vice President of Sales and Marketing

Thomas Young - Director of Investor Relations

Analysts

Robert Stone - Cowen & Co.

Adam Krop - Ardour Capital

Charles Yonts - CLSA

Jenny Wu - Lazard Capital Markets

William - Merrill Lynch

Kelly Dougherty - Macquarie

Arch Pei - JL McGregor

Nitin Kumar - Nomura Securities

Operator

Good morning. My name is Patrick and I will be your conference operator today. At this time, I would like to welcome everyone to the Trina Solar fourth quarter 2008 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions)

Mr. Young, you may begin your conference.

Thomas Young

Hello to all and welcome to Trina Solar’s fourth quarter and full year 2008 earnings conference call. This is Thomas Young, Trina Solar’s Director of Investor Relations. With us today are Trina Solar’s Chairman and CEO, Jifan Gao; Chief Financial Officer, Terry Wang; Chief Operating Office, Sean Tzou; Vice President of Business Development and Procurement, Steven Zhu; and Vice President of Sales and Marketing, Arturo Herrero.

Before I turn the call over to Mr. Gao, may I remind our 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 a more detailed discussion 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, March 3, 2009.

Trina Solar assumes no obligation to update these obligations 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 our website at www.trinasolar.com.

With that, it’s my pleasure to turn the call over to Trina Solar’s, Chairman and CEO, Mr. Jifan Gao.

Jifan Gao

Thank you so much and hello everyone. Despite this challenging market and economy condition, we are really pleased with our performance during the first quarter. Our management team met many challenges in which the key moves in several important points, including first generating cash from our operations and reduction of short-term loans.

Second, significantly reduced our cost for multicrystalline. Our costs were nearly $0.82 per watt, during the first quarter, which was a 15% reduction from previous quarter start. While already one of the quality leaders in the market during that we rank at number two in the global quality test down by TUV last year.

Lat one; increased sales in the new markets such as France, Belgium, Czech Republic and United States am our focus in ‘09 will still be Brand, Cost Reduction and Technology. For Trina Solar Energy we have already had a very good foundation in brand recognition in the market.

TSL customers had showed much loyalty. Many of our customers are system customers, who are less affected by supply credit. In 2009, we will build a better customer service system to continuously provide a.higher quality product and service to our customers. Coastwise we targeted to reduce our costs to lower than $0.80 per watt promoted in the first quarter of 2009. By the end of this year we targeted to have 15% to 20% reduction based on Q4 level. For technology we targeted to niche efficiency up to 18.5% for monocrystalline just by the end of 2009. At last, customer orientation was our focus in 2009, we will do our best to add more value to our customers and to grow together with our customers. Now I’d like to pass you to our CFO, Terry Wang, to share our financial results.

Terry Wang

Thank you, Mr. Gao and hello to everyone, who has joined us today in this call. In order to get a better picture of company’s recent performance, I would like to walk you through our fourth quarter and full-year 2008 financial highlights, followed by company’s guidance for the first quarter and full year 2009.

Despite of a significant impact to our sectors, presented by recent macroeconomic and credit condition changes, we met our challenges in fourth quarter where we were still able to exceed our fourth quarter revenue guidance by strengthening our recognized brand name, broadening our customer base in emerging merchant market and continuously enhancing our quality of our products and our services.

Total net of revenue in the fourth quarter was $216.3 million, which were higher than our previous stated guidance of $190 million to $210 million. Total shipments were 57.59 megawatts a 13.2% decrease sequentially and 140.9% increase from fourth quarter of 2007. This sequential decline in ASP and total shipments were permanently due to weakened microeconomic conditions and lesser accessibility to project financing in European markets.

Gross profit was $20.1 million, $20.8 million in the fourth quarter a decreased from $65.2 million in the third quarter. Gross margin was 17.5% excluding a non-cash inventory provision of $17 million. The non-cash inventory provision resulted from the revaluation of silicon inventories into significant market price declines in a quarter, the provision effect a 7.9% impact on the fourth quarter gross margin resulting our gross margin of 9.6% in the fourth quarter of 2008 down from 22.4% in the third quarter.

The decline in the gross profit was also due primarily to lower ASP, which partially offset by significant reduction in our polysilicon cost due to improved market supply condition and increased contribution by the company as a polysilicon feedstock contracts. The company also accelerated reduction of its manufacturing cost per watt of which Sean will overview later.

Operating expenses in the fourth quarter of 2008 was $16.9 million, a decrease of 8% sequentially. Though the reducing dollar amount turn, the company’s operating expenses was 7.8% of its fourth quarter net revenue, a percentage increase from 6.3% in the third quarter and a decrease from 11.2% in the fourth of 2007. The year-over-year percentage increase was due to continued measure taken by company for expense-control combined with the continued growth of the company business.

Operating expenses in the fourth quarter of 2008 included approximately $1 million share-based compensation expenses. Operating income was $3.9 million, compared to $46.8 million sequentially and a $16.2 million a year ago. Our operating margin was 1.8% in the fourth quarter of 2008, compared to 16% in the third quarter and 16% in fourth quarter of 2007.

Interest expense in the fourth quarter of 2008 was $6.5 million, compared to $7.2 million in the third quarter of 2008. The sequential decline was due to the $40 million reduction in short-term loan balances from a $289 million in the third quarter to $249 million in the fourth quarter.

For our quarter-to-quarter, weighted-average in low interest rates we saw a drop in the fourth quarter to 6.9% from 7.6% in the third quarter. We realized a foreign currency exchange gain of $3.2 million in the fourth quarter of 2008, compared to $4.9 million of loss in the third quarter.

During the fourth quarter, we significantly increased our hedging measures, well forward contract in a currency contract instruments enhanced our natural hedging effects to foreign currency that denominated account receivables and our accounts payables on our balance sheet.

We’ll actively increase our hedging capacity based on the fluctuation level of the US and Euro dollars, Renminbi and other currencies to mitigate possible negative effects of the exchanged rate of volatility.

Net loss was $0.7 million in the fourth quarter of 2008, a decrease from positive $32 million in the third quarter and $17.5 million in the fourth quarter of 2007. Net income includes a foreign currency exchange gain of $3.2 million. Net margin was negative 0.3% in the fourth quarter, compared to 11% in the third quarter and 17.3% in the fourth quarter 2007.

Earnings for fully diluted ADS were negative $0.03, which includes a negatively impact of the fourth quarter inventory provision, net of tax effect was approximately $0.68 per fully diluted ADS and the effect of the fourth quarter foreign currency exchange gain, net of effect was approximately $0.13 per fully diluted ADS.

Now, I will cover just a few highlights of a full year 2008 results which are detailed in our earnings release. So, we need to proceed with the Q earlier. Total shipments were 201 megawatts, an increase of 160.8% from 75.9 megawatts into 2007. Our yearly increase was due to the increase of global demand and adoption of Solar provided energy and our increasing countries total markets addressed and our 200 megawatts increase in ingots, wafers, cells and module capacities to 350 megawatts, which allow us to meet our annual shipment guidance of 200 megawatts to 205 megawatts.

Total revenue for full year 2008 grow, 175.6% to $831.8 million from a $301.8 million in 2007, which met our annual guidance of $800 million to $850 million. Gross profit for full year 2008 grew 143% to $164 million from $67.60 million in 2007. Gross margin was 19.8%, compared to 22.4% in 2007.

Operating income for the full year 2008 grow 177% to $100 million from $36 million in 2007. Net income for the full-year 2008, increased 73.5% to $61.4 million from 2007, which was primarily to the growth in sales of the company’s solar margin products, thus resulted earning fro fully diluted ADS of $2.37 for the full year 2008, an increase of 57% from $1.51 for full diluted ADS in 2007. Turning to the balance sheet, as result of December 31, 2008, we had $177.2 million in cash, cash equivalent and restricted cash, our working capital into $84.2 million.

Operating cash flow; we have had achieved record fourth quarter positive operating cash flow of $57.2 million was delivered primarily by improvement in effective measures accounts cash collection and optimization of inventory to reflect the price changes and the volumes in the polysilicon procurement and related prepayments to suppliers.

Our total bank borrowings were $263 million, which included $14.6 million of long-term borrowings. In the fourth quarter, our short-term debt balance was reduced by over $40 million, which was supported by our positive operating cash flow. Our domestic bank borrowing facilities, which now totaled more than $460 million, includes approximately over $200 million of end used available credit lines, which increased from $150 million during the fourth quarter.

We are also examining long-term debt facilities to improve our long-term capital structure and support our future gross requirements. This brings us to our guidance for the first quarter and fiscal year of 2009 as follows. We believe our first quarter remains a challenging one due to the current facts and the conditions as known, which have being component by non-corporative seasonal conditions that have further effective modules purchases and installation for European customers.

For the first quarter of 2009, we expect to ship between 50 megawatts to 55 megawatts of PV modules, which is slightly below, but in the fourth quarter we believe our gross margin for the first quarter will likely be between 15% and 17%.

We wish to highlight hoverer that despite continues quarter-to-quarter drop in ASP, both our silicon and non-silicon manufacturing productions are expected to accelerate to result the gross margin expansion.

For the full year of 2009, the company expects total PV modules shipments between 350 megawatts to 400 megawatts representing an increase of 74% to 99% from 2008. The added visibility into the macroeconomic and local credit conditions of our customer markets, we are targeting announcement on our 2009 capacity expansion during the second quarter.

This is consistent with our previous informed that our capacity expansion will be closely calibrated to market demand conditions, as well as our ability to generate positive operating cash flow and to preserve reasonable cash balance for the liquidity and working capital purposes. This estimated timeframe, we also offer additional visibility into our 2009 order profile, which again according to the spent have approximately 300 megawatts.

Finally, in recognizing our customer financing environment has changed considerably over recent months. We are examining mechanism to a strip our customers most affected by contraction in commercial credit environment at both wholesale and system integrated distribution channel.

Now, I will like to turn the call over to our COO, Sean for closing remarks.

Sean Tzou

Thank you, Terry. To summarize, we are most pleased with our first quarter and full year operating and technology progresses made. For 2009, we’ll remain highly confident as we continue to define and execute our strategic goals to elevate our technology platforms, advance our customer service levels and lower total cost to alternately increase our market share and brand recognition.

To achieve our goals, we will leverage our well and increasing diversified customer portfolios across 18 country markets. We have contracted sales orders for approximately 300 megawatts of our 2009 targeted sales.

Lower than anticipated polysilicon feedstock cost, we have diversified portfolio of short, medium and long term supply contracts. Industry leading cost leadership with high quality from increased sale efficiencies, material, supply chain, optimization, product yields and further introduction of high value materials.

Continued reduction in our average silicon usage rate per watt, currently 6.3 grams per watt averaged for mono and multicrystalline product lines. The growing product portfolio, which now includes a sale based BIPV products similar to the one employed at our Changzhou company headquarters.

Everybody think of expanding pre and post customer services, such as our recently opened European warehouse operation. Maintained high quality and reliable products, which was supported by TUV Reinland's for test reports. We weren’t top two of 14 international solar module manufactures in their energy yield 2008 project, when the testing period from September 1 to September 30, 2008, as reported in January 2009 and hedge technology arrangement by increasing our 2009 sale efficiency targets of up to 18.5 and 17.5 for mono and multi by year-end continued to develop special application PV products.

Lastly, we resourcefully explore various partnership models involving our existing PV module products.

With that we will be happy to open the call to your questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rob Stone - Cowen & Company.

Robert Stone - Cowen & Co.

Hi, guys this question is for Terry or Sean. I wonder if you could provide a little more detail on the cost per watt reduction. I think in Q3, you had an average cost of $1.13 per watt non-silicon and you said, it’s approaching $0.80 for multicrystalline now, can you give us the complete picture, what is the cost for mono-cells and how did you achieve such a significant reduction from just Q3 to Q4?

Terry Wang

Hi Rob, this is Terry. In Q3, 2008 we announced that our manufacturing cost per watt basis all inclusive fully and cost include depreciation mono and multi and during the previous quarter, it was separate and as we increasing our shipment in multicrystalline modules, then our costs dropped dramatically and our $0.82 is per watt basis for multicrystalline and do not include depreciation by $0.08.

So, as we increase the multicrystalline, our costs we’re further down continuously and go through this quarter and we actually compare in our Q3 multicrystal per watt and the Q4 crystalline per watt we’re down by approximately by 15%, most of the driven force is we adopt our technology innovation in the process that help us to reduce our increasing yields reduce the usage of the material and in conjunction with all the other materials.

Robert Stone - Cowen & Co.

Okay, simple housekeeping question for you Terry. Could you just give us the capital expenditures and depreciation in Q4?

Terry Wang

It’s roughly about $0.08 billing into our non-silicon costs. As we reported early we include all the things together, but now we want to separate it so, people will know that this is non-silicon costs. It’s purely that’s related to non-silicon and the product production process.

Robert Stone - Cowen & Co.

Okay, I understand that, what I was asking for actually was the all-in capital expenditures and depreciation, not as the cost per watt, but the dollars in Q4?

Terry Wang

In Q4 capital expenditure was spend about $28 million total and the depreciation is about $6.4 million.

Sean Tzou

Robert, this is Sean, maybe I can probably add some comments to what Terry just mentioned. To compare to $1.13 we announced in Q3 announcement, currently into Q4 we did achieved about $0.97. So that means it’s about $0.16 reduction or 15% from the Q3 range, we originally forecasted that we will reach $1.05, however, we did have a much better result from quite a lot of areas and that’s what we achieved a lower cost target.

Robert Stone - Cowen & Co.

Another question for you Sean if I may, on the 300 megawatts of order pipeline, can you give us a sense of what’s the potential risk related to financing on that and how is it distributed approximately to the major countries? What percent in the various markets?

Sean Tzou

We have Arturo, answer this question. Hold on.

Arturo Herrero

Hello this is Arturo, thank you for your question. So, one of our advantage in 2008 has been increasing our diversification per countries to mitigate the risk of certain countries that has been changing their policies. So, in order to answer your question directly, in 2008 in general for the whole year is around 25% in Germany, 20% in Italy, 14% in Benelux, Belgium, Netherlands and Luxenberg and Spain over 30%.

Robert Stone - Cowen & Co.

So the distribution of your 300 megawatts of orders for this year on that basis looks like what?

Arturo Herrero

For 2009 we are spreading in this 18 countries that we are reporting in the script and Italy there is more spread geographically, but mainly we are keeping also the focus and market sharing this mean markets. So we are foreseeing Germany keeping around 25% to 30%, Italy keeping this 20% to 25% and then Benelux 10% to 12% and finally, Spain still within to 15%. France, USA to have around 10% to 12% of our revenues.

Operator

Your next question comes from Adam Krop - Ardour Capital.

Adam Krop - Ardour Capital

Good evening gentleman. Quick question, as far as the U.S. market update, you opened a new office in San Francisco in November. Can you just update us how you see the market shaping up in 2009? How big, do you expect it to be and what model, do you expect to use. I mean you strict to distribution component model or you considering inaugurating downstream?

Arturo Herrero

This is Arturo Herrero, again. So in U.S. market for sure we are targeting big growth especially we slanted last year because we didn’t have enough production in the first half of the year and then Q4 we are started we some big plans that we were announcing like the largest project in New Jersey on the roof to 45 megawatt.

So for going on in 2009, we have already established the team and of course have to be growing, but we have a good Director for sales and marketing. In the USA a part of the office we are finishing in San Francisco, as you mentioned before and then we are expecting big growth thanks to their support and the deals approved from Obama fro sure will increment the demand for renewals and especially for solar, especially from Q2 and second half of the year.

So, in my personal opinion with some information from minority, we are thinking that 800 megawatts could be possible in the USA in 2009 and secondly to answer in terms of our strategy, we have a good term and well know partners in the USA that are ready to keep going on with us in growing these new markets that we are entering, and we for sure we will keep both distribution with these partners, but those who are behind us that we have already announced several megawatts in their portfolio of projects in 2009 and we are not thinking in this stage to go in downstream any further now.

Adam Krop - Ardour Capital

Okay. May be one more for your Arturo, we’ve seen some reports about Spain installing 3 gigwatts in 2008. I guess; can you to speak to this number and what do you estimate that market in 2008?

Arturo Herrero

This is very interesting topic because nobody was expecting or forecasting the growth in Spain was showing finally. You must also have read of these 2.6 megawatts that some analyst are seeing or 3 gigwatts as you are mentioning. So, there are still a lot of installations that are under inspection because they didn’t have the proper paperwork done, so there write permits or even the solar modules.

So, in this regards, I don’t think and these are my personal opinion that the market is more than 2.5 gigwatt, that definitely is a very good number for one year in a Spanish market and we will see this repeating in new markets in the next coming years for sure, when the filling tariffs are still attractive.

Operator

Your next question comes from the line of Charles Yonts - CLSA

Charles Yonts - CLSA

Hi good evening guys. Thanks for thanking my question. Let’s see, first of all what share roughly of your expected 350 to 400 megawatts shipments will be supplied from long term polysilicon contract?

Jifan Gao

I think there was a mistake on your question; sorry to point it out that we do not announced that we will have 300 megawatt target sales in the total of 2009. I believe we will further study that and announce that in Q2 on period. However, based on current silicon contract we have, we secure about 60% on the polysilicon or up to 85% with long and medium term contract, a certain contract we foresee we already in negotiation stage and therefore that we were secure our sale in average about 80% of our original sales target.

Charles Yonts - CLSA

What is your mix of recycle and virgin polysilicon looks like now? What polysilicon prices, where they are now does it still make sense for you to use scrap?

Steven Zhu

This is Steven to answer the question. It is very significant to use certain percentage of the scrap material because the price issue and the efficiency. A lot of scrap material on semiconductor materials are actually fewer, again the some of the poly plant of the new projects and that’s one of the reason.

Second reason is that there is lot of options to, clearly has leverage down for the total silicon cost. So, we feel at this moment maintenance a certain percentage but that significant decreased already as we do see that number is going to keep on jumping.

Terry Wang

Currently in outlet it’s about 15%, 20%

Charles Yonts - CLSA

Now something that I guess could be helpful for cash flows, looking at your advances to suppliers. I guess this question would be for Terry. Will you be able to draw that number down, the advances that you’ve already made to polysilicon suppliers or do you expect that sort of remain pretty steady throughout the year?

Terry Wang

Yes, I think it’s a very good point and due to the fact of the poly supply situation change and starting Q4 and we actually act immediately when the supply change, we change our payment term to the supplier and which help us quite a bit and drop out payment and if you look at our balance sheet that prepaid drop dramatically, so that help us to generate one of the main drives for us to generate the positive cash, $57 million operating cash.

Going forward, this quarter and going forward that chain is going to continue as we will continue to improve our payment term and as we talk to our suppliers and our partnership and it’s been incremented to our favor and going forward for the quarter to come.

Operator

Your next question comes from [Jenny Wu - Lazard Capital Markets].

Jenny Wu - Lazard Capital Markets

Hello, this is Jenny calling for Sanjay. I have two questions. First one is can you give us some update on the inventory situation in the channel? What are you seeing there? Do you see any improvement in terms of inventory build-up?

Arturo Herrero

Jenny, I guess you ask for the channel in terms of final product for modules?

Jenny Wu - Lazard Capital Markets

Yes.

Arturo Herrero

So in this case, the market is for sure has been as every year having the effects of the seasonality moving there, a part of course shown on the financial situation that is also impacting, but the inventory is little by little will be reduced as soon as the winter is gone and inflations are coming up again. So, we foresee that by March, April the situation in the markets and the distribution channel will be clear again.

Jenny Wu - Lazard Capital Markets

The second question is regarding the 300 megawatt contract in 2009. Can you give us some color on how many were sold to the distributor and how much were sold to the system installer, the breakdown between different channels?

Arturo Herrero

I would point also that the difference from Trina Solar versus our competitors in some cases, mainly because we have been addressing much more to PV integrate rather than distributors or wholesalers. So, in this regard we have some certain visibility on projects that are already expecting to be put in place in this first quarter but also in the second quarter and the rest of the year. So, the percentage to answer your questions is around 40% to 60% for PV integrators.

Jenny Wu - Lazard Capital Markets

You mean, between 40% to 60% to the system installer?

Terry Wang

60% to system installers and around 40% to distributors or wholesalers

Operator

Your next question comes from the [Inaudible] - Bank of America

William – Merrill Lynch

This is actually [William] from Merrill Lynch. I just want to you ask your one ASP in fourth quarter. It seems to be pretty favorable. What is your trend in your first quarter?

Jifan Gao

In terms of ASP, I think you can see that our trends as a brand establish in the market and also the loyalty from our customers giving us this plus. Even the situation of course has been quite unfavorable to keep high ASP. So, the trend for the next quarter will be within reduction in order to be flexible to the current situation of the market and to be flexible with our establish contracts with our partners to help them to keep them having their high for the projects to go on. So we see around 15% to 20% decline on ASP.

William – Merrill Lynch

In the first quarter?

Jifan Gao

Correct.

William – Merrill Lynch

How many percent of your orders top line have the effects on pricing?

Jifan Gao

So, for the 300 megawatts we secured by contracts around 140 megawatts with fixed prices, but of course we need to be flexible in price of payment terms.

William – Merrill Lynch

So can you updates on your silicon cost in the first quarter?

Terry Wang

This is Terry, again and it just adds to what Robert asked the questions. We go through that question that for silicon and the fourth quarter to this quarter we are expecting to, given we have pretty solid inventory control in fourth quarter. Now this quarter we pretty much buy at very low price. So our polysilicon for watt basis we were down approximately by 40% and from the fourth quarter per watt basis.

William – Merrill Lynch

Final question is what is your planning reducing your short term debt in the first quarter and what was the operating cash flow in the fourth quarter last year?

Jifan Gao

Short-term debt we were down by 40 million of repayment and from Q3 approximately by $289 million down to $249 million in short-term debt reduced and most of that has been paid to our operating cash which is positive about $57 million positively in Q4, but our chance continue through Q3 which we have the positive cash flow.

In Q3 and Q4 we have a pretty big jump due to the fact that in payment terms prepaids of poly, accounts receivables terms and also inventory control and I just want to mentioned, that if you compare the Q3, Q4 our end inventory were lower, approximately about $20 million the inventory of our loan, so given the fact that’s most of the operating cash generate from.

William – Merrill Lynch

Do you expect some reduction in your first quarter or second quarter short term debt, going forward?

Jifan Gao

That’s our strategy to optimize our capital structures by balancing our long-term and short-term in long run, but this quarter we have to balance our cash flow and how our cash balance, so we want to maintain enough sufficient liquidity in our cash. So we have to balance out and we generate opening cash that can meet out standard for our requirements of the liquidity in cash, so we are willing to do that, but if not we will treat differently. I mean this will have volatize the importance of that.

Operator

Your next question comes from the line of Kelly Dougherty – Macquarie

Kelly Dougherty - Macquarie

Good evening thanks for taking my question. I’m hoping to get a little bit more detail on how you expect poly prices to improve throughout the year? I mean are you looking for pretty significant decline in the first quarter and then how that taper off or should we expect poly cost to continue to improve as we progress throughout the year?

Steven Zhu

In matter of fact we are expecting the product price will keep on dropping, especially on Trina side because most of our long term contracts we will start to execute at the beginning of Q1 and that will significantly improve our poly situation on both of the facility situation, you had also the price issues and most of the long term contracts, there that we have secured with the first achiever of the suppliers are at very competitive price compared with not only further fall market, but also for the future and long term comparisons with our competitors.

On the second hand, regarding a lot of short term or medium term contracts that we have already foreseen these kind of situation that has been in previous quarters. So we done a lot of preparation works to open up the options to renegotiate with our buyers for better terms and most of our suppliers are treating as a very good customer and willing to work with us for the best options in the market.

Terry Wang

Kelly, this is Terry again, just to add on Steven’s comments, temporarily for this quarter is 40% on top Q4. That’s one of the reasons is that the short term, long term with much lower purchase price contract kick in, that’s one thing. The other one is, in Q4 relatively speaking, we had relatively high inventory which we purchased in Q3 with high price, so that dropped 40% and that actually help us to increase our margin this quarter.

Kelly Dougherty - Macquarie

Okay, so just to be clear, you’re not expecting a big drop off in the first quarter. You’re expecting kind of relatively uniform improvement in poly prices as we go throughout the year?

Sean Tzou

You r talking about the market or talking about Trina’s?

Kelly Dougherty - Macquarie

About Trina.

Terry Wang

Okay, let see that. At the first quarter, we have approximately 40% from the fourth quarter and this quarter in big drop, I recall a drop about 40% that’s physically it’s not possible, but our procurement contract we our lines there is very competitive on average and procurement price of poly to different sources.

One is we had the contract signed in 2007 with a well know supplier with a much lover cost price. We also have a contract signed that has the discount to the market price, 20% average and those types of things.

Also we have the, from manufacturing side, we do have the technology innovation that help us to increase the yield and that help us to reduce the usage of the poly. So, that in combined will continue to reduce our poly cost per watt quarter-over-quarter.

Kelly Dougherty - Macquarie

Great thank you, that was helpful. I just have one other question I’m just trying to understand if you currently have capacity of 350 megawatts, then you are taking about sales or shipments in ‘09 of maybe 350 to 400 megawatts, I’m wondering have you been building inventory over the last few months or how long would it take if you were to start adding capacity maybe in the second quarter or the second half, how long would it take for that to ramp up so that it could increase your production for 2009?

Terry Wang

Okay, well thanks for the question. What we have right now is 350 megawatt vertically integrated capacity and we are not building the inventory, however we actually we continue to build the infrastructure we require for our future expansion.

We decided in Q2 that we are going to [Inaudible] and we are going to vastly tamp our manufacturing capacity or not, our new build facility and so therefore we were hold the decision to Q2 to wait for the market to further cleared in order for us to make a decision, but regarding inventory, no, we did not buildup inventory in fact in Q4 we actually reduce our inventory compared to Q3.

Kelly Dougherty - Macquarie

Right, so if you were to just say keep capacity flat at 350 megawatts this year, what would the CapEx spend? Like how much are you spending to make those infrastructure investments?

Terry Wang

I remember, this is Terry again, I remember last earning call we are talking about the first half of ’09, and its about 28 million capital expenditure maintained including the infrastructure for the first half and we didn’t give to the second half to CapEx plan, but the reason is due to the market uncertainty and we will give when we know the market clearly more visible or where the market going to go and give to the street in the second quarter, what’s capacity plan that we are going to with.

But currently we still monitor the markets and also analyze different scenario, but back to the question that we currently have a 350 megawatts and we’re have a target 350 megawatts to 400 megawatts shipments and that’s fairly a similar to our capacity and we want to use fully our capacity as going forward for the quarter and again the second quarter we are going to give out our capacity plan, but we believe in the quarter from the second quarter on, in market we will pickup and we do have more optimism plan as far as how to build up the capital expenditure or the capacity expansion.

Operator

Your next question comes from Arch Pei - JL McGregor.

Arch Pei - JL McGregor

I have one quick question. The first is, I guess you’re ASP, if I calculated it right is around 3.7 to 3.8 for the fourth quart of 2008. Is that a little bit higher than the industrial average and how can you guys active those higher equities?

Terry Wang

Could you repeat again, we have a little sys problems and welcome to the call. Could you just repeat that question for our team?

Arch Pei - JL McGregor

Certainly. If I calculating right your model ASP for fourth quarter either around 3.7 to 3.8. I believe it’s a little bit higher than the industrial average and it seems that that you guys have got it on net premium above the industrial average so, how can I keep that?

Terry Wang

This is Terry again. Q4 as we did in Q3, we do have other revenue besides the module revenue. We cannot use the total revenue by megawatt that’s not it, but you’re right it is not 3.7 as you point out I mean it’s lower than that, but it’s above industry average, that’s because we do have our brand recognition in the market.

Also our emerging markets and sales for emerging market get more free work in our sales in the price in terms of the our customer support and technique support, we have our staff sales staff plant and help us a quite a bit, but again we do have a brand name again and also we do have the wide diversified customer base emerging market and do have the long-term partnership and with the system integrators who more treasure long term less price sensitive that kind of customer. I think that in conjunction, we benefit from that.

Arch Pei - JL McGregor

I want to know that the intangible assets on the balance sheet includes by around $20 million in Q4 2008 and what is rally in the intangible asset and did you make any acquisition or any technology know-how in fourth quarter in intangible assets?

Arturo Herrero

We said, on part of the infrastructure the capital expenditure as related to a land purchase, that the next to us to our main campus, so for our future preparation for capacity expansion.

Arch Pei - JL McGregor

Also the accounts receivables I notice that, your accounts receivable is almost the same as the Q3 2008 and then mostly other of your competitors are aggressively regarding the accounts receivables and will you accounts receivables still at higher than $100 million? So, are you feeling comfortable with that kind of accounts receivables? Are you going to regard it aggressively in the coming quarters?

Arturo Herrero

Our accounts receivables right now at the end of the 2008 it’s not 105 million and that actually has declined from the third quarter, which is 180, actually I think it’s improving and if we look at our day sales outstanding and we compared to our competitors. One of the lowest is the days of sales outstanding in this group. I mean we match by day, but I think that help us actually in Q4.

Arch Pei - JL McGregor

Yes, the last question is how in our research and development expense decreased to a very tiny number in fourth quarter and I believe your R&D expenses was in a strong outstanding recent quarters. Do you think this may hurt your long term in a competitive in this is long run and will you increase R&D expense in the near future.

Terry Wang

I don’t believe so, actually in house we are and do you have a planning and R&D program it is running in different scenario to boost our technology roadmap and the reason at a little lower is just so that partially we closer, most of are closes in Q3 and we get effective and we see the result in Q4 and that’s just temporarily, you can see in the quarter over this year our R&D expenses as we renting out more technology project and there will be a change.

Sean Tzou

Okay this is Sean again. In the Q3 are like Terry said in Q3 quite a lot of development work actually realizing in Q4 results, that’s why we see the non-silicon manufacturing cost having sharply drop. At the same time we are in the process to build up a lab to further do our R&D as well as to do for the reliability test. We are building a very large lab and the quite a lot of establishment work, where will fall into Q1 and that’s why we see the numbers, are little bit drop.

During the Q4, the work assured with some manufacturing equipment and we consider all these cost as a part of manufacturing cost actually.

Operator

Your next question comes from Nitin Kumar - Nomura Securities.

Nitin Kumar - Nomura Securities

Yes, hi actually a couple of questions, I just wanted to get what’s the mix between mono and multi that you have right now? Because you’re looking getting it towards 70% in next year. So, I just wanted to have a basis to where we are right now?

Sean Tzou

Okay. Last year our mono-multi is about half/half about 45%, 55% which are lived in more on mono which [inaudible] region. During the year, we gradually starve our multi percentage and currently it’s about 40%-60%, mono 40%, multi above 60% in Q1.

Nitin Kumar - Nomura Securities

So in Q1, you have about mono at about 40% and multi at 60% is that right? Did I get that right?

Sean Tzou

Yes, that’s correctly outlined.

Nitin Kumar - Nomura Securities

Secondly, I mean, if I look at your numbers. I mean there was about a 14% decrease in the poly cost on a quarter-on-quarter basis in 4Q and you’re looking at about a 40% drop next quarter and if you look at about your total cost would come to what 2 to 2.2, but about 2.1, 2.2, is that the right figure to look at?

Terry Wang

Total cost, this is Terry again and let me clarify, and you said a 40% drop. What I am saying because I respond questions to asking and see, this quarter compared to previous quarter and poly per watt is 40% drop. I mean first quarter compared to fourth quarter of last year I mean that’s 40%.

We did say that, next quarter which is second quarter we’ll continue to have 40% drop and we don’t see that and I don’t believe we are going have continue that 40% on drops for second quarter. I mean let me clarify that and, but if you ask any total fully lowered cost, I’d say fully lowered cost, we do have a cost reduction faster in a rate than ASP drop and just back to the credit ASP’s drop compared to the fourth quarter.

This quarter will be roughly about 15% to 20% drop and our cost about annualized have giving current and operation as between 20 and 25 drop. So that’s the faster then ASP drop for this quarter.

Nitin Kumar - Nomura Securities

One another thing, I just wanted to check. You are targeting about 15% to 20% drop in non-silicon cost over the year for multicrystalline. What are avenues that you’ll be looking at? One is obviously selling efficiency, but what about the wafer sizes? I mean what the wafer thickness right now and where do you expected growing?

Terry Wang

Okay, all current wafer thickness multi is 180, mono is about 170.

Nitin Kumar - Nomura Securities

Where do you it going be…?

Terry Wang

We’ll continue to look for the visibility of the senior wafers and due to the our vertical in the version setup we actually are trying increment of every five micro internally and that will actually help us to continue push for the senior wafers.

Nitin Kumar - Nomura Securities

If I look at, you right now at about 6.3 grams per watt and you are looking at about 10% to 15% drops roughly about 5.5 to 5.7 grams per watt by end of this year --?

Terry Wang

I think probably let me clarify a little bit of what we mentioned earlier. We going to mentioned about 15% to 20% drop on the manufacturing cost further, it mean with our life of wafers 15% to 20% lower and our target end of this year is about six gram per watt, with multi and mono.

Nitin Kumar - Nomura Securities

Just one more question on your short term debt. As you mentioned that you’ll probably in 1Q try to short up your cash for the liquidity position. Just want to understand, for the long term what are the revenues you’re looking at right now to basically get more flexibility for in term of your cash?

Terry Wang

This is Terry, again. Maintain a sufficient liquidity and that’s quality in current global economy and the financial situation. So, having said that short term debt, if we have enough sufficient operating cash, we can pay some of this, our reduced short term debt so that we can optimize our capital expenditures, but that’s not the only the thing we can do. We can increase our long term debt so that helps our structure too, right, that’s one thing.

I don’t have an answer to your question about the revenue side, what’s the revenue level, so that we can comfortable to have the short term debt because obviously we have to relate it to our accounts receivable. I mean this is the turn and it’s just as not just not much you can relate it to the revenue side.

Nitin Kumar - Nomura Securities

Understand. On the accounts receivable side, as your accounts receivable days went up above 10 days quarter-over-quarter in 4Q, are you seeing the trend in terms of [Tasmas] requesting higher credit terms to basically to be able to go through their projects?

Terry Wang

Yes, that’s the payment term from the customers and Arturo may answer that question.

Arturo Herrero

Okay, you just said through right again, from the customer side, of course they are asking to be more flexible for payment due to the current scenario we are facing in terms of economical crisis.

So it is a fact that we have to be more flexible in understanding their concerns and their difficulties, but in any case, our portfolio of customers is quite strong due to the supports they have not only by private equity, but also with some important banks that is still there, they are doing project finance. So we will see some flexible and some longer finance terms in Q1, but nothing so difficult to that we cannot cope.

Nitin Kumar - Nomura Securities

Would these flexible terms would be there to stay, in the sense that I mean right now, big markets are bad, so you’re basically having to extent. As you go forward, would it be I mean easy to actually shrink them later, because typically it’s difficult to get them to shrink and that means your working capital requirements are going to be sufficiently higher as the markets pickup?

Arturo Herrero

Well, of course some of the tenants were negotiable, so nothings fixed for the year. 2009 will be for sure some contracts and we have finished greater contracts that are fixed for one quarter or fixed for one year or fixed for six months. So, for sure we’ll have to enter into negotiations and agreements with our partners to review these two terms, price and payment terms.

Terry Wang

Hi, this is Terry. I have to add this thing, just one of them to make it clear that if you recall, the global economic and solar industry and the customer space, we ask for the flexible payment term with a longer term, that’s the fact. I mean at the quarter, we see the sign and it comes back to us for the longer term, but as a company we do have the measures to make this situation controllable and our banks, if you remember we announced we have more than $20 million credit line.

The most of our credit line, a significant portion is the refinancing. In other words that we ask our bank to finance us and to have the assurance that we can get money and that we can help our customers to give a little bit better payment term, so that we can expertise or promote our sales in the market. So, that we do have measures to help that.

Nitin Kumar - Nomura Securities

Terry, just one more question, if you can give some color, can you give me some kind of details as to when you say flexible payment term, as to how have the payables moved or distributors moved like. Is it moving from 40 days term to going to 50 days or what kind of increase in the payment terms are the customers looking?

Terry Wang

That’s the moving target, but in general it’s getting longer. I mean from 40 days and moving to 50 days as you said and that’s moving, but it depends on the country, depends on the different market and the customers and we are right now dealing with the large customers, some financial situation. So, that basically, most of the customers are in that category. The trend is getting longer that’s true, but I if we say right now what’s the day now, we’re looking at between 50 days and 60 days around.

Operator

Your last question comes from Rob Stone - Cowen and Company.

Robert Stone - Cowen & Co.

Hi, guys just to follow-up on the comments, the ways to help your customers other than being flexible about pricing and potentially extending the payment terms, are there other things that you’re entertaining by way of assisting your customers?

Terry Wang

Yes, in fact our differentiation also from some of our competitors and this is why we have higher ASP, has been a couple of strategies we have been implementing and as Jifan Gao was mentioning in our introduction to this earnings call, our focus this year will be much more in terms of service and customer orientation.

So, one of the examples has been, the warehouse that we have opened, we have opened like here in November 2008, in Europe and we’ll do a several actions in this regard to include much more services in other countries, either in Europe and also outside Europe in other countries.

Also another important point is the local teams, that we are having people and are really having touch with our customers giving the confidence and the warranties of the quality of the product. So there’s a lot of pre-sales and after sales contact with the customers and technical approach in order make them understand about the specifications of the high quality product that they are buying from us.

Finally, I think it’s also important that not only their front salary that we are preparing, but also we are having a back office here in China. Seeing what this is having with us in our offices, with different nationalities, so we have no nationality difference in our offices and they are speaking the same languages and the same needs depending on the countries and the cultural behavior. I hope that this is very clear to answer your question.

Jifan Gao

Okay, well on behalf of the Trina Solar management team, we want to thank everyone for your interest and participation on this call; and as always, if you have any interest in visiting us or follow-up please let us know. This concludes Trina Solar’s Fourth Quarter 2008 earnings conference call. Operator, thank you for your support. You may now disconnect.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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