Evergreen Solar Inc.Q1 2009 Earnings Call Transcript

Apr.30.09 | About: Evergreen Solar (ESLRQ)

Evergreen Solar Inc. (ESLR) Q1 2009 Earnings Call April 30, 2009 5:00 PM ET

Executives

Michael El-Hillow - CFO

Rick Feldt - Chairman, President and CEO

Terry Bailey - SVP, Marketing & Sales

Analysts

Robert Stone - Cowen & Company

Jesse Pichel - Piper Jaffray

Steve O'Rourke - Deutsche Bank

Sanjay Shrestha - Lazard Capital Markets

Vijay Singh - Janco partners

Amar Zaman - UBS

Nick Allen - Morgan Stanley

Adam Krop - Ardour Capital

Sam Dubinsky - Oppenheimer

Jeff Osborne - Thomas Weisel Partners

Stuart Bush - RBC Capital Markets

Chris Blansett - JPMorgan

Bess Janet - Citi

Al Kaschalk - Wedbush Morgan

Kelly Dougherty - Macquarie

Operator

Good day everyone and welcome to Evergreen Solar's First Quarter 2009 Conference Call. Today's call is being recorded and webcast. At this time for opening remarks, I would like to turn the call over to Chief Financial Officer of Evergreen Solar, Mr. Michael El-Hillow. Please go ahead sir.

Michael El-Hillow

Thank you and hello everyone. Before we begin today's call which we are doing from Wuhan, China, we'd like to remind everyone statements that are made in this conference call that are not historical facts, such as those dealing with future financial performance and growth are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Future performance and financial results of the company will differ from those expressed or implied in any such forward-looking statements due to various factors.

Such factors include but are not limited to those described in filings that the company makes from time to time with the Securities and Exchange Commission. The company undertakes no obligation to update these statements.

I will now turn the call over to Chairman, President and CEO, Rick Feldt for his review of the fourth quarter. Rick?

Rick Feldt

Thanks Mike and hello everyone. I would like to start today by discussing our subcontracting strategy and expansion plans. On our call in February, we discussed that we were shifting from an Evergreen factory 'all-under-one-roof' strategy to one that self-capitalized on our wafer making capability while utilizing the benefits of subcontractor's for cell and panel manufacturing.

The idea was to have subcontractors who already have proven low-cost manufacturing capabilities, process our wafers into cells and Evergreen branded panels. This subcontracting approach would also reduce the capital we need for expansion. Today, I am pleased to announce that last night in Wuhan, China, Evergreen Solar, Jiawei Solar, and the Wuhan Donghu New Technology Zone Management Committee, i.e. the government signed a frame agreement which is the next step in our expansion roadmap.

Under the agreement, Evergreen will manufacture String Ribbon wafers using its state of the art Quad furnaces at a leased facility being built in Wuhan, China on Jiawei's campus. Jiawei will process String Ribbon wafers into Evergreen Solar-branded panels on a subcontract basis. Evergreen will reimburse Jiawei for its cell and panel conversion costs, plus subcontractor fee. The actual price paid to Jiawei will be negotiated annually.

The Wuhan government will provider coordinate with other Chinese governmental agencies, various incentives, including guarantees necessary to obtain third-party bank or other financing. Initial capacity is expected to be approximately 100 MW, and the parties intend to expand production capacity to approximately 500 MW by 2012, the timing and extent of which will be determined next year in 2010.

We expect the production and the initial 100 MW annual capacity facility will begin early in the second quarter of next year, and reach full capacity of 25 MW per quarter by the end of 2010. Total cost estimated for initial 100 MW wafer facility will be between $40 million and $50 million US dollars, the majority of which is for our Quad wafer furnaces.

With the support of Wuhan Management Committee, we will seek financing for about two thirds of the total cost, reducing our portion of initial capital required to between $15 million to $20 million. So, put another way, we'll effectively expand our wafer cell and panel capacity by 100 WM or between $15 million to $20 million of incremental cash.

Combining our unique low cost wafer manufacturing technology which Jiawei's proven and low cost manufacturing capabilities will result in a compelling value proposition for our customers and the solar industry. At full capacity of about 25 MW per quarter by the end of 2010, we expect the total manufacturing cost of panels produced in China including Jiawei's subcontractor fee will be in the range of $1.40 to $1.50 per watt. This assumes the silicon cost of about $90 per kilogram.

As the price of silicon returns to its historic level of about $50 per kilogram, and as both companies work together to improve technologies and further reduce manufacturing costs, we believe that total manufacturing costs under this arrangement could be reduced to close to $1 per watt by the end of 2012.

Coupled with the higher efficiency of crystalline silicon, such a cost structure places Evergreen Solar in a unique position to compete directly with expected thin film solar products. Over the next 90 days, both companies will seek the necessary import and export licenses from their respective governments, attain the needed permit for specific factory needs, finalize financing arrangements and sign all the formal documents.

Now, turning to Devens. We are pleased about the progress we made so far with Devens. The capacity expansion of our Devens facility remains on the original schedule that we established in the summer of 2007. For the first quarter of 2009, we produced 18.2 MW, more than double the 8.5 MW that we produced in the fourth quarter of 2008.

During the quarter, we sold 95% of our total production or 17.3 MW at an average selling price of $3.13 per watt, down from $3.39 in the fourth quarter of 2008. While we couldn't meet our second quarter production target of approximately 30 MW, softness in demand due to the tight credit markets and uncertain economic conditions will likely result in production of sales between 20 to 25 MW.

We still expect to have the capability to produce about 40 MW per quarter at Devens by the end of 2009 and achieve our manufacturing cost target of approximately $2 per watt at that level.

Of course, we will continue to moderate our production depending on market demand while we believe we will be well positioned to take advantage of an industry that is poised to return to significant growth once the current markets improve.

I will now turn the discussion over to Mike.

Michael El-Hillow

Thanks, Rick. I will discuss our first quarter 2009 financial results and our short-term liquidity situation.

Product sales for the first quarter of 2009 were $54.4 million, an increase of 32% from the fourth quarter of 2008 of $41.1 million.

During the quarter we shipped approximately 17.3 MW, all of which was from Devens compared to 12.1 MW in the fourth quarter of 2008 of which 8.5 MW was from Devens.

The sequential increase in product revenue was due to the 104% increase in volume from our Devens facility, offset somewhat by a 7.7% decline in our average selling prices, and also the volume that we were producing at our Marlboro facility late in 2008.

We too have been impacted by the worldwide decline in selling prices for all sorts of panels driven by what we believe is a short-term oversupply of lower quality products in a long-term balancing of supply and demand.

Despite the decrease in average selling prices, we still achieved an ASP of $3.13 per watt during the first quarter of 2009 compared to $3.39 per watt for the fourth quarter of 2008.

We believe the quality of our product combined with the caliber of our long-term contract customers has shield us somewhat from either further price declines during the quarter as experienced by many of our competitors.

Nonetheless, we do expect there to be further pricing pressure this year until inventory levels begin to decrease and credit begins to flow more freely allowing the large scale projects to resume earnest again.

During the first quarter, approximately 80% of our product was sold in Europe and 20% in the United States compared to 34% of products in Europe, 65% in the US and 1% other regions in the fourth quarter of 2008.

Fees from Sovello, our joint venture with REC and Q-cells were $1.4 million in the first quarter of 2009 compared to $3.1 million for the fourth quarter of 2008. Fees decreased sequentially due to lower sales volume and selling prices.

Gross margin was 1.2% for the first quarter, down from 4.6% in the fourth quarter of 2008. Gross margin decreased sequentially due to the impact of lower average selling prices and lower fees from Sovello.

R&D expense was $4.4 million for the first quarter compared to $5.7 million for the fourth quarter of 2008. R&D decreased sequentially as development of our new string process to be implemented in Midland, Michigan nears completion, and some projects don't either start or slowdown.

SG&A expenses was $6.4 million compared with $6.8 million in the fourth quarter of 2008. The sequential decrease in expense was driven primarily by decreased legal fees in connection with our suit against Barclays and Lehman Brothers, associated with the Lehman Brothers bankruptcy case.

Although we have taken legal action against Lehman, Barclays, and all appropriate parties, we do not have any new significant information at this point in time. We are proceeding expeditiously but the complexity of Lehman bankruptcy and the continuing difficulty in obtaining information has made the process very detailed and time consuming.

Facility start-up cost at Devens were $3.5 million in the first quarter, substantially lower than the fourth quarter amount of $9.7 million. As the first phase of Devens nears its full capacity, and the second phase begins a significantly ramp production start-up related cost have declined.

We expect that we will incur little start-up cost during the second quarter of 2009 with the Devens facility. However, our string manufacturing facility in Midland, Michigan begins production later this year and we do expect to incur start-up cost of about $4 million to $6 million over the next nine months.

During the first quarter we incurred $1.8 million of cost related to the Marlboro facility shutdown, most of which relates to cost of moving equipment out of the facility, occupancy expenses and depreciation expense.

During the quarter we determined that our loan receivable and the related interest from Silicium de Provence, otherwise known as Silpro became impaired because the French commercial court ordered the filing for judicial settlement proceedings, a process similar to bankruptcy proceedings in the United States.

As a result of the court protection filing, we recognized a non-cash charge of $43.9 million in the first quarter of 2009 representing the full value of the loan related interest receivable.

The loan which is required to be repaid by the end of the first quarter of 2013 was made in conjunction with a multi-year silicon supplier agreement that we entered into with Silpro in December 2007.

The purchase of silicon from Silpro under the supply agreement were not scheduled to commence until April 2010. While we are extremely disappointed about the situation, we expect we will be able to find ultimate sources of silicon if needed to meet our future growth.

Our operating loss which includes the startup expenses, restructuring charges and Silpro receivable write-off, previously mentioned, was $59.3 million, compared to $51.3 million in the fourth quarter.

On a pro forma basis, our operating loss without the restructuring in and Silpro receivable write-off was $13.6 million as compared to $20.1 million in the fourth quarter, if you adjust the fourth quarter for the Marlboro shutdown, representing a 32% improvement despite an 8% decline average selling prices and lower JV fees, which highlights the progress we are making with our Devens facility and the strength of our underlying Quad technology.

Other expenses were $3.9 million in the first quarter, which consisted of foreign exchange losses of $699,000, and net interest expense of $3.2 million. Other expenses in the fourth quarter of 2008 were $3.1 million, which consisted of foreign exchange losses of $2.7 million, and net interest expense of $343,000.

The equity loss from Sovello for the first quarter was $1.2 million compared to equity income of $2.2 million for the fourth quarter of 2008. Sovello incurred a loss during the first quarter, resulting from lower sales volume and selling prices, startup cost associated with the third manufacturing facility and foreign exchange losses.

Net loss for the first quarter was $64.3 million or $0.40 per share versus $52.1 million or $0.32 per share in the fourth quarter of 2008. Weighted average shares for the first quarter of 2009 were $161.9 million compared to $161.7 million in the fourth quarter. Both fourth quarter 2008 and first quarter 2009 include the 30.9 million shares associated with shares of common stock we lend to Lehman Brothers in conjunction with our convertible note, financing consummated in July 2008.

I'd like to now provide you with an update on Sovello's bank dept situation. As we have discussed previously Sovello was in violation of one of its bank convents as of the end of the fourth quarter 2008. Since that time, Sovello management and the shareholder have been in negotiations with the bank syndicate lead by Deutsche Bank to restructure Sovello's obligation under the loan agreement.

As a result of this negotiation each shareholder has agreed to the following: We will guarantee up to EUR10 million of Sovello's repayment obligations under the loan agreement, should such amounts be called in the near term. We will provide Sovello with additional loans of EUR5 million, which we did make in March of this year. And we will provide liquidity insurance to Deutsche Bank on behalf of Sovello through August 15, 2009 to support their cash flow requirement other than for payments that might be required pursuant to their loan agreement.

Based on the current business plans for Sovello, Sovello and the shareholders do not expect the liquidity assurance will require the shareholder to advance additional funding to Sovello.

Now, I will discuss our cash situation and capital needs through the remainder of 2009. From a cash standpoint, we ended the quarter with cash, cash equivalence and short-term investments of about $60 million. Through the end of 2009, our major capital needs relate to, or approximately $57 million are as follows: Completion of Devens of about $40 million, the first phase of our String factory of about $10 million, and debt service of about $7 million.

In addition to these requirements, capital required for the 100 MW China expansion previously discussed by Rick will be approximately $15 to $20 million. Assuming we can secure financing provided or coordinated for the Wuhan government for about two-thirds of the total wafer facility costs which is expected to be part of the $50 million that Rick talked about earlier, we do not expect further capital will be required for this expansion.

Since worldwide economic conditions have not improved, our liquidity like all companies has been impacted over the past few months, and will be continued to be impacted over the next few months. You may recall, during our last call that we discussed that we'd consider a variety of financing options in the shot-term in order to maximize our liquidity flexibility.

As such, we have filed a universal shelf registering statement for up to $100 million, which we expect will be needed within the next few months in order to secure adequate liquidity to continue to fund our operations, our working capital needs, complete the first phase of our String factory, and fund our 100 MW wafer plant expansion in China.

Rick and I will now be happy to answer any questions. So operator, please open the line.

Question-and-Answer Session

Operator

(Operator Instructions). We will go first to Robert Stone with Cowen & Company

Robert Stone - Cowen & Company

Could you walk through the P&L and balance sheet impact of adopting [ATB 14-1].

Rick Feldt

Rob, we ended up in recognizing a reduction of the debt of about $70 million that goes back to the middle of last year. The balance of the end of the year was about $60 million. So in effect we end up reducing debt by $70 million, increasing additional operating capital by $70 million, and then over the term of the debt, we will recognize about $3.5 million of non-cash interest expense per quarter.

And every time the accounting [at your best] as you write you debit interest expense and you credit debt. So at the end of the term, the debt on our books is back to the face amount of about $373.5 million and additional operating capital on this case repayments will down. So in some substance through the middle of 2013 we will recognizing about $3.5 million per quarter of non-cash interest.

Robert Stone - Cowen & Company

Okay. And that was in the interest expense this quarter?

Rick Feldt

It was yes.

Robert Stone - Cowen & Company

Okay. With respect to the ASP trend in Q2, can you be anymore specific than you expect prices to go down more, can you put a range on it?

Rick Feldt

We'll pass it over to Terry Bailey, our Head of Sales and Marketing.

Terry Bailey

Yeah, hi Rob, it's Terry. So it's a little bit chaotic out there right now, as the programs put in by the Obama administration, as well as freeing up of credit can have a substance of affect on exactly where all the pricing goes. Other people have said something on the order of 10% perhaps, I think that's not out of range, but it's difficult to put a specific number on it.

Robert Stone - Cowen & Company

Okay. So your ASP largely reflects contracts that were already in place last year?

Terry Bailey

To a large degree, yes.

Robert Stone - Cowen & Company

Okay. Final question relating to getting to your targeted $2 by the end of the year, your volume you mentioned in Q2 is going to be less than what your capacity would be capable of. So how should we think about the influence of potentially lower than targeted capacity utilization on the cost per watt?

Michael El-Hillow

The best way to look at it is as Rick said, in the fourth quarter if we are full capacity of 40 MW, we'll be at about $2 per watt. If we're at about 30 MW, we'll at about 215. If we are at about 20 MW, we will be at about 250. So that will give you a frame of reference. And I think if you were to model that and just kind of tweak it accordingly, that will give you the slope of the change.

Robert Stone - Cowen & Company

But you were at 18 MW this quarter and it's above $3?

Michael El-Hillow

Yes. So that's what I'm saying. But, I'm not sure what your point is that we are 18 MW and if we were 18 MW in the fourth quarter, we'll be at about 250.

Robert Stone - Cowen & Company

What will improve between now and the fourth quarter besides volume that gets that?

Michael El-Hillow

We continue to refine the factory improved yields etcetera. Our efficiency will continue to go up so – it's factory wide improvement. But the biggest impact is the volume, it's the volume impact.

Robert Stone - Cowen & Company

Okay. Thank you.

Michael El-Hillow

You're welcome.

Operator

And we will take our next question comes Jesse Pichel with Piper Jaffray.

Jesse Pichel - Piper Jaffray

Hi good afternoon. On Jiawei do you envision that production facility will allow you to tap into the China subsidies which you're brewing or do you view it as an export product? And could you help us reconcile what the costs will be in China which you've disclosed as 140 to 150 will be relative to the other plans when fully ramped. And does that change your plans there for expansion in the other geographies? And I have a follow-up question.

Rick Feldt

Well to your first question, we are hoping that the facility in Jiawei will end up shipping product both into China, as well as around the world. I mean there is a lot world wide market and so our Devens facility is only 160 MW. So we are really anticipating that our Jiawei facility will be used for world wide shipments. But because Jiawei is a Chinese company we believe they will be helpful to us in selling into China also. And Jesse, the question that you are asking about what the major differences are?

Jesse Pichel - Piper Jaffray

Yeah.

Rick Feldt

So if you look at Devens it's being at about $2 at the end of 2009. Then a year from now the biggest impact is in labor and that goes down, all goodness gracious is by about 70%, overheads goes down by about 30%.

Jesse Pichel - Piper Jaffray

So I guess that what I'm asking is, you have a $0.50 $0.60 savings now with the strategy which I think is the right move. Why expand Devens at this point or Germany?

Rick Feldt

We are not expanding Devens.

Terry Bailey

We have already constructed Devens and all the equipment is in.

Jesse Pichel - Piper Jaffray

Right.

Terry Bailey

We're going to get operating efficiently, but the plan is not to expand it to you.

Jesse Pichel - Piper Jaffray

Right. I was just thinking maybe you can move the equipment kind of like the EMS companies do over the years?

Rick Feldt

We also believe there will be a strong US market. There are a lot of customers that want to buy in the USA and size of the incentives for USA made product. So we do think long-term it's important to have a facility in the United States and also we will work at making it more efficient. Mike said we targeted to be at 2 bucks a lot by the end of the quarter assuming volumes do come back.

But we've been working hard in identifying ways to further reduce costs and we think we can reduce costs at Devens beyond 2 bucks a lot in the next year. So, long-term we think there is a home for Devens. But as the market really works to erode dramatically, and we couldn't get our prices low enough, than we could do as we can move equipment offshore. We'll make Devens some more of a wafer-only facility, because our wafer costs are such that they are much less dependant on or influenced by labor and at the extreme, Devens could become a wafer facility.

Jesse Pichel - Piper Jaffray

Right. And speaking of the US market, you signed an agreement in March with RMT for potentially some large utility deals. Could you give us an update on that? And maybe a little background would be helpful?

Rick Feldt

Terry you want to take that?

Terry Bailey

Sure. So, RMT is a subsidiary of Alliance Energy and which is the utility of course. And so as such, they have historically been primarily in wind and they have started to expand into the solar market and chose us and we chose them as the appropriate partners to do that wind. So absolutely, they are behaving as an EPC company and we are in active process of working with them on multiple projects adding up to hundreds of megawatts going out into the future.

As you know, these very large scale projects don't turn over in a day and even after their closed, they still spread over quite a long time when they are in the hundreds of megawatts scale. So, there is not an immediate effect on it. But there is active work going on every week between us and RMT together speaking on these large projects.

Jesse Pichel - Piper Jaffray

Can you discuss what states those projects are in or what stage of, are they in the bidding process now? Has anything been awarded, etcetera?

Terry Bailey

No, all of these, since we only signed the deal very recently, are in the bidding stages. Some of them in the second or third round, but none of them are closed.

Jesse Pichel - Piper Jaffray

And my last question, sorry, I've taken so much time. Mike, could you help me reconcile what looks like a $100 million cash burn in the quarter? And I'm a little confused about the write-off you had with the Silpro was that a cash deposit that you had made to them, that you're writing off or?

Michael El-Hillow

Yes. We made an advance in the form of receivable at the end of 2007 as part of the silicon contract. So basically and they've filed for bankruptcy and they have moved on. In the quarter the biggest part of the cash burn, Devens was about $50 million, the String factory was about $10 million. We also advanced as all to our partners of our $12 million to Sovello during the quarter, and the rest is just working capital, we had a loss. Our cash is actually just where we thought it would be.

Jesse Pichel - Piper Jaffray

Right. And do you think you can recover any of that money from Silpro or any equipment or any?

Michael El-Hillow

No, we don't know, it's like everything else like we face with, I'll say we faced with Lehman Brothers, that losses to complex that now as to French court. Anything is possible, this is kind of like capital on the US, we're trying to reorganize, the contract is still in place, we just don't know.

Jesse Pichel - Piper Jaffray

Right. And that was disclosed that $15 million on?

Michael El-Hillow

We filed an 8-K about a week or 10 days ago.

Jesse Pichel - Piper Jaffray

No. But that there were a deposit had been made?

Michael El-Hillow

Yes, we do had that all long, absolutely.

Jesse Pichel - Piper Jaffray

Okay. Thank you, so much.

Operator

And we will take our next question from [Julie] of Simmons & Company.

Unidentified Analyst

Hi guys, good afternoon. I was just wondering if you could talk a bit in the declining ASP environment about your views on managing the balance between ASPs and volumes and how I mean what's the balance there between being willing to sacrifice ASPs and efforts to move more volume?

Rick Feldt

Well, this is Rick, I will start. It is a real delicate balance. Right now, with the incentives that exist in the US and around the world, the IRRs on projects are really good with pricing at 3 bucks a lot are better. And so there is a lot of [tenant] selling right now. And so we had a factory that begun to ramp, we don't want it to sit idle. But we don't want to a bidding war, and unnecessarily drive the price down against ourselves.

So we really look at this on a case-by-case basis. No doubt about it, there is a lot of inventory, particularly the Chinese who are dramatically, drastically dropping prices. We are avoiding trying to get into that type of bidding war.

On a more gradual scale, we are dropping prices because that's what we need to do to move product. We are trying not to drop that to absolute basement because volumes can move at higher pricing and it just panicked selling that's going on. So we look at this order-by-order.

Terry Bailey

Julie, its Terry here. Basically these volume can shift very rapidly, so when capital is available again as Rick mentioned, the returns on investment, especially in Europe and if you look at Germany, for the first time in two plus years there is excellent return on investment even for on ground large installation. So that part of the answer should really pickup. We are fortunate enough to have strong partners around the world for which we did these long-term contracts. Yes, there is a market pricing mechanism which we put into place in these that is there, so they can be successful and we can be successful. It also means that we have a coherent discussion with them as opposed to simply running out trying to find every small little deal we can in order to move volume.

In addition to that, we are able to hold a premium based on the premium aspects of our product, so that's been true so far.

Unidentified Analyst

Okay. Last quarter on the call you had mentioned that few customers had some pushback in taking delivery though you were able to find another home for the volume. Just wondering what you are currently seeing more or less of that?

Terry Bailey

Less of that. Q1 is historically very slow because there is a lot of snow in Europe, especially in Germany, the world's biggest market. The tariffs change in the first quarter, so it is always slow. And yes we did see that, keep in mind it was basically from one customer that we were able to find an immediate replacement to help them out at their request.

In Q2, we're seeing better flow-out of products as evidenced by the increased sales that we've had in Q1 and that following into Q2. And so we do see significant improvement, warehouses are empting, project request for [post], everything are increasing. And we hope that this is a trend that will continue.

Unidentified Analyst

Okay, great. And one last question if I can, looking at Jiawei, I'm just wondering how do you view and plan to address the IP security risk of starting up operations in China?

Rick Feldt

Sure, we've given that a lot of thought. The first thing to remember is that we are opening up a Evergreen wafer factory in China. So we will own and control that factory. We believe there will be rigorous measures to protect electronic documentation, as well as the parts of acquired furnace that are used out during day-to-day operations, a process whereby we keep those in a separate warehouse. And as we put new ones in the Quad and replace the (inaudible) that will crush them so that no information could be gleaned by trying to get all my perimeters and reverse engineering them.

And then lastly, the string that we use for String Ribbon, there is only one source right now, that's the US source, we are becoming a second source and without string, there is not String Ribbon. So we think we have a multiple level defense of protecting our IP.

Unidentified Analyst

Okay, great. Thank you.

Operator

We will take our next question from Steve O'Rourke with Deutsche Bank.

Steve O'Rourke - Deutsche Bank

Thank you, good afternoon. When do you expect to have the agreement finalized with Jiawei? Are things in the final throws or could this just drag out for a while. And secondly, could you finalize the equipment tool set yet for cell and module manufacturing. Is it going to be consistent with the Devens factories?

Michael El-Hillow

I will answer the first, Rick will answer the second. We should have these demos in 90 days. There are a couple of gating items, usually governmental things, but we are very, very close on many different things. And in fact, probably could have signed contracts with most of the terms already done. So, you can expect it buy no later than middle of June, this should be done.

Rick Feldt

Regarding tool set, yes, we've have had a lot of discussion. Broadly, we'll be using the Devens, specific or Devens like equipment where it's important, and we'll be using other equipment where it's not. For example, at Devens, we have an awful off lot of automation moving wafers from one cell processing step to the next. We will not be putting that in Wuhan, China.

However, we will be using some US and European processing piece of equipment to ensure we get the right kind of efficiency, and our acid etch operation, where that's completely automated in the US. We will use our [hand done] operation in China. So the answer is, it's a mix of US, Europe and Chinese equipment, but we think the right balance mix.

We had a lot of discussion. We don't want to end up just recreating Devens in China, and not take advantage of the cost structure here. On the other hand, we don't want to put the operation at risk and use lots of unproven equipment or equipment which has proven to produce lesser quality result.

Steve O'Rourke - Deutsche Bank

Fair enough. One follow-up. What percent of your contracted backlog was to be covered by silicon from Silpro, and have you identified other resources yet?

Michael El-Hillow

We have not identified other sources. We haven't given out specifics in that contract, but what we will say is that, by far and away our largest silicon supplier is DC Chemical, now OCI, and REC is the smallest contractor. It is very small. We have other sources. As we said also, it wasn't due until 2010. So, from a silicon supplier standpoint, we are not concerned at all.

And in fact, one of the things we should point is that, it was about two years ago when we signed that major contract which was at the time DC Chemical, and many people wondered who are they? Where are they coming from? Two years later, you can see even established players having a hard time meeting their production goals, and we explained to the world how comfortable we were with DC Chemical, and we thought they would be there, and they have been there. They were close partner to us, and one of our larger shareholders. So, if we really had to find additional resources of silicon, I'm sure we'll get it from them.

Operator

(Operator Instructions). And we take our next question from Sanjay Shrestha with Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets

A couple of quick questions. Can you update us on the status of your backlog which I believe stood at about gigawatt at the end of the year? So, are we having some more of a pricing discussion given the environment we are in right now? Can you talk about that a little bit?

Terry Bailey

Basically, out of the original roughly 1.1 gigawatt that was in the latest round of long-term contract that we did last year, there is 946 or so that is still to be fulfilled. And with regard to the pricing; yes, of course, as we have always mentioned, there are a specific mechanisms for looking at what the appropriate pricing should be several times a year, and so we have those discussions with our customers frequently.

Sanjay Shrestha - Lazard Capital Markets

Okay. Fair enough. Now, one another point. I just want to make sure I'm doing the math right. So, you guys talked about this 145 for the manufacturing plant in China. So, that is taking into consideration the 5 grams per watt silicon utilization. Correct?

Rick Feldt

That's fully loaded cost, including the subcontracted fee with Jiawei.

Sanjay Shrestha - Lazard Capital Markets

Got it. So, silicon, we're assuming 5 grams per watt?

Michael El-Hillow

No, we didn't say it was five. Frankly Sanjay, it is going to improve. It would have improved by then.

Sanjay Shrestha - Lazard Capital Markets

Great. That's kind of where I was going with that. And the next point on that then guys is, you're talking about a $1 cost which is fantastic by 2012, so what are the underlying assumptions for us to get to that. Is it simply that silicon is going from 90 to 50 or what else is there and the sort of level of comfort that we have with that?

Rick Feldt

The biggest driver is silicon going from say, our average costs say of 90 to 50. But, we also expect that our cell conversion efficiency will be well north of 16.5 approaching 17 and another important thing we've talked about is we are going to work to continue to make the wafer thinner.

Sanjay Shrestha - Lazard Capital Markets

Sure, sure.

Rick Feldt

We're about 190 today and then just the other things are a little bit of making the factories even smoother, higher yield and then finally just being able to source certain products out of China, out of Asia. But the biggest driver of that is the reduction in Silicon.

Sanjay Shrestha - Lazard Capital Markets

Okay, that's terrific. Thanks a lot guys.

Rick Feldt

Welcome.

Operator

And we'll take our next question from Vijay Singh with Janco partners.

Vijay Singh - Janco partners

Hi, Mike can you give us, what's the operating metrics for Sovello megawatts shipped in ASP?

Michael El-Hillow

You know Vijay, we're basically backing off on Sovello right now. They're an independent company. We've talked about an IPO. I guess the best way of seeing is that in many ways Sovello and Evergreen mirror each other in similar size capacity. We quite obviously were hedged, so we would just prefer to stay away from that.

But we will say is that the fees that we get from them that were above $1.4 million a quarter this quarter, quite frankly we were hoping it would be higher this year. They are not there -- nothing to do with Sovello AG's market conditions. So the one thing is that (inaudible) I'd give is that fees should be in the range of like $750,000 to $1.5 million a quarter for the rest of the year. Beyond that, we're not going to go into any more detail.

Vijay Singh - Janco partners

Okay and in terms of working capital needs, you outlined your cash needs. Is there working capital needs that you will require more cash over and above $57 million that you outlined?

Michael El-Hillow

For the next couple of months, we have enough cash, $60 million in the quarter, we are fine. Now it comes down to volume in ASP. Many people want to know what a company's cash flow break even is. Obviously we had that analyzed in many different ways, the problem we're facing is that that in a new industry, an emerging industry with prices going down as much as they are going down the working capital needs a significant, but the bottom line is assuming, just a reasonable recovery by mid-year and reasonable reduction in ASP, we start generating cash from operations mid-year.

The problem is that we can't take that chance. No company could take that chance. Everyone is going out and raising fund, so the best thing that we have is that yes, we are trying to raise some funds to protect ourselves in what could be a continuing deteriorating situation, but more importantly funds to invest in China.

For those of you who have followed this company since Rick took over as CEO, I mean he's had a like a four-step strategic vision and he has done it one thing at a time. The company has done it. It started with getting the dual equipment out in volume and then the EverQ joint venture which allowed us to get the DC Chemical silicon contract in Devens.

With the ultimate goal of showing the world that Quad is a good platform. We haven't stretched that enough. We talked about it many times. We put Devens in place to bring companies in to show them the power of our technology including Quad. We haven't pointed out, we say our investments are going to be in China.

(inaudible) investment is equally substantial and they are relying in us right there. So yes, we will have green capital needs, but the biggest driver of us raising funds is to move forward into China. So we said that we are coming out for funds and it will be some time in the next few months.

Vijay Singh - Janco partners

But when do you anticipate timeframe wise raising capital?

Michael El-Hillow

We're not sure. We said it will be sometime in the near future.

Vijay Singh - Janco partners

Okay and then lastly this one clarification on the balance sheet, this debt discount?

Michael El-Hillow

Yes.

Vijay Singh - Janco partners

Can you explain that? Is that related to ATB 14?

Michael El-Hillow

Not ATB 14, whatever it is, I just can't figure all these acronyms.

Vijay Singh - Janco partners

But is it related to that?

Michael El-Hillow

It is. It's a convertible data, the hard bit convertible debt making an amount and charging it to creating additional paying capital than amortizing it back then. I talked about it early in the call. The $3.5 million a quarter will get you there.

Vijay Singh - Janco partners

Okay, perfect. So that discount reflects that.

Michael El-Hillow

Exactly.

Vijay Singh - Janco partners

Okay, perfect, thank you Mike.

Michael El-Hillow

You are welcome Vijay.

Operator

And we will take our next question from Stephen Chin, UBS.

Amar Zaman - UBS

Hi, this is [Amar Zaman] calling in for Stephen Chin. Just to go back on Sovello quickly. For the equity income of Sovello this quarter was a loss. How should we think about it going forward for the year?

Michael El-Hillow

I think the best way Amar is, you just got to figure what the market's going to do. They've had a loss. It's a tough environment out there. They're opening up, but we just don't want to give more detail on that. Other than I guess the best way of looking at it is, you model us. I'd model them in a similar manner. To put that way.

Amar Zaman - UBS

Okay. And just as a follow-up, you gave some information about your capital needs for the year. In the past I think you've said your CapEx for 2009 is expected to be about 120 million. Is that still the case or has that come down?

Michael El-Hillow

No, actually now it's probably going up a little bit because of the China investment, but…

Amar Zaman - UBS

It's 120 plus, but 15 to 20 million for China?

Michael El-Hillow

Yes, it should be right about there, yes.

Amar Zaman - UBS

Okay, thank you very much.

Michael El-Hillow

You're welcome.

Operator

And we'll take our next question from Nick Allen at Morgan Stanley.

Nick Allen - Morgan Stanley

Yes, thank you for taking my call. I was just going to dig in a little bit on to your cost for (inaudible). If you're looking for $1.50 coming out of China, and then roughly $2 coming out of Devens, that comes out to a blended cost of about $1.80 when you're all ramped up. Am I thinking about that right? And then secondly, what kind of growth margins are you looking to achieve company wide out in 2010?

Michael El-Hillow

Well, you're certainly looking at it the right way. It would be a blended cost. I mean what gross margin we're looking for, we've got to figure what the selling prices are going to be.

I think many people in the industry have said that once the prices get to $2 a watt, we should be at good parity, and there's no compelling reason to go further down. Let's say at the end of 2011, we expect our China operation to be maybe at about $1.25 then.

And as Rick said earlier, Rick and the manufacturing and R&D people. We're going to find a way to drive Devens down to maybe $1.80 in that timeframe. So and at that time we'll also have more capacity in China.

Just let's say we have 160 MW of [bulk] prices. We're looking at a blended cost of about $1.50. With a $2 ASP, that's a 25% gross margin; a 25% gross margin in an industry that should have a lot of volume upside, that's a great gross margin.

So that's where we're at, but I must admit, Rick and Terry and myself and other single myself, and the leadership members, when we sit back and say, how low is low. You just kind of hope this doesn't turn to the DRAM industry, where people just go crazy with pricing. There is value here. And one last comment and we think we said earlier that, there is a lot of product being plugged into the marketplace right now, some from established companies but some from companies that quite frankly are struggling to survive.

We believe that quality sells. We believe that technology sells and so ultimately, we should be less sanding but the ones that bring them back to the market place, so if I were to go out there, I'd say, price of selling is about $2. Our cost of blending cost you about a $1.50, with some upside going down because of the extent outside the US, 25% gross margin.

Nick Allen - Morgan Stanley

And so that would be in the 2012 timeframe versus 2010?

Michael El-Hillow

Probably the end of 2010, late 2011.

Nick Allen - Morgan Stanley

Okay. Thank you.

Michael El-Hillow

You're welcome.

Operator

And we will go next to Adam Krop with Ardour Capital.

Adam Krop - Ardour Capital

Could you please quickly comment on the conversion efficiencies you're seeing from the Devens one, and where you stand on grams per watt over there as well?

Rick Feldt

We're right now still in the midst of the startup of, especially, the second phase which we only turn on in the second quarter. We're plotting it up to 50%. We're targeting to get to about 15.5 with our current technology, and then we develop as we mentioned in the prior calls a new metallization technique that we think we can implement in and were up the next 12 to 18 months, so that will get us north of 16%. Silicon usage today is under 5 grams a watt, and as we improve on yield and efficiencies, we drive that it to around 4 grams, probably 5 early next year.

Adam Krop - Ardour Capital

Okay thanks, and then just one quick follow-up. Maybe it's a clarification. In 4Q '08, you mentioned you had about 80 MW contracted for shipment in 2009. Can you just provide an update there? Where does that stand now?

Terry Bailey

I'd have to quickly look and see to which explicit customers we shipped in Q1 but it's basically 70 MW or so; 65 MW of that is still in backlog.

Operator

And we'll go next to Sam Dubinsky with Oppenheimer.

Sam Dubinsky - Oppenheimer

Hey guys. A couple of quick questions. Can you just maybe discuss the cost components of Sovello in 2009 and 2010 because I think they do a higher labor, cost and also how much cash and debt does Sovello have today? And I'll have some follow-ups.

Michael El-Hillow

As we said Sam, we're not prepared to go in any detail about Sovello any longer. And all the partners have basically agreed to that, its just difficult for a three-way partnership, a lot of, I won't say misinformation, but we have access to all the same information, but its stated may just confuse the market place. So, as I said earlier, String Ribbon facility is doing fine, did they have been profitable before this recent down cycle. Many companies are going from a profit to loss so we prefer not to answer any more questions about Sovello. And one last thing, because we understand, our future is Devens, our future is our partnership with Jiawei. That's what's going to drive the performance of Evergreen going forward.

Sam Dubinsky - Oppenheimer

Okay, but you are giving Sovello or you are acting to give Sovello some capital or as a loan, so just trying to figure out sort of just financially how does Savello in general at a high level, is the cost structure going to be higher than yours?

Michael El-Hillow

That's a fair question in this situation, but rather than asking from a cost making standpoint, the shareholder have worked very closely with the management team at Sovello, and to significantly reduce their cash burn, so unless something really unusual happens in worldwide economies, the product they make is still well received, we should be fine. Let's just leave it at that. We will leave it you to decide how bad that is. But do remember that Sovello had been profitable.

Sam Dubinsky - Oppenheimer

And then I guess in terms of pricing environment, you mentioned that there is some pretty severe pricing pressure out there, could you just comment on just what you are hearing in terms of, in the market from, let say Tier 1 and Tier 2 competitors, what they are pricing at. And then I have one final housekeeping question.

Terry Bailey

Yes. What you are hearing Tier 1 and Tier 2 people pricing it depends upon what week you talk to people. So, as we mentioned upfront, it is pretty chaotic to look at that in detail. That being said, it is clear that the Tier 2 Chinese manufacturers, some of whom may have already shutdown their facilities. They are simply moving out products in order to make cash or by far the lowest, and they are down in sort of mid low $2 dollar range.

The first year guides are $0.25, $0.30 above that and then the premium guides again $0.20, $0.30 above that. So that's roughly the range, but you can find whatever you are looking for out there, since the question whether you want to buy it.

Sam Dubinsky - Oppenheimer

Okay. On the China facility just to be clear, what are the start-up cost model into that for 2010?

Michael El-Hillow

2010 would be quite really selling cost pretty low. If you look at Devens, our start-up cost for Devens were about $30 million at a 160 MW facility, but that was fully loaded. If you take that as (inaudible) third because we are just doing away from FAS, it will be about $10 million.

In China if you adjust it from a 100 MW, you are probably looking at start-up cost no more than $2 million to $2.5 million spread over about six quarters. It would be very, very low.

Sam Dubinsky - Oppenheimer

And then one last question, just in terms of your interest expense. I know there is an accounting rule change from modeling stake, are you ever going to pull form out through the cash versus non-cash expense or should we be modeling it comes back to...?

Michael El-Hillow

The non-cash expense is $3.5 million a quarter in round terms.

Sam Dubinsky - Oppenheimer

So going forward we should model $3.5 million?

Michael El-Hillow

Yes, in round terms. The exact number may be a bit slower, but I am just giving at around $3.5 million a quarter.

Sam Dubinsky - Oppenheimer

Okay, great. Thank you.

Unidentified Analyst

Mike and Rick, I know Stuart signed off but for clarity sake, I was giving roughly some numbers for the US. Of course for the exchange rate in Europe, those would be different but it gives you a feeling as there are quite some magnitudes. Thank you.

Operator

We will go next to Jeff Osborne with Thomas Weisel Partners.

Jeff Osborne - Thomas Weisel Partners

Great, thanks. Just two quick ones, you mentioned the second quarter of 2010, you would be ramping the wafer facility. When would you expect Jiawei to receive CNUL certification for the modules that they would be selling or you would be selling that they would be producing?

Rick Feldt

Terry, you've been working on that for us, can you comment please?

Terry Bailey

Yeah, I can. So we've already nailed down what the product mix will be. And as Jiawei starts bringing things up, we have a well defined process for producing the panels necessary for certification. So the intent would be that as the time may begin their production when stuff starts rolling off the line or extremely shortly after that certification to be in hand, we begin shipping product.

Jeff Osborne - Thomas Weisel Partners

Okay. I was unsure if you'd be selling into the Chinese market in the middle of 2010 and then as you got certification you had moved over to Europe. And then you mentioned Michael about the success and how well Quad is done, but if you are not going to provide some of the details on the Sovello, can you just talk about what the deviation is on cost per watt?

Michael El-Hillow

The cost for deviation is not significant. We all know Germany and United States, they are high cost regions. And the previous thing we're all hoping for, and this is critical that we were hoping that China is not going to supply every panel worldwide. There is a reason why Ahearn is stepping down as CEO of First Solar. She understands the importance of making the US market a wider market, but there has to be lot of things there, this has to be like the auto industry. So in the case of Sovello, the German market is very strong, they should get if you roll some purpose in Germany.

And in fact, they were getting that before this recent economic delayed. So, I wouldn't focus so much on the differences per say. What's really happening as result is unleveled plain field around the world allowing countries that are supported by their governments to flood marketplace. So that's must now be fixed but I wondered but we're thrilled an individual that's run quite frankly, lets be honest with the best company in the space is going to be working full-time in public policy to help not only United States but worldwide. That's critical to us.

I come out of the semi-capital (inaudible). I've spent years in that industry, 10 years. When the Japanese tried to take over this industry years ago, the US came together, that's when (inaudible) was born. There has to be cooperation, but there has to be a level of playing field and optimally, we assume its going to be like the auto industry.

If foreign made automotive deals, I mean if I want to sell in US we opened up plant, level playing field could be important with the largest silicon based manufacturer in North America, and it's important to us to support that market. So, that's the best we're looking at. It's we're in a transitory time right now but that is going to change.

Jeff Osborne - Thomas Weisel Partners

Understand. And last one just quickly, will any of the Sovello financials be in your 10-Q filing or any of your European partners, will that ever be disclosed?

Terry Bailey

No to-date we always have to put a summarized information and our 10-Q is the one. The information of that has to be publicly disclosed. It will be there and annually given the size, unless the rules have changed there will also be in our 10-K filings.

Jeff Osborne - Thomas Weisel Partners

Great, thanks so much.

Terry Bailey

You're welcome.

Operator

And we'll take our next question from Stuart Bush with RBC Capital Markets.

Stuart Bush - RBC Capital Markets

Good afternoon, guys. Was there ever any original restrictions with the Sovello partners on limiting Evergreen Solar from manufacturing outside of the US if you had to agree to?

Terry Bailey

Stuart, there was a quarter restriction. We've worked to manufacture by our self, there was no restriction. If we were to manufacture with Jiawei partner, specifically we formed a new joint venture, we had to offer reckon Q sales, by the first refusal they have 30 days to respond in kind. In this case aren't forming a joint-venture. We are starting our own factory in China, and we are using a subcontractor in China. So, the minor prohibition that existed under our Sovello agreement does not exist here.

Stuart Bush - RBC Capital Markets

Okay. So, China still dig down on the possibilities of down the road, if you wanted to slop equipment to different locations around the world, are you under certain restrictions in Massachusetts from the loan that they gave and the tax advantage down that would prevent you. Do you have to meet certain requirements of production for certain amount of time or employ a certain number of people?

Rick Feldt

The deal we signed with the state would have us employing like 350 or 400 people in the Devens facility. The Devens capacity was about 800 people, and so the only other prohibition on change in Devens is change in employment. We've got below 800 or probably 400 or 375. It's in that vicinity. Then we would be obligated to our pro rata basis, returned to the states some of the funds that over a five year period.

Stuart Bush - RBC Capital Markets

Okay. So that's in place for the next five years or so?

Michael El-Hillow

Yes, yes. Remember it's not a prohibition of what we do? It is how many people we employ.

Stuart Bush - RBC Capital Markets

Okay. And then one last question, I mean, I think there is a lot of questions about Sovello because you had to forward them $12 million as part of the covenant agreements. Have those covenants been totally wiped out or is there additional levels that they could breach again in the future that may require the partners to come back and review at a certain time, you know, in the worst case scenario?

Rick Feldt

They've retained wavers. So the covenants are still in place, so they've retained wavers and negotiations continue. Having been a CFO of other public company for 20 years, I will say that, renegotiating covenants with banks historically is not been that bigger problem. In this environment, it is beyond belief. Banks all over world are a problems, so I think the best way to looking at is that yes, so that the bank have asked the partners to put in some funds.

I mean, we don't mean to minimize putting in $10 million, but remember, the three partners are protecting investment well in excess of a $100 million. So, that's not a bad return, and it's just to help someone to makeup for their cash flow needs. Anything is possible, but the banks are working with us. But, the reason why we have to give a liquidity agreement till August 15 is, quite frankly, they want to see the performances of Sovello through the June quarter, and then we will relook at the covenant. I think the best way of looking at is that banks want to do a lot of things. They don't want own companies.

So, as long as they believe the partners are going to be there to support within a reasonable level, they'll help it. So, I was presenting at a conference right after this was announced in the public domain that caused an awful lot of controversies to what the situation was. What I said was that, if all the partners involved, Sovello management, all the three other parties involved. Sovello management, the partners and the bank consortium, is they reasonably work together, we will find our way out of this. And the only reason we are not giving a lot of detail is that, we don't know. We just know what is going to happen, but assuming that there is going to be reasonable stability, a little bit recovery, Sovello should be fine.

Operator

And we go next to Chris Blansett with JPMorgan.

Chris Blansett - JPMorgan

I just wanted to ask question really toward Terry regarding the price reductions that have been occurred, and have you seen any new areas of interest for solar that maybe not have been there at the higher price points over the past few years?

Terry Bailey

Yes. So, unfortunately, in the world the way it is today, that would be masked at these pricing levels. Of course there would be new interest that would come on board, but until such time as capital is more readily available and or an individuals feel like they can invest more freely with their own personal, its been masked a little bit.

That being said, the residential market is booming in Germany and to a reasonable degree here in the US because people do see a return, especially in the US there is a number of very interesting programs in place which essentially allow someone to put a solar on their roof for a little to no cash out of their own pocket, and essentially they signed a personal PPA in order to purchase the power at a fixed rate over a long period of time from the solar that's on their roof.

So, its win-win-win all around, and that is a system that's proliferating here in the US. In Germany, it's a lot easier because they simply tap into the (inaudible), and the returns on it are spectacular, so there's no issue with it.

As, pricing continues to go down as is expected, then of course, we start getting to grid parity in the not too distant future, and that should open up a lot of very interesting things. And the last thing I'll say is of course, utilities are now extremely interested because the price or the cost per kilowatt hour is getting down into the region where they are significantly interested from a, what it will cost the rate payer base as well as making governments happy over regards to moving to less carbon production.

Chris Blansett - JPMorgan

I guess along the lines of that last comment you made. Have we seen any evidence of utilities willing to put up their own capital to get some large systems on the ground?

Terry Bailey

Yes. We have. Remember many utilities; it is sort of not their own capital. So, in many cases yes, it is their capital upfront, but they pass it along to the rate payers based on going through DPU's or whatever the local agency is called that controls them. But, there there is no doubt that the utilities are the best positioned companies in the world right now in order to have capital available that they can in fact, put into this type of mode. And so that's why you are also seeing a lot more utilities directly involved.

Chris Blansett - JPMorgan

All right. One last quick question for you is, when you think about these solar systems on small buildings, is there an idea of how much capital is available for that type of activity?

Rick Feldt

That depends on the size of it. Again on residential roofs there is a couple of companies that are specifically broadcast there to support that. For mid-sized ones, we get them to the US especially into the whole idea of tax equity and how that's got to shake out. And that's going to require that the government finish writing the rules for how people can take that tax equity as a cash grant.

In Europe it's no problem whatsoever or much less of a problem and it's really a matter of people starting to feel a little more confident in putting the money in. A lot of Europe was built on EUR10,000 [pop] shares by individuals and net worth people into these things. So its spread all over the whole thing and it's starting to clean itself up, but I like everybody am anxious to see that end.

Chris Blansett - JPMorgan

Thank you, guys. I appreciate it.

Rick Feldt

Welcome.

Operator

And we will go next to [Bess Janet] with Citi.

Bess Janet - Citi

Hi guys. I was wondering if you could breakdown what portion of the $2 target for Devens is related to silicon versus non-silicon cost?

Michael El-Hillow

It's that $2 we expected it to be about 4 grams a watt. Our average price is about say $85 to $90 bucks, so you will look into $0.35, $0.36, $0.37.

Bess Janet - Citi

All right, thanks.

Michael El-Hillow

You're welcome.

Operator

We will go next to Al Kaschalk with Wedbush Morgan.

Al Kaschalk - Wedbush Morgan

Good afternoon. I just wanted to follow-up, my most of the questions have been asked. If you look at your comment about 20 to 25 watts to be produced and sold, how do you balance the production with the third quarter outlook in terms of not building inventory and taking concerns on the ASP risk? I know inventories built a little bit but I would think that would be just because of an expansion that you are undergoing.

So may be you could try to partner in here the production schedules, sales volumes, targets and the previous comments about manufacturing cost driving down based on the volume of sales?

Rick Feldt

This is Rick. It is disappointment to us that the markets is as soft as it is because we finished the first quarter actually with Devens performing very well. The reality that as we did it over 2.5 MW, we were already in above with 30 MW rates. And we had to pull back when we were ramping up in the last part of the first quarter. We had a lots of temporary workers because we knew that worldwide economic conditions were soft and when you want to be stuck with high amount of people on a permanent basis having less job. So we had a lot of temps and now we have let those temps go.

We are continuing to optimize all the equipments, stalls in March and we will do that throughout the balance of this quarter. So as conditions change as when they do, we'll be in a position to ramp pretty quickly. It's our opinion now that we shouldn't get too far ahead of ourselves and build lots of inventory hoping that the worldwide economic conditions change.

So our plan is to build about what we think we can sell to continue optimizing the new furnaces, the new devices, the new panel automation that got installed in the later part of the first quarter and to optimize it so that if conditions do change, we can fairly quickly ramp.

We don't think it's a good idea to build 4, 5, 6, 10 MW of product, consume cash and then hope that things will change and materialize for the better.

Al Kaschalk - Wedbush Morgan

That's helpful. And then just one final follow-up if I may, in terms of production, if you have the right volume of throughput, do you believe are there any manufacturing concerns that you do have as this ramp continues?

Rick Feldt

No. We built over just slightly north of 2.5 MW in the last week of the quarter. You can multiply that times 13 in excess of 30 MW. And that's for the equivalent that we were still installing the first couple of weeks in March, we have not turned all the furnaces on. The Devens factory is coming up very nicely, it's a very complicated factory, lots of equipment. We have no qualms of getting it up to capacity, we just need to have the volume there before we do so.

Al Kaschalk - Wedbush Morgan

Great. Thanks a lot guys.

Rick Feldt

Welcome, Al.

Operator

And we'll take our next question from Kelly Dougherty with Macquarie.

Kelly Dougherty - Macquarie

Hi. I'm just wondering how we should think about the relationship with Jiawei? Is it a [trolley] relationship or is it something more formalized than that? And is there any kind of exclusivity on either side?

Rick Feldt

So basically we are going to take our way for us to turn the wafer in itself and we're going to pay them a subcontracted fees. They will manufacture it in our own our factories. Exclusivity per se, lets just say that is still being discussed but it will be in the framework of the 500 MW. As we said in our press release, the initial factories of 100 MW of initial arrangement going up to 500.

During that timeframe, both side had talked about exclusivity. Ultimately it's going to go down the road like a write up for its refusal too. But I think the best way of looking at is, is that, I mean we are thrilled that Jiawei is partnering with us. We have known Jiawei for a number of years, and I remember Terry Bailey has known them for maybe seven, eight, nine years. We know their capabilities. They have done some work for us. As you know, they do some work for SunPower and, another life player in the states. So, we'll still has a flexibility we need and the type of growth we are talking about is the type of growth we talked about a long time ago.

We wanted to be at 850 MW by 2012. This would get us right to around 700 MW when we refined the factories. So we are on the plan that we though we are going to be.

Kelly Dougherty - Macquarie

Okay. And are they in any kind of financial position to invest on maybe the $600 million fundraising you have out there?

Michael El-Hillow

Jiawei is the privately held company. It is a good company, a growing company. Our senses know they would not be interested in doing that, mainly because they are small growing company. Beyond that, no. They are making a massive investment, and quite frankly never been sold by opening up and selling panel factory using our wafers as the frontend.

Kelly Dougherty - Macquarie

I am just wondering what kind of premium you would think Evergreen gets relative to the Chinese manufacturers, even the top tier manufacturers? And then, if there has been any kind of concern expressed by your customers about having modules manufactured in, China and if you think that will have any kind of impact on the premium?

Michael El-Hillow

I am going to let Terry address certainly the first point, and probably both points quite frankly. We can give you the general idea. Terry, why don't you take that?

Terry Bailey

Sure. So, to answer that question, you can someway mathematically calculate what the minimum premium should be. We have a [minus 0 powers spec] meaning that we guarantee the state value at the panel. Many other manufacturers maybe as low as minus 5%, meaning, if you buy a 200 watt panel, you may only get a 190 watts and it's still within the spec. And it is that minimum level that is part of the warranty for the life of the panel.

So, that's a calculable thing. We also have an AR coating that we put on the glass that's relatively unique, which results in more kilowatt hours, per kilo watt ,output which is the critical thing, especially for anyone in a PPA or utility etcetera because that's what they get paid on. So those are two aspects of it. There are others that give a little more complex to get in to. But, those resulted in us having routinely gotten $0.15 to $0.30 premium over the competition.

Now, with regards to how our customers are going to react with regard to Chinese manufacturing, we'll to see on that, because obviously we didn't relate that to our customers until we made it public. But basically, the core of the technology is American made. We will have factory continuing here in Devens so that we'll supply product for those instances when that's a critical component.

We do expect China to develop as a market, and this is setting us up to be able to compete there. And frankly, during this period when there's been a lot of economic pressure. People have shown that they are perfectly willing to purchase Chinese product if it's at the right price. So, I think the world has opened up with that. We will retain our advantages and we don't expect that this will be an impediment to our customer.

Rick Feldt

I will further add that, our brand carries with it the specification, the quality level that Terry talked about, and the warrantee that we provide and we are very confident that Jiawei will meet all the specifications of our current product, and future product as we define them. And at least, it is my experience that that is what consumers care the most about. How you've positioned your brand and how you stand behind it, and how it performs.

So, iPods and TVs and other things are made places outside of the United States and people care about is, does my iPod that Apple sold to me, does it have the features I want? Does it work the way Apple guaranteed and whether it's made in China or Malaysia or Ohio tend to be less of an issue. And so, we have every confidence that Jiawei will meet all of our quality and specification requirements and other than when people specifically want product made in a certain country, I'm not worried that we'll have a problem selling it.

Kelly Dougherty - Macquarie

Great. I have just one more. I'm just wondering if you can walk us through your customer mix or your mix of where your products go into in large projects, may be some of the smaller rooftops, and then may be the residential or distribution channel. I am trying to get an idea of just what kind of impact the current financing conditions will have on where the products get funded.

Rick Feldt

We worked very hard to have a very nice balance mix. So, because of the markets larger there, roughly 60% to 70% of our product routinely goes to Europe. The bulk of the rest goes to the US, and some going into Asia Pacific now, that those markets are becoming real.

With regards to the applications, we have a good mix of short and long-term customers, some of whom are distributors, some installers, system integrators and some who are large project designers, and in some cases owners and operators. So, we have a very nice mix there as well. We have not traditionally been as dependent upon large single projects being a big part of our business and so, we have not been as dramatically directly hurt as some others have been where that is their primary model. But it is a decent mix, and in some cases, this varies a lot from quarter-to-quarter. For our relatively small but growing volumes, a big project takes up a significant portion of the output for that quarter and it may alter a lot in the next quarter, so really did want to make sure we have good balance so we are not too dependant on any one thing .

Kelly Dougherty - Macquarie

Do you have any kind of, when you are trying to allocate the annual output, do you have any kind of, we want to sell 25% into the large project market or any kind of metrics around that?

Rick Feldt

Yes, but I think there is soft metric, so we don't have an absolute that we say this is what we want to do. To some degree the reason for that is that our customers, some of them we've been doing business with for a number of years, their business model shift over time.

So they may get into the project business, they may get into the residential business. So as their model shift, the specific application our product goes into may shift as well. Remembering that our panels are universal in design, they have worldwide certifications. So any panel can be sold any place in the world for basically any of the applications. So in that sense, that's a good thing for us and that mix will shift over. I can't give you a whole lot better answer than that.

Kelly Dougherty - Macquarie

Okay, thanks.

Michael El-Hillow

All right. Thank you all for joining us today. We look forward to talking to you again at the end of the next quarter. We talked about additional progress at Devens and also new progress with our partner in China. Thank you all. Bye bye.

Operator

And that concludes today's conference. We thank you for your participation.

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