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Suntech Power Holdings Co., Ltd. (NYSE:STP)

Q1 2009 Earnings Call

May 21, 2009 8:00 am ET

Executives

Rory Macpherson - Director, Investor Relations

Dr. Zhengrong Shi - Chairman of the Board, Chief Executive Officer

Dr. Stuart R. Wenham - Chief Technical Officer

Amy Yi Zhang - Chief Financial Officer, Director

Steven Chan - Chief Strategy Officer

Analysts

Sanjay Shrestha - Lazard Capital

Robert Stone - Cowen & Company

Jesse Pichel - Piper Jaffray

Satya Kumar - Credit Suisse

Vishal Shah - Barclays Capital

Sunil Gupta - Morgan Stanley

Burt Chao - Simmons & Company

Paul Clegg - Jefferies & Company

Lu Yeung - Banc of America/Merrill Lynch

Nitten Kumar - Nomura Singapore

Jeff Osborne - Thomas Weisel Partners

Kelly Dougherty - Macquarie

Sam Dubinsky - Oppenheimer

Charles Yonts - CLSA

Gordon Johnson - Hapoalim Securities

Daniel Ries - Collins Stewart

John Hardy - Broadpoint AmTech

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Suntech Power Holdings Corporation earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Mr. Rory Macpherson, Director of Investor Relations. Please proceed, sir.

Rory Macpherson

Hello, everyone and welcome to Suntech's first quarter 2009 earnings conference call. My name is Rory Macpherson, Suntech’s Director of Investor Relations. From Suntech on the call today will be Dr. Zhengrong Shi, Suntech's Chairman and CEO; Amy Zhang, our Chief Financial Officer; Dr. Stuart Wenham, our Chief Technology Officer. Also, our Chief Strategy Officer, Steven Chan, and Director of Business and Financial Analysis, Boxun Zhang, will participate in the Q&A following Amy’s remarks.

Before we continue, during this conference call we will make certain forward-looking statements in an effort to assist you in understanding the company and its results. The forward-looking statements will be made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, Suntech's future results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in our earnings release issued today and our SEC filings. Suntech does not undertake any obligation to update any forward-looking statements except as required under applicable law.

As a reminder, this conference call is being recorded and a webcast of management’s prepared remarks will be available on the investor relations section of Suntech's website after this call.

Also, please make note that all figures mentioned during this call are in U.S. dollars.

I will now turn the call over to Suntech's Chairman and CEO, Dr. Zhengrong Shi.

Dr. Zhengrong Shi

Hello and thank you for joining us today. The first quarter was very challenging, due to a combination of unseasonably late [inaudible] in Germany that expanded well into March, limited availability of project financing, and falling sales prices. Despite all these challenges, we came in only slightly under our top line guidance with revenues of approximately $316 million.

Although our top line was weaker than expected, we are extremely pleased with our progress on improving our cost structure, which enabled us to outperform our gross margin targets by almost 300 basis points. This clearly demonstrates Suntech's flexibility to react to the market environment to preserve our profitability.

I will now give you an overview of the first quarter and then give you some guidance on the trends that we are seeing in the industry.

During the first quarter, we made substantial progress with our strategic project development initiative that are targeted to drive long-term demand for Suntech's solar projects. The independently managed Global Solar Farm, or GSF, in which we are an equity investor, invests in companies that will own or develop solar projects. GSF is investing in companies that currently have 240-megawatts of projects fully committed and targets to finalize permit for another 360-megawatts by the end of 2009.

In addition, Gemini Solar, our U.S.-based joint venture with Renewable Ventures for the [inaudible] company, is pursuing a pipeline of approximately 1.1-gigawatts of projects in the U.S. that we have either bid on or are preparing bids for, and which are scheduled to be developed in 2010 and beyond.

We have been developing this initiative for some time now, which are designed to stimulate end-market demand and facilitate much better long-term planning, and we are very pleased to see that they are already meaningfully contributing to our earnings.

Including sales per GSF investee companies, Germany and Italy were our strongest sales regions, representing around 75% of our sales for the first quarter. The next largest markets were the U.S. and Japan, which represented approximately 5% of sales each. Sales to the Spanish market were slow due to delays in project approvals under the current new subsidy. The Greek market also showed weakness relative to expectations.

The main obstacle to demand growth continues to be the limited access to project financing, particularly for large projects. Germany and Japan [appear] to be more resilient because these solar markets are more mature and they are a higher percentage of residential or small commercial rooftop systems that require less financing dollars.

Nonetheless, we are see better demand trends in Europe for the second quarter. We believe this is primarily due to lower ASPs that are enhancing project returns and a gradual improvement of the project financing environment. We expect to see more sequential sales growth to Italy, Spain, France, The Czech Republic, and the Benolux Region.

To better manage our sales, to better manage our growth and opportunities in Europe, we recently relocated our headquarters from London to [inaudible] in Switzerland. We plan to continue to invest in building our world-class sales, technical and customer support network throughout Europe in order to address the growth opportunities that we see there.

Turning to private, as expected, the private environment became much more competitive in the first quarter and our average sales price was approximately 15% below fourth quarter 2008 levels. Due to Suntech's exceptional track record, superior quality, and a strong brand recognition, our product continued to demand a premium to tier-two and tier-three players. However, we do expect pricing to be slightly weaker in the June quarter. This should be largely offset by reducing silicon wafer costs.

While the market will continue to be challenging as long as access to financing remains tight, the overall demand for Suntech products is still very strong and we have over 700-megawatts of signed contracts for 2009. In addition, new opportunities are being announced regularly, such as the 300-megawatt project in France and a 1,000-megawatt project in Australia. In particular, there are a number of significant market opportunities that we believe Suntech is uniquely positioned to address in the near future.

The first of these is the China market. China recently announced its first national solar subsidy to encourage the installation of building integrated and building attached solar systems of 50-kilowatts and larger. We believe we are the best-positioned company in China to access this opportunity for three reasons.

Firstly, we have a substantial and growing downstream presence in the market. We believe we have the largest system integration team with over 105 [base] in many of the highest potential regions, including Shenzhen, Shanghai, [Guangzhou], Beijing, [inaudible], [inaudible], and [inaudible].

Secondly, we have excellent brand recognition and have participated in many of the highest profile projects in China, such as the Bird’s Nest Olympic Stadium and the Shanghai World Expo.

Third, we believe that we have one of the widest and most mature ranges of BRPV products that should enable us to take advantage of the higher subsidy for BRPV and participate in a wider range of projects.

Suntech submitted applications for over 179-megawatts of projects before the May 15th deadline and we will be working with the relevant government bodies to determine how many of these applications will successfully benefit from the subsidy. We believe our recently announced 1.5-megawatt rooftop project in HuaiAn, Jiangsu will be one of the first projects to receive this subsidy.

In addition, we believe that provincial governments and the MDRC, which is a government body in charge of energy policy, are working on further subsidies that we believe will be announced soon.

The second major market is Japan, where the reintroduction of solar subsidies has stimulated demand, particularly from residential rooftop projects. We recently signed a 30-megawatt distribution contract with Japanese roofing company, House Care, and we are continuing to gain traction through our Japanese subsidy.

Suntech's recognized brand, coupled with our technology, scale, and our local relationships give us the considerable advantage in this important marketplace. So far, very few non-Japanese companies have gained a foothold in Japan.

The third major market opportunity is the United States. We believe we are gaining market share in the U.S. due to our multi-pronged strategy to service all levels of solar demand, including residential rooftop, commercial rooftop, and utility scale projects. It is our belief that the U.S. has the potential to be the largest solar market in the world within the next two to three years, driven by the dramatic growth in utility demand for larger scale wholesale solar projects. The increasing number of states with incentive programs for customer-owned systems and federal government’s recent stimulus package.

In the utility segment, we are very excited that Gemini Solar won its first competitive bid with a 30-megawatt ASE, Austin Energy Project. The combined solar [inaudible] of the Gemini Solar, Gemini team and Suntech's participation in many of the largest solar projects in the United States, including the 14-megawatt [inaudible] air force project and 8-megawatt solar project in Alamosa, Colorado, were key reasons behind the successful bid.

We are confident that we have the skill, quality, track record, and cost structure to compete with other solar companies and other solar technologies.

In the residential and commercial rooftop market, we are seeing clear evidence of market share gains through our dealer network that now incorporates over 200 dealers, up from 40 at the end of last year. Resident project application data provided by California Public Utility Commission indicates that we have approximately doubled our market share compared to the 2008 average. This is particularly apparent in applications for commercial projects, where our market share has increased to over 18%. This is testament to the strength of the Suntech brand and our ability to offer higher quality, competitively priced modules and value-added customer support, competing head-to-head with other tier one brands.

Our multi-pronged sales approach is just one component to our strategy to establish a leading position in the U.S. As a second step, we anticipate establishing manufacturing facilities in the U.S. and are already sorting locations for production and distribution center. To ensure that our cost structure remains one of the lowest in the industry, we are leveraging the expertise of our [KFL] [inaudible] subsidy to develop processes that can be replicated in key countries outside of China, including the U.S. We plan to make a decision within the next six months as to the location of a U.S. affiliate.

Turning to operations, we made a number of important operational achievements during the quarter that highlights Suntech's status as a cost leader in the industry. Firstly, due to the initiation of multiple priced competitive long-term silicon contracts and our renegotiation with very decreasing supplies, we successfully reduced our cost wafer costs by $0.25 from the fourth quarter of 2008. We expect these costs to continue to decrease throughout 2009.

Secondly, we implemented a range of cost control measures to improve production efficiencies. As a result, despite a relatively low utilization rate, we achieved a non-silicon cost of $0.66 per watt, inclusive of share-based compensation, inventory provision, and a related shipping cost. We believe this is one of the lowest cost structures in the industry. We also believe that with further improvements in operating and conversion efficiency, we should be able to achieve $0.50 to $0.55 per watt non-silicon costs for wafer into module within the next one to two years. We are executing well on our cost roadmap to achieve $1 per watt at the module level that we target to achieve in the next two to three years.

Thirdly, we made excellent progress on controlling our operating expenses through strict cost controls and a reversal of doubtful debt provision. This enabled us to reduce our operating expenses by approximately 24% compared to the previous. These cost reduction initiatives enabled us to exceed our gross margin target by almost 300 basis points in the first quarter.

Turning to production capacity, we maintained our capacity at 1-gigawatt in the first quarter and we will make decisions about further expansion later this year.

We still have floor space to add capacity, so we have the flexibility to react to change in market dynamics and can capture market opportunities as they arise. Our [inaudible] transition is progressing well and still we give a further update on this and on our thin film initiative shortly.

In summary, while the financing environment is hampering demand growth, we feel that we are well-placed to expand our leadership in the solar industry. The Suntech brand is synonymous with quality, reputation arrived at via an unmatched track record of projects globally. Over 1.2-gigawatts of modules shipped to date and underpinned by the security of a 25-year [inaudible] warranty.

We are the low-cost leader among high quality tier-one brands and have initiatives underway that will drive further cost reduction. Our technological innovation, including our high efficiency Pluto technology, will simultaneously differentiate our offering and enable us to maintain healthy profitability. Finally, we have the downstream strategy in place to penetrate the growing demand for solar globally and experience sales and service teams to deliver.

Before the Q&A starts, I will turn the call over to Stewart to give you an update on our technology.

Dr. Stuart R. Wenham

Thank you, Dr. Shi. I am pleased to report that we successfully installed a third 68-megawatts of capacity of our Pluto technology and now have a total installed Pluto capacity of 100-megawatts. These lines are consistently producing Pluto mono-crystalline cells with conversion efficiencies of approximately 19% and multi-crystalline cells of 17%. In fact, these conversion efficiencies were recently independently confirmed by the Fraunhofer Institute in Germany.

We believe that Pluto will give us a distinct advantage in the marketplace for a couple of reasons. Firstly, Pluto delivers on the key requirements of the solar industry -- high efficiency, high stability, and high powered output, but without requiring the more expensive higher grades of silicon required by some other high-performance technologies. In fact, we believe that Suntech's multi-crystalline Pluto modules are amongst the most efficient multi-crystalline silicon [inaudible] modules in commercial scale production worldwide.

Secondly, as a result of its higher conversion efficiencies, our customers will realize improvements in space utilization and reduced balance of system costs, without increasing the cost of production. This makes Pluto well-suited to utility scale level [inaudible] generation and rooftop applications.

We plan to add a further 200-megawatts of Pluto capacity before the end of 2009, so that we exit the year with a total of 300-megawatts of Pluto capacity. We remain on track to receive industry certification for Pluto modules before the end of the second quarter and continue to anticipate at least 50-megawatts of Pluto module shipments in 2009.

The success of implementing our first generation of Pluto technology into large-scale production with high yields and similar cost [inaudible] as our standard screen printed cell technology, gives us a high degree of confidence in predicting the future success of our next generation of Pluto technology. Our next generation of Pluto technology is expected to achieve a further 10% performance advantage over our first generation of Pluto technology. We expect to transfer this latest generation of Pluto technology to pilot production by early 2010 with large-scale production planned to follow within 12 months.

Turning to our thin film offering, our 50-megawatt production line for our thin film plant is complete and in the process of being commissioned. We expect initial sales during the third quarter and maintain our target of 15 to 20 megawatts of shipments for the full year 2009.

I will now turn over the call to Amy Zhang for her financial review.

Amy Yi Zhang

Thank you, Stewart. Hello to everyone on the call. Today I will provide some color on Suntech's results for the first quarter of 2009 and provide updated guidance for full year 2009.

We have decided to use GAAP only numbers in this presentation and provide selected non-cash related expenses in the first quarter of 2009.

For the first quarter of 2009, there was $4 million of share-based compensation expenses, $1.3 million of net income impact related to the amortization expenses of the MSK, KSL [inaudible], and Suntech Energy Solutions acquisitions, and additional $11.7 million of non-cash interest expenses related to the adoption of new FASB accounting rule FSP APB 14-1.

Net revenue for the first quarter was $315.7 million, approximately 24% lower than the -- our fourth quarter 2008 results of $414.4 million, due to our investment in the global solar farms, which invests in companies that own or develop solar projects. We will disclose revenues generated from sales to investee companies of the Global Solar Farms. These amounted to $100.5 million in the first quarter of 2009.

On the cost side, we implemented a range of very successful measures to reduce silicon wafer costs and non-silicon wafer production costs. As a result, our silicon wafer costs decreased by approximately 25% from the fourth quarter of 2008, and despite a low utilization, our non-silicon wafer production cost decreased from over $0.70 per watt historically to $0.66 per watt in the first quarter of 2009. This enabled us to achieve a gross margin of 17.8% in the first quarter, almost 300 basis points above the top end of our guidance, compared to 0.6% in the first quarter of 2008.

We also made excellent progress controlling our operating expenses, due to more stringent cost controls, as well as a reversal of provision for doubtful debt. We reduced our operating expenses by $11 million from the fourth quarter of 2008 to $35.1 million in the first quarter of 2009.

Income from operations for the first quarter was $21.1 million compared to a loss from operations of $43.8 million in the fourth quarter of 2008. Operating margin was 6.7% compared to negative 10.6% in the fourth quarter of 2008.

Net interest expense was $21.6 million in the first quarter of 2009 compared to net interest expenses of $21.1 million in the fourth quarter of 2008. Net interest expense in the first quarter of 2009 includes an $11.7 million expenses for non-cash charges related to adoption of FAS APB 14-1, which impacts how companies account for interest expenses on convertible bonds.

Foreign currency exchange loss was $6.2 million in the first quarter compared to a loss of $3.2 million in the fourth quarter. The increase was primarily due to the revaluation loss generated from the net asset denominated in Euro as of March 31, 2009.

During the first quarter, we continued to reduce the balance of 0.25% convertible senior notes, which are due 2012. We repurchased 150.4 million aggregate principle amount of the convertible senior notes in the first quarter, for a cash consideration of $129.9 million. As a result, we realized a cash gain of $20.5 million and a net booking gain of $9.3 million in net other income after APB 14-1 adjustments.

Additionally, we also recorded a net gain of $3.2 million related to mark-to-market valuation of foreign exchange contracts.

Net income attributable to holders of ordinary shares was $1.8 million, or $0.01 per diluted ADS, compared to a net loss of $109.1 million, or negative $0.70 per diluted ADS, in the fourth quarter of 2008.

Net income for the first quarter includes $11.7 million expenses, or $0.07 per diluted ADS for the non-cash interest expense from the adoption of FAS staff position number ABP 14-1. This is based on the diluted shares accounted for 156,794,603 number of shares.

Capital expenditures were $60.9 million in the first quarter and depreciation and amortization expenses were $15.3 million.

Turning to our financial position, our cash and cash equivalents accounted to $406 million as of March 31, 2009, a decrease of $102 million from $508 million as of December 31, 2008. Our restricted cash increased from $71 million as of December 31, 2008 to $179 million as of March 31, 2009. The increase was mainly due to the [inaudible] of cash in order to obtain bank notes facility and the inter-company note loan borrowings. Our value-added tax recoverable was $87 million as of March 31, 2009. We believe that we will be able to convert a portion of these assets into cash if we have short-term cash requirements.

After the convertible note repurchases in the first quarter, we have successfully reduced our outstanding principal amount of 0.25% convertible senior notes due 2012 to $255.8 million as of March 31, 2009. We also have around $2.1 billion of approved credit facility, of which we have already drawn down around $810 million in short- and long-term borrowings, and some additional facilities for trade finance purposes. These credit facilities will have specific uses associated to them, including fixed asset purchase, merchant capital, or trade financing. We believe that with the strong support from the banking community, particularly in China, we are well-positioned to ride out this market downturn.

Now looking at a few other items in the balance sheet, the aggregated accounts receivable from invested companies of GSS and others increased from $213.1 million as of December 31, 2008, to $265.4 million as of March 31, 2009. The increase was mainly because the majority of our products were shipped in March. Most of the accounts receivables related to these sales transactions are expected to be settled in the second quarter of 2009.

Days sales outstanding was 76 days in the first quarter compared to 46 days in the fourth quarter of 2008.

Inventory levels were slightly higher than in the fourth quarter. The increase of advanced payment to suppliers and other current assets as of March 31, 2009 was mainly due to the reclassification from long-term pre-payments and long-term amount due from related parties, as some of our long-term contract suppliers started to deliver products to Suntech in 2009, and part of the pre-payments related to these long-term supply contracts are expected to be either repaid or offset by future delivery in the next 12 months.

Our long-term loan to suppliers amounted to $56 million as of March 31, 2009, a decrease of $28 million from $84 million as of December 31, 2008. The decrease was mainly due to the partial repayment of interest free loans in the first quarter of 2009.

Our accounts payable increased by $36 million to $153 million as of March 31, 2009. The increase reflected our effort to acquire longer credit term from our suppliers. As a result, account payable turnover days increased from 26 days in the fourth quarter of 2008 to 53 days in the first quarter of 2009.

Turning to the guidance, we expect moderate sequential growth of shipments and revenues in the second quarter of 2009. However, due to the constrained project financing environment, which is impacting visibility, we will not be providing revenue or gross margin guidance.

We are also bringing down our full-year shipment guidance to the range of 600-megawatts to 700-megawatts. We do believe that there is an opportunity to exceed this guidance if the project financing environment improves substantially in the second half of this year. But we feel that this is a better reflection of the current environment.

We maintain our CapEx guidance of $100 million for ’09 as we expect a fairly small amount of CapEx in the second half of 2009.

Besides the additional capacity related to our Pluto production line retrofit, we will continue to hold PV cell production capacity at 1-gigawatt in 2009, and we will review our capacity expansion plan based on our assessment of the demand environment.

This concludes our prepared remarks for today. At this time, we will now open the call up for the questions. Operator, please go ahead.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Sanjay Shrestha of Lazard Capital.

Sanjay Shrestha - Lazard Capital

Thank you. Good evening, guys. A couple of quick questions -- I am just trying to understand this global solar fund and the revenue allocated to them and the receivables outstanding, so I just kind of want to get the sense that it’s not going to translate into you guys having to postpone -- basically in Q1, things are somewhat over-inflated and it’s going to end up impacting Q2. Can you help us understand when the shipment occurred and when do you actually expect the projects to be installed and when do you expect the receivables to turn into cash?

Dr. Zhengrong Shi

Regarding the shipment to GSF, most shipments occurred in March and the contract term is exactly the same, or even better than the third party contract we filed with other customers. And we expect the first project to be completed in the October/November timeline.

Sanjay Shrestha - Lazard Capital

Okay, and in terms of the collection on the cash, when do you expect that to be -- is that --

Dr. Zhengrong Shi

We believe we will start to get some -- start to collect the payment in the second quarter.

Sanjay Shrestha - Lazard Capital

Okay, and another quick follow-up then -- so in terms of -- two things, if I may -- so this 240-megawatts of projects, how should we think about that through GSF and the impact on your working capital? And second, Dr. Shi, it’s really impressive you were talking about a non-silicon cost getting to $0.50 to $0.55 but I was wondering if you can sort of give us some more detail as to what would make that up and what’s the [process] behind getting to those numbers -- efficiency, throughput yield, cost of glass, all that sort of stuff -- if you can give us some more detail there.

Dr. Zhengrong Shi

I think with 240-megawatts projects through GSF, I think that’s already done. There’s not any additional capital required from us. And regarding that cost down, as I said earlier, that’s because I think mainly three drivers, firstly is our power because -- you know, the scale and we have a much better by power to negotiate the price for non-silicon material. Secondly is our operation efficiency where [inaudible] lean manufacturing and so on, so this -- because in the past, we were too busy so we didn’t have much time to really --

Sanjay Shrestha - Lazard Capital

Fair point.

Dr. Zhengrong Shi

-- the fact, and now is a good time to do that. Thirdly is because our continued improvement of the conversion efficiency.

Sanjay Shrestha - Lazard Capital

Okay, that’s great. I’ll hop back in the queue. Thanks a lot.

Operator

Your next question is from the line of Rob Stone with Cowen & Company.

Robert Stone - Cowen & Company

Dr. Shi, given the strong backlog with Gemini, with GSF, and with subsidies coming from China, the 600- to 700-megawatts seems fairly conservative. You talked about that there could be an upside or maybe if financing improves -- can you say whether you think in the 600- to 700-megawatts, you are counting on much from China?

Dr. Zhengrong Shi

Not really, and as we said, we already actually signed over 700-megawatts, a contract. So far, we haven’t seen any cancellation of contract but we did see a delay of the shipping because of project financing issues and to be honest, this is a 600 to 700 does not include any significant number from the China market.

Robert Stone - Cowen & Company

So it really depends on waiting for the applications to be starting to --

Dr. Zhengrong Shi

Yes.

Robert Stone - Cowen & Company

Okay. A question for Amy, please -- how should we think about modeling the losses from affiliates and so forth of the items that are below the net income line?

Amy Yi Zhang

It’s just the $2 million in the second quarter of this year.

Robert Stone - Cowen & Company

Only $2 million in Q2?

Amy Yi Zhang

Yes.

Robert Stone - Cowen & Company

Okay, so it’s sort of a start-up related expense until the affiliates start to generate some revenue and profits?

Amy Yi Zhang

Exactly.

Robert Stone - Cowen & Company

Okay. And finally, any comments on the tax rate for this year?

Amy Yi Zhang

Blended tax rate should be around 8% to 10% for Suntech at corporate consolidated level.

Robert Stone - Cowen & Company

I know you are not giving gross margin guidance for -- but can you say how much the reversal of the inventory provision aided gross margins in Q1?

Amy Yi Zhang

We actually don’t have that detail number disclosed in the past and I believe that inventory provision made with significant number in Q4 was primarily due to this quick decline of the spot market price versus what we had already secured. I think in the future going forward, it’s going to be a normal aging analysis on the inventory and also normal provision made in line with the moving of the [aging]. And in the end, our ultimate target is still to bring down the inventory, especially on the raw materials side, in the future.

Robert Stone - Cowen & Company

Okay. I guess what I am trying to get to is you mentioned further cost reduction in Q2, also somewhat -- some additional price erosion but there was a one-time positive impact presumably of the reversal of the inventory provision, so -- although you are not giving guidance, can you at least say directionally whether you think gross margin might be higher or lower in Q2 than Q1?

Amy Yi Zhang

I would say flat.

Robert Stone - Cowen & Company

Okay. Thanks very much.

Operator

Your next question is from the line of Jesse Pichel with Piper Jaffray.

Jesse Pichel - Piper Jaffray

First question -- Amy, just so I’m clear, $100 million of your revenue was from GSF, and these are modules that are not going to be installed until October? Is that right?

Amy Yi Zhang

No, it’s the module delivered to GSF and the completion of the project will be before or between October to November timeline.

Jesse Pichel - Piper Jaffray

And where is this project or projects occurring?

Amy Yi Zhang

It’s mainly located in the southern part of Italy, like Apulia and the southern part of Sicily.

Jesse Pichel - Piper Jaffray

And what type of gross margins are you booking for these module sales?

Amy Yi Zhang

It’s all normal -- it’s normal deal, equivalent to other third-party sales.

Jesse Pichel - Piper Jaffray

Do you expect this level of revenue to continue in Q2?

Amy Yi Zhang

It depends on the progress with their project financing progress.

Jesse Pichel - Piper Jaffray

And was this $100 million baked into your prior guidance of $340 million for the Q1?

Amy Yi Zhang

Yeah, it has.

Jesse Pichel - Piper Jaffray

Okay, and Dr. Shi, could you help us understand when the applications for the China rooftop program will be approved? And how much do you think China will install on the rooftop for all suppliers in 2009 and 2010?

Dr. Zhengrong Shi

We don’t know, to be honest, but on the other hand, we know the second submission time will be before the end of August, so what we hope from now and between August, the first lot should be approved and -- but we think the installation for this year, probably around a few hundred megawatts.

Jesse Pichel - Piper Jaffray

And there were some high level meetings we’ve heard of between you and some other high profile suppliers in China with government officials. Can you perhaps give us a little color on what happened during those meetings and what is the intent there of the central government? Thank you.

Dr. Zhengrong Shi

Well no doubt there will be further announcements from MDRC about subsidy for solar in China something this year and also many other local governments will also provide additional subsidy for solar projects apart from this RMB15 or RMB20 subsidy for rooftop. I think, for example, [Gansu] Province, we already see the [draft] of their subsidy and they are talking about within the next two to three years time, total [inaudible] in [Gansu] will be around 400-megawatts. And the subsidy is quite supported, so we are very positive about it.

Jesse Pichel - Piper Jaffray

Great. Thanks very much and congratulations on Pluto.

Operator

(Operator Instructions) Your next question is from the line of Satya Kumar with Credit Suisse.

Satya Kumar - Credit Suisse

On GSF again, how much is GSF revenue going to be in Q2 and for the full year?

Amy Yi Zhang

Definitely it still depends on the availability of the project financing, as what we said. Currently the fully permitted license GSF has got is 240-megawatts is what we just talked about.

Satya Kumar - Credit Suisse

Maybe you can --

Dr. Zhengrong Shi

Just like -- just to add to Amy’s comment, but we do believe at least we should be able to, the GSF should be able to install one-megawatt this year.

Satya Kumar - Credit Suisse

Okay. Maybe you can help with this -- what’s the current capitalization of GSF? What’s your equity stake in GSF? How is GSF structuring and securing project financing in Europe?

Amy Yi Zhang

Our stake is around 86% in GSF. I think as other project financing structure available in the Europe market, it’s just from mostly from the senior [bank] members of project financing agencies and also European based banks.

Satya Kumar - Credit Suisse

What’s the total capitalization right now of GSF?

Amy Yi Zhang

I think the committed one is EUR300 million.

Satya Kumar - Credit Suisse

Okay, and lastly on gross margins for Q1, your silicon costs were down 25%. You also mentioned your non-silicon costs were down by $0.04, or perhaps more than that. Why isn’t gross margins a lot higher than what you reported?

Amy Yi Zhang

The gross margin was higher than what we expected or what it was anticipated, was also because of a very effective hedging on the Euro, because the major portion of the revenue still is Euro denominated revenue in the total, as being one of the reasons. And the second reason is [inaudible] -- as I said, in Q4 we made some extraordinary provision on the inventory, mainly around the key material. But now we’ve got the inventory provision back to the normal status, so the savings also came from much less or lower level of inventory provision.

Satya Kumar - Credit Suisse

Okay. Thank you. I’ll get back in queue.

Operator

Your next question is from the line of Vishal Shah with Barclays Capital.

Vishal Shah - Barclays Capital

Thanks for taking my questions. Dr. Shi, can you maybe help us understand how your shipments will trend in the first half versus in second half, the 600- to 700-megawatts that you talked about?

Dr. Zhengrong Shi

We believe probably like 60% will be shipped in the second half.

Vishal Shah - Barclays Capital

Okay, and you said you have applied for a lot of projects in China -- what percentage of your guidance is going to be in China? I believe you said you are not taking anything in account but I am sure you will be getting approvals for some of these projects in 2009, so you must have something.

Dr. Zhengrong Shi

Yes, we didn’t create anything significant from the China market, so any project will be plus.

Vishal Shah - Barclays Capital

Okay, so can you maybe help us understand what the geography breakdown will look like for the 600- to 700-megawatts? Would Germany still make up for the majority of the shipments?

Dr. Zhengrong Shi

Yeah, Germany and also as we said, Germany and Italy make up 75% in the first quarter. And we believe Germany and Italy will dominate our delivery in the second quarter, or maybe the rest of the year.

Vishal Shah - Barclays Capital

So with similar percentage in the second quarter and the rest of the year, or less?

Dr. Zhengrong Shi

I can’t recall -- I’d have to check.

Vishal Shah - Barclays Capital

Okay. And just one follow-up -- on a sequential basis, if we look at the month of May versus the prior month, how are shipments blending? Are you -- is Q2 also going to be back-end loaded? It looks like Q1 was significantly. Is Q2 also looking like that, or are you seeing a much more normal pattern in Q2?

Dr. Zhengrong Shi

In Q2 -- in terms of delivery, Q2 is picking up. It is much better than Q1.

Vishal Shah - Barclays Capital

So month-over-month shipments increased?

Dr. Zhengrong Shi

Yes.

Vishal Shah - Barclays Capital

Thank you very much.

Operator

(Operator Instructions) Your next question is from the line of Sunil Gupta.

Sunil Gupta - Morgan Stanley

Thank you, and I do have just one question and one follow-up, so I will first start with a question for Dr. Shi in terms of business trends -- so in Q1, did you actually ship more than Q4? And what were the kind of ASPs that you saw in Q1? And then I have a follow-up for Amy.

Dr. Zhengrong Shi

I think Q1 our shipment is slightly less than Q4.

Sunil Gupta - Morgan Stanley

Okay. And ASP?

Dr. Zhengrong Shi

ASP is about 15% down.

Sunil Gupta - Morgan Stanley

Thank you. And I have a follow-up for Amy, a financial question -- so I guess first just to go back on GSF, as you’ve already been asked a lot of questions -- so you mentioned that the shipments to two of the GSF projects, are these 100% owned by GSF? If not, the other shareholders, are they in any way related with anybody at Suntech or its management?

And my second question is on your current assets, which -- or other current assets, as you have disclosed, it increased from $166 million to $255 million. I just wanted to understand what drove that increase.

Amy Yi Zhang

Right. Actually, the modules from Suntech shipped to GSF is sold to GSF invested companies, the project companies. Again, Suntech remains as a limited partner of GSF and also GSF has been qualified as an investment company under U.S. GAAP to those project companies invested by GSF, so that’s mainly the flow of holding relation and sales transaction relation.

Sunil Gupta - Morgan Stanley

Are there any other shareholders in any way related with Suntech or its management?

Amy Yi Zhang

Actually, sorry, to correct, you are talking about other shareholders of the investee companies, means project companies? No, it’s fully owned and invested by GSF.

Sunil Gupta - Morgan Stanley

So it’s 100% owned by GSF?

Amy Yi Zhang

Yes.

Sunil Gupta - Morgan Stanley

Okay, great. And in terms of other current assets, which increased from 166 to 255, what drove that increase?

Amy Yi Zhang

It’s actually purely due to reclassification and transfer of the balance from the long-term payment to the affiliated suppliers to the current one because these suppliers already started delivery to Suntech from January 2009. It’s not a direct increase of the actual advance payment. It’s a transfer of these advanced payments from long-term to short-term because it’s already started to offset -- offsetting with the current delivery and payment.

Operator

Your next question is from the line of Burt Chao with Simmons & Company.

Burt Chao - Simmons & Company

Good evening. I just have a couple of quick questions -- Amy, just to follow-up on I think Rob’s question regarding the inventory write-up, so you are saying that gross margin likely will be flat quarter over quarter. Is that ex this inventory write-up or is it -- because I’m just trying to get a sense of what Q1 gross margins would have been had you not written up the inventory. Is there some color on that?

Amy Yi Zhang

We actually don’t have that detail breakdown line to be discussed. As I said, if you compare Q1 inventory provision with Q4, we probably wouldn’t get a normal picture because the provision made in Q1 was an abnormal one. And again, like inventory provision is a regular accounting and operation procedure to go through on a quarterly basis -- on a regular basis. In the end, in Q1 and also in the following quarters, it’s just going to be following the relevant accounting rule based on the aging movement to make such provision, which will be all normal cases.

Burt Chao - Simmons & Company

Okay, great, so when you say it’s flat quarter over quarter, it should be a fully blend -- I mean, at this kind of 17.8%, plus or minus a little bit. Next quarter we can pretty much at least model, for our modeling purposes, that’s okay?

Amy Yi Zhang

Yes.

Burt Chao - Simmons & Company

Okay, great. And then just the one follow-up question, Dr. Shi, on China, I think a lot has been spoken about the Chinese market being a BIPV in a roof-mounted market. Do you see any specific push or is it in your -- I mean, is it something that you would like to see for the Chinese Government to expand the breadth of their subsidies to perhaps a ground-mounted market? Because as we saw in Spain, the ground-mounted market really drove the market growth in 2008.

Dr. Zhengrong Shi

As I said earlier, we do believe MDRC or the Bureau of Energy, there we announced some [inaudible] target or subsidy which would be mainly for ground mounting utility scale type of project.

Burt Chao - Simmons & Company

Okay, but it may not be as robust at the RMB20 for BIPV, right?

Dr. Zhengrong Shi

I think for the new announcement, it will be more like [inaudible].

Burt Chao - Simmons & Company

Okay, right. Well, thank you so much.

Operator

Your next question is from the line of Paul Clegg with Jefferies.

Paul Clegg - Jefferies & Company

A couple of things here -- actually, on GSF, I’m still a little confused about how you booked the full module sale when it sounds like the investee companies are going to be treating it as CapEx and earning on the project itself. And if I heard you correctly, Amy, you will still indirectly own a majority of those projects -- is that correct?

Dr. Zhengrong Shi

Sure, I think GSF is a fund and [he] invests in the companies which owns the project, and GSF is not managed by Suntech at all. It is managed independent with [inaudible].

Amy Yi Zhang

And also, Suntech does not control GSF because of the general partners’ right. And also that’s why under U.S. GAAP rule, we can adopt an equity method to evaluate the gain and loss on the investment.

Paul Clegg - Jefferies & Company

I see. Okay, so it’s a control issue. And the follow-up question, Dr. Shi, if you could talk about the sort of project IRRs or pay-backs you can expect to see in China when you look at the new subsidies being considered in China, and perhaps some of the different regions in China, the different provinces? And what sort of module price does it imply relative to your European sales or your U.S. market sales?

Dr. Zhengrong Shi

I think -- [I would have to comment] -- I mean, China [has just started] and I can’t say what the price you see now is the normal price situation. And at this moment, the subsidy is not finally -- like although we’ve got RMB15 or RMB20 per watt, so that’s like at installation, certainly in the current situation, this is a very good subsidy and I think it lasted only for this year and I believe next year the [goal] will be changed. But one thing is clear, is it looks like in China and for the China market to really start, the cost is very important. We have to reduce the cost to the level which the government thinks is reasonable or sensible.

Paul Clegg - Jefferies & Company

So would it be fair to say the, if you were to look at the current subsidies that are being considered, that in order to get the IRRs in a pay-back period that would be attractive, you would need to further reduce module costs?

Dr. Zhengrong Shi

Of course, yes.

Paul Clegg - Jefferies & Company

Okay. Thank you.

Operator

Your next question is from the line of Lu Yeung with Banc of America/Merrill Lynch.

Lu Yeung - Banc of America/Merrill Lynch

Dr. Shi, I have a question on the Chinese application -- how many of these applications require grid connection and what are the bottlenecks for having grid connection in China?

Dr. Zhengrong Shi

So all these projects like these announcements, all projects will be connected to the grid.

Lu Yeung - Banc of America/Merrill Lynch

And what prevents the MDRC actually ordering the grid connection or the technical details on the --

Dr. Zhengrong Shi

What will prevent what?

Lu Yeung - Banc of America/Merrill Lynch

What are the technical bottlenecks from MDRC rolling out [inaudible] in China?

Dr. Zhengrong Shi

No, they didn’t rule out the fitting targets.

Lu Yeung - Banc of America/Merrill Lynch

I mean, what are the technical details that are required to determine [what needs to be done], other than the terms or the rate for the [inaudible]?

Dr. Zhengrong Shi

For example, the radiation and different -- China is such a huge country, in different states and different regions, the radiation is different. I think what we believe where MDRC announced is the [fitting target] for the program, the approval will be like in multiple rates, like different rates for different regions.

Lu Yeung - Banc of America/Merrill Lynch

I see. Could you also share some of your long-term strategy for your investment in the downstream area -- I mean, in the projects, installation, and all that?

Dr. Zhengrong Shi

Well, I think it is a very dynamic industry, so it is helpful to fix any particular strategy, so we have to just be flexible, proactive to cope with change of the industry.

Lu Yeung - Banc of America/Merrill Lynch

Okay. Thank you.

Operator

Your next question is from the line of [Nitten Kumar] with Nomura Singapore.

Nitten Kumar - Nomura Singapore

This is actually regarding the share issue offering that you have just announced. I reckon that you basically get to about 350 million kind of -- $350 million. That will probably be able to cover your buy-back of the convertible debt. But would you need to raise more cash say in 2010 for actually as [they fail to expand], you will have working capital expanding pretty rapidly. So how would you like to -- I mean, how is that going to be addressed?

Dr. Zhengrong Shi

Regarding the offering, you have to talk to -- you have to read our filing details and talk to the [under-writers] about the details.

And regarding whether or not we will raise more money for 2010, at this moment we don’t have any plans.

Nitten Kumar - Nomura Singapore

I understand. Maybe if I can ask differently -- in terms of balance sheet, what are the areas where you can probably free up cash in your assets? I mean, Amy talked about you getting other non-current assets and -- sorry, the other current assets and the other advance to suppliers. I was just wondering as to what level of recovery is possible in this year?

Amy Yi Zhang

I think really as part of the result so the renegotiation, cash out of the advance payment, definitely kicking things earlier than and more significant than we anticipated. So first of all, the long-term pre-payment has been transferred to the short-term one because they already started delivery and in line with the delivery, they started with the offset. And also out of the balance sheet items and after cash and cash equivalents, and if you look at the restricted cash, we can actually arrange the acceleration of cash out out of those. And also, for example, accounts receivable, we can have early cash-out of the accounts receivable through dealing with the bankers or factory agencies around. And also the value-added tax recoverable, that can also be accelerated to cash out, if we do need more cash on the -- in our account.

Nitten Kumar - Nomura Singapore

Amy, can you possibly give kind of a range as to where you see the cash and equivalents at the end of this year?

Amy Yi Zhang

As you can see, you already have seen our positive $2 million level for operating cash gain by the end of Q1 and I think that’s what we have already achieved.

Nitten Kumar - Nomura Singapore

Right. And just what was your operating cash flow in 1Q, if you could give -- cash burn or cash --

Amy Yi Zhang

I’m sorry, currently even with the revenue and gross margin, we only talk about very high level information here. We should be able to discuss in more detail when the downstream visibility becomes more clear to us.

Nitten Kumar - Nomura Singapore

Sure. No problem. Thank you.

Operator

Your next question is from the line of Jeff Osborne with Thomas Weisel Partners.

Jeff Osborne - Thomas Weisel Partners

Just two quick ones -- following up on Paul’s question about China, is it fair to say, just given the political and social ramifications of you and the 30 other competitors across China that the Chinese system integration business and module sales will probably be a lower gross margin business than your European and U.S. opportunities?

Dr. Zhengrong Shi

Well first, I mean, competition definitely is quite severe in China, but again, like for China, in order for the China market to get bigger, we have to reduce the cost as quick as possible.

Jeff Osborne - Thomas Weisel Partners

I understand. And then I just wanted to follow-up on the 160 new channel partners you added since the end of 2008. Can you talk about any opportunity that they had to take product in the first quarter relative to their actual installations? Is there a --

Dr. Zhengrong Shi

You mean the dealer network?

Jeff Osborne - Thomas Weisel Partners

Yes, your dealer network, correct -- is there an opportunity that they took delivery of panels in Q1 and demand actually might be a little bit softer for them, and so the channel might be filled up?

Dr. Zhengrong Shi

Steven, could you comment?

Steven Chan

Sure. Jeff, so we added from 40 to 200 channel partners and I would say that not a lot of the new additions took delivery in Q1, but if you look at the CSI data, you can see that there were a lot of new sort of reservations for Suntech panels, so I think we are off to like 18% or something from less than 4% year over year.

And so a lot of them are basically indicating that they will start to take delivery more in like Q2 through Q4 timeframe, and so it’s more -- I think the announcement was more like a business development initiative and then we are actually booking real sales from those new channel partners throughout the rest of the year.

Jeff Osborne - Thomas Weisel Partners

Very good. Thanks for the clarification.

Steven Chan

Sure.

Operator

Your next question is from the line of Kelly Dougherty with Macquarie.

Kelly Dougherty - Macquarie

Thanks for taking my question. I’m just trying to think about if you are willing to trade a higher gross margin for market share by pricing more aggressively and how you think of the trade-offs between those two variables?

Dr. Zhengrong Shi

Steve, could you comment?

Steven Chan

Sure. I think, Kelly, I think the good thing about this recent consolidation with the industry is that we have been able to do a very good job, not just in the near-term but for the long-term with our up-stream suppliers, particularly four poly-silicon vendors. And that’s really enabled us to really look to get our business towards grid parity even quicker than we originally anticipated, and so we are not even just talking retail grid parity but even wholesale grid parity. And then with the Pluto launch, we actually feel that we can actually install large-scale wholesale application solar farm in the next several years and still have relatively healthy margins relative to what we are seeing today.

Kelly Dougherty - Macquarie

Okay, so what would you think, kind of just looking forward, would be a good target margin for -- you know, on the manufacturing kind of, the panel side of the business?

Steven Chan

I think Amy has the long-term model for the company.

Amy Yi Zhang

Which I can’t talk about.

Dr. Zhengrong Shi

Could you repeat the question again?

Kelly Dougherty - Macquarie

I’m just trying to think of what you think would be kind of an acceptable margin going forward for a module manufacturer?

Dr. Zhengrong Shi

Okay. I think for a module manufacturer, probably we’ll see like long-term, probably around 15%.

Kelly Dougherty - Macquarie

Okay, great. Thanks. And then I’m just wondering if you can comment on your thoughts for the U.S. market, kind of what you think the size might be this year and how much share you think Suntech can get. I know you were previously talking about 80-megawatts of contracts and given that things are slower than expected, if that was still a valid number?

Steven Chan

Sure. I think while we looked at the U.S. market at the beginning of the year, we thought that there would be more growth than what we’ve seen thus far. We would look to grow market share within the U.S. market, so last year we had about 10%, a little more than 10% out of the 360-megawatt market. This year we are looking to get 20% through the market, and so we can’t predict what the market is but even though -- assuming it’s flat, you know, we will look to get like 70-megawatts; assuming it’s up a bit, we will look to get roughly 20% of the market. And so we are approaching that in multiple ways, so we have what we just spoke about, the expansion of the dealer network, which creates a pretty good foundation in terms of steady sales, although each sale is not that big. And then we continue to sell to our normal customer base, which are the larger distributed generation systems integrators. And then we also created this joint venture with renewable ventures for Gemini and this is what we are looking to install for that. And then we also have solutions that we’ve got that has some projects that are being installed.

So we are approaching it different ways and so by doing that, we do think that we can capture 20% market share.

Kelly Dougherty - Macquarie

Great. Thanks very much.

Operator

Your next question is from the line of Sam Dubinsky with Oppenheimer.

Sam Dubinsky - Oppenheimer

A couple of quick ones -- could you maybe just explain how your non- or your processing costs are down this quarter, if you are still under-utilized and how to be down going forward, if you are running at let’s say 50% utilization rates? And then I have a follow-up.

Dr. Zhengrong Shi

Well, as I said, I mean, we are doing three things together -- I mean, like you are right -- even if we only use under-utilizing rates, so the processing cost is already very competitive. In our cost roadmap is to reach $0.50 to $0.55 per watt, so -- and within the next one or two years, and so -- and also, I think it is in line with our cost roadmap for module, quick line silicon module in the cost to hit about $1 per watt within the next two to three years.

Sam Dubinsky - Oppenheimer

Okay, but you are under-utilized today, so the costs are still pretty low. Is this -- I mean, I’m not quite sure how you managed to get $0.66 per watt. Is that through the base case going forward and it will never be higher than that, even if you are under-utilized?

Dr. Zhengrong Shi

Under-utilized usually for certain costs should be higher.

Sam Dubinsky - Oppenheimer

Yeah, exactly.

Dr. Zhengrong Shi

Fully utilized, should be dropped. That’s why we are working very hard to reduce our costs to be more competitive.

Amy Yi Zhang

Yeah, this $0.66 per watt is based on the -- not fully utilized run-rate and also it’s a fully loaded cost per watt of manufacturing and processing, excluding silicon and wafer.

Sam Dubinsky - Oppenheimer

Okay, great. And then lastly, just on GCF, I know there’s been a lot of questions but just to be clear, did GCF’s customers get any sort of better pricing terms or is the pricing benchmark to the market?

Dr. Zhengrong Shi

It’s a bidding process, benchmark. It’s [off the benchmark] price.

Sam Dubinsky - Oppenheimer

Okay. Thank you.

Operator

Your next question is from the line of Charles Yonts with CLSA.

Charles Yonts - CLSA

Good evening. Thanks for taking my question. Let’s see -- most have been answered but one on -- could you give us some color on the domestic polysilicon producers, and in particular, your investment in [inaudible] and [inaudible], et cetera, and how that is progressing?

Dr. Zhengrong Shi

Okay. I think they are progressing pretty well. I think [Shundai] is already producing polysilicon. I think all the reactors are up and running and produce silicon regularly. I think the quality is also pretty good and Asia Silicon also I think most of the reactors have also started work, because there’s another two reactors in on the commissioning. So the quality wise, it’s all pretty good.

And we also believe the costs are also quite competitive.

Charles Yonts - CLSA

Okay, thank you. And a follow-up is we’ve heard some talk from European and American [cell module] producers about more outsourcing of production as their profit and cost structures start to look [inaudible]. One, have you been approached more often for outsourcing or for OEM production? And two, is that something that you would be interested in to improve your utilization rate?

Dr. Zhengrong Shi

You mean -- you are talking [inaudible] or --

Charles Yonts - CLSA

No, no --

Dr. Zhengrong Shi

I didn’t quite get your question.

Charles Yonts - CLSA

-- produced on a [inaudible] basis or an OEM basis for brands in the U.S. or Europe.

Dr. Zhengrong Shi

Well, we haven’t got too many of these types of deals. There are some European or U.S. manufacturers that come to talk to about the possibility, so -- so far there’s no conclusion yet.

Charles Yonts - CLSA

Okay. Thank you.

Operator

Your next question is from the line of Gordon Johnson with Hapoalim Securities.

Gordon Johnson - Hapoalim Securities

Thanks for taking my question -- I just wanted to go back to this -- I guess this GSF revenue recognition. So I just want to make sure I understand this correctly -- so you guys recognized roughly $100 million in revenue, at I assume pretty high gross margins on products that have not officially been shipped yet, and you guys own I think what, 80% plus of this investment?

Amy Yi Zhang

We own 86% of this investment. The modules have been shipped back to March of Q1 and the installation actually, some of the installation should already be started. And as what Dr. Shi said, it’s got to be finalized and finished in terms of construction completion between October-November timeline so it can be connected to the grid to get [feeding tariff] for ’09.

Gordon Johnson - Hapoalim Securities

So these modules are not officially I guess installed yet -- is there any risk that maybe this gets delayed and the modules don’t get installed, and is it -- how is the revenue recognition on this accounted for by Suntech?

Dr. Zhengrong Shi

Look, the [lawyer] has [assessed all these] accounting principles, so it’s in compliance with U.S. GAAP.

Gordon Johnson - Hapoalim Securities

Okay. And then just on the -- I guess the inventory days, I guess on the inventory days and receivable days going forward, Amy, if you could provide some guidance on what we should think about modeling moving forward?

Amy Yi Zhang

Right. Definitely we have seen that inventory balance has gone slightly higher in Q1 than Q4 last year, and that’s mainly due to a localized warehouse we have put in place to -- in order to shorten the delivery lead time to address local demand in the key markets, for example, in Europe and also in the U.S.

We currently have got a multi-location for the warehouse to keep a certain level of finished goods inventory in order to turn around to our clients very efficiently.

Going forward, our intention is definitely to bring down the inventory level on the raw material side and I think that would be definitely our ultimate target in the longer run.

Gordon Johnson - Hapoalim Securities

Okay, and then just lastly, I’m looking at ex this sale to the GSF, I’m looking at what you guys said with respect to your shipments. You said they were slightly down versus Q4 and you said your ASP in aggregate was down about 15% this quarter. Would that have aggregated sales of about I think $220 million ex the sale to GSF? Or 215, roughly?

Dr. Zhengrong Shi

No, we don’t give this number.

Gordon Johnson - Hapoalim Securities

Okay. All right, thanks a lot, guys.

Operator

Your next question is from the line of Dan Ries with Collins Stewart.

Daniel Ries - Collins Stewart

Kind of following up on the last one, the GSF modules, the projects have to be done by October or November -- does that mean that if I back into it, it’s something like 35-megawatts. Did you actually ship, put on a boat, all 35-megawatts at this point or is there some recognition where when financing is in place, you can record the revenue?

Amy Yi Zhang

No, it’s already arriving at the ferry on the terminal side.

Daniel Ries - Collins Stewart

Okay, and GSF companies, you said that they buy the modules in a bidding process -- as an owner, do you get some preferential treatment where you get to match the best bid or are you just a normal bidder where conceivably GSF companies could buy other modules?

Dr. Zhengrong Shi

Independent managers -- they are very aggressive, so they are an independent buyer.

Daniel Ries - Collins Stewart

So conceivably GSF could finance a project that does not use Suntech modules?

Dr. Zhengrong Shi

It’s possible.

Daniel Ries - Collins Stewart

Thank you very much.

Operator

Your next question is from the line of John Hardy with Broadpoint.

John Hardy - Broadpoint AmTech

Thanks for taking my question -- don’t mean to beat a dead horse here but I was wondering if you could detail some of the strategic partners in the CSF venture -- for instance, who is the other 14% stakeholder?

Dr. Zhengrong Shi

We are not in a position to comment on other investors.

John Hardy - Broadpoint AmTech

Okay. So am I right in assuming that if there’s been $3 million contributing, have you made a $258 million outlay in cash for this fund?

Amy Yi Zhang

No.

John Hardy - Broadpoint AmTech

What’s that?

Dr. Zhengrong Shi

No, we haven’t.

John Hardy - Broadpoint AmTech

So is that yet to come?

Dr. Zhengrong Shi

We only committed -- we only committed about [19 million].

John Hardy - Broadpoint AmTech

Okay. And I guess that brings me to my follow-up question, and it’s sort of broad in nature -- what do you think the longer term plan is for restructuring the balance sheet? You have about $585 million in cash, including restricted. Saw another spike in short-term debt in the quarter -- obviously significant long-term debt associated with the converts you have out there. Big chunk of the secondary likely taken up to pay down the current portion of the convert in February -- I’m just curious how you guys are thinking about the restructuring over the course of the next 12 to 24 months, maybe even just in broad terms.

Amy Yi Zhang

As long as the short-term issue on the convertible loan to be due in the middle of 2010 is properly addressed, I think we are quite happy with what we are doing on the operating activity level. And also, we are quite happy with the support we have been given from most of the bankers [we worked], especially those from China.

I think in the longer run, we definitely would like to have a proper mix adjustment on the long-term -- for example, long-term, short-term debt mix because definitely bankers are looking into different possibilities to grant us with longer term commitment instead of the current short-term one.

John Hardy - Broadpoint AmTech

Okay. Thanks, Amy.

Operator

Ladies and gentlemen, we have come to the end of our question-and-answer session for today. I would like to turn the call back over to Dr. Shi for closing remarks.

Dr. Zhengrong Shi

Thank you for your time today. I am sorry we couldn’t get to all the calls in the queue, but please feel free to follow-up with our IR representatives. Thank you and have a nice day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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Source: Suntech Q1 2009 Earnings Call Transcript
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