Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

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

Q2 2009 Earnings Call

August 20, 2009 8:00 am ET

Executives

Rory Macpherson - Director of IR

Zhengrong Shi - Chairman and CEO

Stuart Wenham - CTO

Amy Zhang - CFO

Steven Chan - Chief Strategy Officer

Analysts

Burt Chao - Simmons & Company

Jesse Pichel - Piper Jaffray

Satya Kumar - Credit Suisse

Gordon Johnson - Hapoalim Securities

Rob Stone - Cowen & Company

Sanjay Shrestha - Lazard Capital Markets

Paul Clegg - Jefferies

Vishal Shah - Barclays Capital

Parnab Sarmah - Daiwa Securities

Lu Yeung - Bank of America - Merrill Lynch

Nitin Kumar - Nomura

Sunil Gupta - Morgan Stanley

Sam Dubinsky - Oppenheimer

Kelly Dougherty - Macquarie

Prava Marchinof - Raymond James

Josh Baribeau - Canaccord Adams

Operator

Good evening and thank you for standing by for Suntech's Second Quarter 2009 Earnings Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference, Rory Macpherson, Suntech's Director of Investor Relations.

Rory Macpherson

Hello, everyone and welcome to Suntech's second quarter 2009 earnings conference call. My name is Rory Macpherson, Suntech's Director of Investor Relations. From Suntech on the call today we have Dr. Zhengrong Shi, Suntech's Chairman and CEO; Dr. Stuart Wenham, Suntech's Chief Technology Officer; Amy Zhang, our Chief Financial Officer; Steven Chan, our Chief Strategy Officer; and (inaudible) Senior Financial Manager, will participate in the Q&A following Dr. Shi'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 US Private Securities 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 laws.

To enhance our presentation of information and data during this conference call, we have provided a set of PowerPoint slides which we will refer to as management's delivers their prepared remarks. This presentation is posted on the main page of the investor center of our website.

As a reminder, this conference call is being recorded and the webcast replay will also be available on the Investor Relations section of Suntech's website after this call. Please make note that all figures mentioned during this conference call are in US dollars.

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

Zhengrong Shi

Hello and thank you for joining us today. I'll start with overview of the second quarter, and then give you some guidance on the change that we are seeing in the industry. Beginning on slide three, total net revenues was $321 million, up slightly from $315.7 million in the first quarter.

In the second quarter, we experienced very strong shipment volume growth in most markets, excluding shipments for GSF project companies. Our shipments increased by around 53% in the second quarter. The key driver for this was a seasonal pickup in demand from the first quarter and improving project return. The credit markets are also gradually improving, though it still remains one of the biggest challenges to growing demand.

Despite rising pressure, our continuing reduction of silicon costs, enable us to improve gross margin to 18.6%, compared with compared with 17.8% for the first quarter of 2009. Net income attributable to holders of ordinary shares was $10 million, or $0.06 per diluted ADS.

Today, our goals are some of the market dynamics, that's where we are seeing in our key sales geographies, key business development initiatives, and an outlook for the rest of the year.

Please turn to slide four. During the second quarter, we made substantial gains in many of the key markets, reflecting the broad recognition of Suntech leading brand, premium quality and a reasonable price position.

In Germany, we sell products to a group of leading value-added resellers and system integration companies that have excellent market coverage and effective service delivery. They value Suntech's commitment to quality and reliability and our structured approach to the market.

Our products are probably utilized in residential and commercial rooftop applications in Germany. And as these systems require less financing dollars, it has been one of the most resilient sectors of global dollar demand.

Germany continued to be our strongest market and accounted for close to 50% of sales. Elsewhere in Europe, Italy represented approximately 13% of sales, and we also witnessed healthy growth in France, Greece, Netherlands and the Czech Republic. This growth was supported by expansion of our on-the-ground sales and customer support teams.

With increasing cost competitiveness compared to European and US brands, we believe Suntech is becoming the brand of choice for quality-conscious customers. Europe as a whole represented approximately 78% of total sales.

Turning to US market on slide six and seven; sales to the US market generated close to 8% in the second quarter of 2009. The majority of these sales were to our more than 200 Suntech dealers that service residential and a small commercial solar demand across the US.

Analyzing project application data supplied from the California Public Utilities Commission, you can see on slide six that we have been making excellent progress in penetrating this market. According to this data, our share has increased from around 5% of applications in the fourth quarter of 2008 to almost 25% in the second quarter of 2009.

We believe that this data are good leading indicator of future demand and we expect this to translate into strong sales growth, as these projects are installed in a next six to nine months.

Large on-demand solar project still face delays in raising project financing, though we are confident of that, the implementation of the US stimulus package policies, particularly the US Treasury grant in lieu of the investment tax credit will lead to a easing our credit for solar project and a resulting stronger demand later this year.

We still view the US as one of the high-potential, global solar market particularly in 2010 and beyond. To help capture this demand, we have made significant investments in the US, with currently over 50 people based there. To-date, we have bid on over 2 gigawatt of projects with Gemini Solar and other project developers, and we are on the shortlist for nearly 1 gigawatt of project that requires multi-year delivery starting from 2010 or beyond.

Due to our proven track record, low cost structure, and a reliable solar product, we believe that we are able to offer one of the most competitive PV offering for multi-year projects. We are confident that this is widely recognized in the US and we will keep you updated on any progress we make on this.

We have also narrowed our search for US production and distribution center site to two locations, and expect to make a decision within the next few months. At the US production base we have reduced shipping cost and the capital are tied up with goods in transit; improved customer service capabilities, by facilitating shorter delivery times; and resulting in local job creation. This is a demonstration of our long-term commitment to the US market, and it should help to cement Suntech's position as a key supplier of solar products to North America.

Now briefly on Japan. Please turn to slide eight. With the recent revival of the subsidy program for residential system installations, Japan is becoming an increasingly important region for Suntech, as we capture a sizeable piece of this incentivized growth. Suntech's brand is increasingly well recognized in Japan and we recently established the relationship with Yamada Denki that will expand our distribution reach and improve brand recognition even further. Yamada Denki is Japan's most popular consumer electronics and home appliance chain and through this agreement they will sell systems incorporating Suntech module through all of its 450 retail outlets across the country. This should give us good access to the residential rooftop market in Japan, which the largest segment of solar demand there.

Turning to China on slide nine, I'd like to quickly summarize the policy environment and then talk about our strategy approach and the market opportunity. First the policy environment; so far there have been three major solar policy announcements in China. The Ministry of Finance has announced two solar subsidy programs, a rooftop solar program and the Golden Sun solar program. Both of these programs subsidize the cost of installation and are expected to generate demand primarily for rooftop solar system and upgrade systems respectively.

The third announcement is a 400-megawatt solar program from 2009 to 2011 in Jiangsu Province that specifies feed-in tariffs based on the type and year of installation. While we are still waiting clarification on some of the policy details, all three of these programs are generating a significant amount of interest in the domestic solar industry and have the potential to drive the market of at least 100 to 200 megawatt per year. The more significant market opportunity is expected to come from a national feed-in tariff that we believe will be announced later in 2009.

The feed-in tariff is expected to be announced within the range of RMB1.09 to RMB1.5per kilowatt hour and will support the development of utility scale solar plants. This type of solar policy could drive much faster growth of the Chinese solar market.

In order to address this opportunity, we have undertaken a number of initiatives. Firstly, we have established a one of China's largest system integration and project development teams. Currently, we have over 200 people in this business unit that are based in more than 10 provinces in China. We are already seeing returns on this investment and are expected to install around 30 megawatt of project in the full year 2009, mostly in the second half.

Secondly, we are proactively building relationships with regional governments in order to build the roadmap for developing solar projects. In line with this initiative, we recently announced four strategic framework agreements with city and provincial governments to develop aggregate of 1.8 gigawatt of PV project over the next several years. These are framework agreements similar to letters of intent. And as there are a number of criteria that must be fulfilled before we can actually implement this project, such as announcement of a preferential feed-in-tariff, approval of various government authorities and securing project finance.

Thirdly, we have developed strategic partnerships with a number of state-owned enterprises that have extensive experience in project development and the financial weight to invest in projects and secure project financing. To-date, we have singed agreement to partner with China Huadian New Energy Development Company Ltd and China Energy Conservation Investment Corporation. For the latter, ground-mount project, we expect that permanent business model were involved, Suntech taking small equity stakes in solar project in order to secure model supply.

The project development partner will take the majority equity stake and provide assets to secure the bid. Through this business model, we would recognize revenue in line with project development masters. We have already begun the preparatory work on a number of multi megawatt projects in the several provinces in China and we're move forward with project development, once we received confirmation of the feed-in-tariff. We believe that Suntech has one of the most advanced downstream strategies in China and we expect to be one of the largest beneficiaries of the national feed-in-tariff.

Before I turn the call to Stuart, I briefly discuss our views on pricing and expected demand for the remainder of 2009. Please turn to slide 10. Due to our exceptional track record, bankability and product reliability, our customers are willing to pay a premium for Suntech products compare to tier 2 or tier 3 players. However, the oversupply environment combined with the falling cost of silicon is driving rapid price decline.

In the second quarter our ASPs fell by about 8% and in the third quarter we expect that our pricing will fall by another 15% to 20%. This should be largely offset by the reduction of silicon projects during the quarter. We are, however excited that the shipment growth we are seeing in the third quarter, we currently project that shipments will grow by over 60% from Q2. The third quarter is seasonally the strongest quarter in the solar industry, and this year we believe it is particularly strong for a couple of reasons. Firstly, the volatile price environment caused some project developers to defer purchasing divisions, from the first half of the year to the second half. And secondly, as the end of the year approaches, many project developers are rushing to complete projects ahead of 2010 fearing direct reduction.

Shipments in the fourth quarter are likely to be slightly lower than the third quarter due to seasonality, and as a result, we have decided to revise our full-year shipment guidance to around 600 megawatts.

While this has been challenging times for the solar industry, we are confident that we are very well placed to improve our competitive position, our industry low-cost structure, key advantage, mature downstream channels, and a reputation for supplying high-performance, reliable solar products, are key reasons why our customers choose Suntech and we expect to gain market share throughout the rest of this year.

Stuart will now give you an update on our technology. Stuart?

Stuart Wenham

Thank you Dr. Shi. Today I'll give you an update on our technology initiatives. Please turn to slide 11. I'm pleased to announce that we have recently achieved a new world record conversion efficiency of 15.6% on a commercial grade multi-crystalline silicon PV module.

This conversion efficiency surpasses the previous record of 15.5% set by Sandia National Laboratories 15 years ago. Of particular note is that the previous record was from a research module and was only an aperture area measurement.

In comparison, the new Suntech world record is a total area measurement, including the frame and has been achieved with Pluto sales directly from the production line, with a module area more than 10 times larger than that of the previous record holder. The module is powered by Pluto cells utilizing solar grade silicon with each PV cell having conversion efficiency well above 17%.

The multi-crystalline module conversion efficiency was independently tested by the Fraunhofer Institute for solar energy systems IEC in Germany and accepted by the scientific journal Progress in Photovoltaics as a new world record holder. This is yet another third party endorsement of the unique performance capabilities of the Pluto technology, and its commercial potential.

Our PV cell production lines are performing extremely well and the cells are consistently exhibiting about 17% on multi-crystalline silicon and close to 19% on mono-crystalline silicon. For Pluto modules, we had developed some proprietary module production processes that required the development of some automation equipment. This equipment is still undergoing refinement, and as a result, we have revised our outlook for Pluto shipments this year to a range of between 10 and 15 megawatts.

Nonetheless, I am pleased to announce that we have passed the IEC certification testing for our new Pluto modules, started commercial shipments, and received an extremely strong response from customers seeking Pluto product. We are committed to rolling out Pluto technology as quickly as possible and still target to increase our Pluto manufacturing capacity from a 100 megawatt to 300 megawatts by the end of the year.

In addition to our breakthrough Pluto technology, I would also like to highlight recent advancement made in our standard PV modules. We have steadily increased the conversion efficiencies of our standard modules, through improvements in cell design and metallization techniques.

For example last year, our average residential rooftop panel had a power rating of 175 watts, and this year we are regularly producing panels with power ratings of 180 or even 185 watts, while the Fraunhofer Institute in Germany has independently measured our Pluto modules above 205 watts.

In an increasingly competitive marketplace, customers are showing a preference for higher powered output panels that serve to both increase the amount of power, and therefore the revenue that can be generated from a limited rooftop; and at the same time reduce the balance of system's cost.

Our thin-film production facility is still in the commissioning phase, and we have already produced 5.7 square meter thin-film panels with the conversion efficiency of 7%. Given the record reduction of the cost of silicon and module ISPs however; we have decided to go back to our original focus of R&D and product innovation efforts on developing value-added building integrated applications for our thin-film production that will (inaudible) a premium price. In the mean time, we expect only minimal sales of our conventional thin-film panels.

I will now turn over to Amy Zhang for her financial review. Thanks, Amy.

Amy Zhang

Thank you, Stuart. Hello to everyone on the call. Please turn to slide 12 for the first of several slides on our financial results. Net revenue for the second quarter were $321 million, approximately 1.7% higher than our first quarter 2009 results of $315.7 million

Sales to the investee companies of the Global Solar Farm amounted to $15.3 million in the second quarter of 2009, compared to a $100.5 million in the first quarter of 2009. Due to our investments in Global Solar Fund, which invest in companies that own or develop solar project, we will continue to disclose revenues generated from the sales to invested company of the Global Solar Fund.

During the quarter, we were pleased to improve gross margin, despite the competitive pricing environment. Our gross margin was $59.7 million and gross margin percentage was 18.6% compared to gross profit of $56.3 million and gross margin percent of 17.8% in the first quarter of 2009.

The increase was mainly due to the further reduction of the silicon wafer cost during the quarter. Our blended silicon wafer cost, including the impact of higher cost inventory fell by about 13% from the first quarter. If we exclude the impact of higher cost inventory then our gross margin would have been in the higher 20% range in the second quarter.

Looking forward into Q3, the plan to work through the majority of our high cost inventory and expect blended wafer cost to decline at a similar or slightly faster rate than ASPs. In the fourth quarter, our blended silicon wafer cost should be approaching current [spot] prices.

Last quarter, our non-silicon production cost was $0.66 per watt; this cost was calculated including the cost of non-silicon materials, processing cost, depreciation, share-based compensation and shipping expenses.

Going forward, we will provide information on the non-silicon production costs, excluding share-based compensation and shipping expenses, as these are not impacted by our improving operating efficiency. By this definition our non-silicon production cost was $0.64 per watt in Q1 and $0.61 per watt in Q2.

By improving conversion efficiency, leveraging scale to lower material costs, and developing improved module design, we plan to reduce this cost to below $0.60 per watt by the end of this year and approximately $0.50 per watt by the end of 2010.

Operating expenses for the second quarter of 2009 were $38.6 million or 12% of revenues compared to $35.1 million or 11% of revenues in the first quarter of 2009. The increase was mainly due to a provision for bad debt and additional sales and marketing expenses related to our self-support structure in Europe.

In the third quarter, we expect that the operating expenses, as a percentage of revenue will moderately increase for two reasons: first, we began recruiting initiatives to build out our sales and marketing capabilities, primarily in Europe, the US, and Asia. We believe these investments will translate into important revenue growth opportunities in 2010 and beyond; and second, that will increase the ramp up cost for the Shanghai thin film plant.

Income from operations was $21.1 million and operating margin was 6.6%, which was the same as the first quarter. Net interest expenses was $24.3 million in the second quarter of 2009, compared to net interest expenses of $21.6 million in the first quarter of 2009.

Foreign exchange gain was $17.5 million in the second quarter of 2009 compared to a loss of $6.2 million in the first quarter of 2009. The foreign exchange gain in the second quarter was primarily related to the appreciation of the euro versus the US dollar.

Net income attributable to holders of ordinary shares for the second quarter of 2009 was $10 million or $0.06 per diluted ADS compared to a net income of $1.8 million, or $0.01 per diluted ADS in the first quarter of 2009. In the second quarter of 2009, the major non-cash related expenses were share-based compensation charges of $4.2 million; $11.6 million of non-cash interest expenses; and depreciation and amortization expenses of $14.4 million.

In the second quarter of 2009, capital expenditures, which were primarily for the construction of our thin film production facility in Shanghai, and to retrofit our existing production capacity to enable production of modules based on our high efficiency Pluto technology, totaled $20.9 million?

Please turn to the balance sheet highlights on slide 13 and 14. During the second quarter, we successfully strengthened our balance sheet through three separate financing events. Firstly, we issued $23 million ADS through a follow-on offering, through which we received around $277.7 million. Secondly, we draw-down a $120 million from a syndicated loan with China Development Bank that has a term of five years.

And thirdly, we signed an agreement with International Finance Corporation for a convertible loan of $50 million. This was closed in the third quarter, so it will be reflected in our Q3, balance sheet. The IFC is well recognized institution and their support of Suntech will help to facilitate our relationships with both domestic and international banks.

As a result of our financing activities, our cash and cash equivalents amounted to $760.5 million at the end of quarter, from $406 million as at end of March 2009. Our debt-to-equity ratio also improved from 122% in Q1 to 106% in Q2.

Now looking at a few other items in the balance sheet; some of which appear on slide 14. In the second quarter, we continued to repurchase some of our convertible notes that have a put option in 2010. During the second quarter, we retired close to 31 million of these convertible notes, and ended the quarter with $225 million of the principal amount outstanding. We plan to make further purchases of these convertible notes, as long as they are at a reasonable discount.

Accounts receivable increased by $27 million to $292.1 million of June 30, 2009. Day sales outstanding were 82 days in second quarter, compared to 76 days in the first quarter of 2009. This was primarily due to the extension of credit terms inline with the industry trends. Of the account receivable, a $108.4 million was due from GSF investee companies.

Now, I would like to give further color on these receivables. Please turn to slide 15. At the end of the first quarter and beginning of the second quarter, we shift around 40 megawatts of multiuse to GSF project companies. These shipments were made with 60-day credit term, after we received a confirmation of a term sheet to receive project financing.

These are similar conditions to those we've acquired of those project developers at that time, and in fact, since then the market expectation for credit terms has increased considerably. Later in the second quarter it became apparent that there would be some delay in the release of the project financing fund, and GSF made a down payment of $20 million in return for an expansion of the payment terms. We expect that the funds will be released and Suntech will receive full payment for the outstanding receivables by the end of this year.

I would like to point out that the discrepancy between the revenues recognized and the accounts receivable balance at the end of the quarter is due to the appreciation of the euro during the quarter. Let me provide some additional comments on the general project financing environment. While the global project finance market is improving it is still significantly different to early 2008.

Banks are becoming more selective about choosing their partners, as they have a better understanding of the different technologies and key success factors of solar projects. We find that Suntech is extremely well accepted in this environment, due to our extensive track record, quality commitment and technical expertise. In uncertain economic times, the banks are naturally migrating towards the leading global and highly technical]players.

We expect that the project financing environment to gradually improve through the back half of 2009, as banks regain confidence and recognize the stable return of participating in solar project.

In China, we believe that project financing will be less of an issue, as it is our strategy to partner with blue-chip state-owned enterprises that have extensive experience in energy project development and differentiated access to project financing. Through the combination of our technology and their project financing leverage and the expertise, we believe that we will have a robust partnership to successfully develop solar projects in China.

Our inventory levels increased by 27 million, to 269 million in the second quarter of 2009; this was due to a couple of reasons. Firstly, we decided to build high level of inventory in overseas warehouses, in order to shorten the delivery time for orders; and secondly, we also built some additional inventory to support strong sales growth in the third quarter.

In the third quarter, we planned to reduce our inventory levels and move back to a more make-to-order manufacturing model. Our accounts payable decreased by 33.3 million to 120.1 million as of June, 2009. As a result, accounts payable turnover days decreased from 53 days in the first quarter of 2009 to 41 days in the second quarter of 2009.

Now let me talk about guidance. Please turn to slide 16. We currently expect at least 50% sequential shipment growth, as project developers accelerate their operations to meet their annual targets and to take advantage of the available subsidies. Gross margins should be relatively flat compared to the second quarter. While we do not have full visibility, we expect that the fourth quarter will seasonally slower than the third quarter and we will finish the year having shipped around 600 megawatts.

Turning to capacity expansion, we will continue to hold PV sale production capacity at 1 gigawatt through the third quarter of 2009, and make a decision on further expansion once visibility improves.

CapEx is running slightly ahead of our expectation and so we are raising 2009 CapEx guidance to a range of $100 million to $120 million.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Burt Chao from Simmons & Company. Please proceed.

Burt Chao - Simmons & Company

First question is around GSF, I know you shipped 5 megawatts in the quarter. I mean are you realizing different pricing between shipments to GSF versus your standard PV module? And also if you wouldn't mind giving some indicative statements for what you expect to ship in the second half of this year to GSF?

Zhengrong Shi

Okay. The selling to GSF is same as to any other customer. So, the price has to be basically the market price. And for the shipment in the second quarter, it really depends on GSF project financing, as we know GSF has about altogether 240 megawatt fully committed and the general partner, actually they are working on project financing for (inaudible) in projects in parallel and if they are succeeded in closing this project financing then we'll have more opportunities to bidding for the projects.

Burt Chao - Simmons & Company

Okay, great. And for the back half of the year, I mean some of your competitors in China have noted ASPs at $2, perhaps even below. I mean what is your outlook for ASPs towards the back half of this year and what does that mean for your capacity utilization at Suntech at certain levels? Do the capacity factors go up, as a result of those or do they actually trend downwards as a result of those ASPs?

Zhengrong Shi

Okay, I think as we said, the indicators in ASP compared to Q2 certainly were dropped in about 15% to 20% and Q3 usually is a peak of the industry in a year, so we expect our capacity will be fully utilized in Q3.

Burt Chao - Simmons & Company

Okay, great. And so do those $2 or $1.95 a watt ASP numbers in the end of the year, do they sound reasonable or is that too aggressive or not aggressive enough?

Zhengrong Shi

Depend on the broad brand. I think you're probably in the ballpark.

Operator

Your next question comes from the line of Jesse Pichel from Piper Jaffray. Please proceed.

Ming Shui - Piper Jaffray

Hi, this is Ming Shui for Jesse Pichel. First, you guided 15% Q3 ASP decline and also a flat Q3 gross margin. So seems to me it is difficult to achieve a flat gross margin when ASP is declining and wafer makers like ReneSola and LDK, they are saying wafer prices has stabilized or even increased, so can you give us some more color on that?

Zhengrong Shi

The ASP were jump around 15% to 20% and our silicon or silicon wafer projects will come down at least in the same rate as ASP, so we are confident that we can maintain the flat margin.

Ming Shui - Piper Jaffray

Second question; it is great transparency that you disclosed that GSF revenue and accounts receivable, we'd appreciate that. You mentioned that your Q1 GSF revenue of $100 million or so will get paid by the end of the year. That seems awfully long time. Why the GSF or their panels and deliveries so far had project completion date?

Zhengrong Shi

Okay let me give you some color here. Towards the end of Q1 when we decided to ship the product to them has up point in time, they have signed the term sheet. This is in line with our normal practice, but are expectably because this financial crisis and the bank process have takes a longer than normal. As far we understand, mandates have been also signed, so we believe the project financing will be closed, probably after the holiday season.

Operator

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

Satya Kumar - Credit Suisse

Just wanted to clarify on your comments; did you said that in Q3 the factory will fully utilize. If that were the case I get much higher volume growth in Q3, much more than 50%, if your capacity for production is about 250 megawatt, so just trying to get some sense of linearity between Q3 and Q4. How should I think about the volume decline?

Zhengrong Shi

I will say for Q3, even in July our capacity was fully utilized, so just recently in the beginning of August, all customers they came to place an appeal. So I think that we did not capture the opportunity of fully utilizing the capacity in July.

Satya Kumar - Credit Suisse

So is it fair to say then that your shipments in Q3 are closer to 250 megawatts?

Zhengrong Shi

Well our (inaudible) is 50% higher than Q3 shipments.

Satya Kumar - Credit Suisse

I'll follow with you guys on this one. On China, can you give a sense as to what's the status of the applications you submitted for the national programs on the rooftops? And also if you were able to quantify of the programs that have been announced to-date, without the national feed-in tariff for the ground-mount. How much volumes do you think you can ship in Q4 and then 2010, and if you do get the national feed-in tariff, do you have any expectations of market size for China and --

Zhengrong Shi

Our rooftop application is like 179 megawatts, we submitted in May and is still in process and so we are actually talking to the local authority on a weekly basis. So far, we haven't had correct visibility when we can go ahead with this installation.

On the utility scale project as we know, there are already lot of announcements, discussion going on, and we do believe the utility scale feed-in tariff policy will be announced sometime before the end of the year.

And we also develop or could develop a number of projects with some state-owned investment company or power companies. And as a matter of fact we believe, probably we will start to construct to about 30 megawatt before the end of the year. And certainly from next year, we expect to do much better than this number.

Operator

Your next question comes from the line of Gordon Johnson of Hapoalim Securities. Please proceed.

Gordon Johnson - Hapoalim Securities

Hello can you guys hear me.

Zhengrong Shi

Yes. Hello can you hear.

Gordon Johnson - Hapoalim Securities

Yes, I can hear you. I apologize out there. Thanks for taking my question. I guess my first question centers on ASP for GSF, if I look at the revenue for GSF of about 15.3 million and the shipments of 5 megawatt, it looks like the ASPs are roughly around $3 per watt, am I thinking about that correctly?

Amy Zhang

Yeah, but the quotation delivered to GSF was quoted in currency of euro, and based on very effective hatch of instrument we put in place. And also euro exchange rate appreciated against US dollar. When you look at the US dollar value, it definitely is higher and also that would with the sales in April, it's not the Q3 sales or late half of Q3 sales.

Gordon Johnson - Hapoalim Securities

Alright. I guess I was talking about the whole Q2 numbers; it just looked like the ASP was closer to $3 per watt. But I guess that you are saying that has to do with the dollar -- the euro-dollar exchange rate.

Zhengrong Shi

Yeah, also as Amy said, this shipment occurred in early April at time price was much higher.

Gordon Johnson - Hapoalim Securities

And it looks like you guys actually increased your CapEx guidance for the year 100 to 120. Was it a 100 before?

Amy Zhang

Yes, it was 100 before.

Gordon Johnson - Hapoalim Securities

Can you guys, help me understand why you're increasing your CapEx guidance yet you are not increasing your capacity targets.

Amy Zhang

Actually, we forecasted this 100 million previously mainly for the thin-film plant wrap up and also the CapEx needed for retrofitting the existing production lines for Pluto. And that 20 extra forecasted is mainly for securing enough money for speeding up the retrofitting of the current Pluto line. And some of the accessories in the past need to brought online for installation and testing earlier to the initialization of the Pluto line.

Zhengrong Shi

Basically as Stuart just mentioned, in the module process of Pluto sales, more automation is required, which if we did not expect earlier.

Operator

Your next question comes from the line Rob Stone from Cowen & Company. Please proceed.

Rob Stone - Cowen & Company

I wonder if you could comment a little bit on the change shipment guidance. How much of this was affected perhaps by not shipping any material quantities of thin-film versus what you had expected before, and have you reduced your expectation for China shipment this year?

Zhengrong Shi

Certainly, we do not include any shipment on thin-film, which before we got it to ramp up for about 50 megawatt and we also reduced shipment to China which we expected could be a bit more.

Rob Stone - Cowen & Company

So how much of that is contingent on the timing of the national feed-in tariff or the other programs Golden Sun and the rooftops is also going slower than expected.

Zhengrong Shi

Probably it takes three to six months to get all the process for an all-clear, because the policy is just being announced, so I think probably it will take a while to sort it out what is the process.

Rob Stone - Cowen & Company

Follow up question for Amy. You mentioned that you were breaking out the non-cash stock-based compensation and shipment expense from you non-silicon conversion cost to get more clarity there. Would it be the case that stock-based compensation should also decline, as you increase volume and capacity utilization?

Amy Zhang

Yes. I think the reason why we break it out is simply because we want to demonstrate a more clear and standalone improvement on the operational efficiency and mixing that with other things that can't be controlled by the operational team. And again like you say, share-based compensation and everything else across the whole year per quarter basis is in line with the volume increase and everything else and efficiency improvement per watt basis will come down as well.

Rob Stone - Cowen & Company

You got to have 300 megawatts of Pluto capacity. How fast should we expect that to ramp in terms of utilization because the shipments this year are quite low versus the available capacity?

Stuart Wenham

Actually reaching the full use of our installed capacity was as we mentioned before the need for certain automation. It's actually quite a positive thing from the perspective that the [dark horse] performance than we originally expected to get from the first generation of our Pluto technology is achieved through the need for certain automation of our new innovative processes.

So it is a little more complicated automation that we'd originally envisioned that stayed or slowed down the ramp up of our existing capacity, but once we find that new equipment, we don't expect that to inhibit the use of our capacity that will be installed by the end of this year. So we expect that the capacity that we've installed by the end of this year to be able to be fully utilized next year.

Rob Stone - Cowen & Company

300 megawatts of capacity, should be close to 300 megawatts of Pluto output next year?

Stuart Wenham

Yes, we're expecting to fully utilize that capacity next year and then during next year we'll be further ramping up that capacity.

Operator

Your next question comes from the line of Sanjay Shrestha from Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets

Couple of quick questions; First, you guys are talking about getting down to non-silicon processing cost of $0.60 give or take by the end of this year and $0.50 next year.

Zhengrong Shi

Next year.

Sanjay Shrestha - Lazard Capital Markets

Actually $0.50, right? So am I right in thinking that then you are basically talking about a dollar or what module cost by the end of next year?

Zhengrong Shi

Well, if wafer cost can drop to $0.50 per watt by the end of next year, then it's doable.

Sanjay Shrestha - Lazard Capital Markets

Let me ask you a follow-up question then; what is the internal expectation as to which you guys think is going to be the wafer cost during 2010?

Zhengrong Shi

Wafer cost next year?

Sanjay Shrestha - Lazard Capital Markets

Correct.

Zhengrong Shi

Its already below $1 per watt, the wafer price, so I think next year, will continue to fall and again it depends on the market situation if the demand is there, I think the price will stabilize. It stays in oversupply situation. I think the wafer prices were continuing to fall.

Sanjay Shrestha - Lazard Capital Markets

Okay. One more point of clarification on that Dr. Shi. So based on all the long-term poly and wafer coming to you guys next year, right? Based on what you guys just talked about here as to your Q4 wafer pricing to be closer to the spot prices; first point of clarification, spot prices tends to be somewhat all over given later sort of data coming out of industry, one, what that number is going to be for you guys in Q4, and in 2010; forget about the spot market for a second but just based on all the long-term contract pricing where do you expect your wafer pricing to be?

Zhengrong Shi

Do you say for Q4?

Sanjay Shrestha - Lazard Capital Markets

Yes, for Q4, as well as for 2010 based on long-term contract pricing?

Zhengrong Shi

Okay. We have a numerous long-term contract either silicon or wafer and most of contracts are quite competitive compared to current market situation and some of them like are slightly higher, and I think all our suppliers have been very understandable. We have been successfully negotiating all the contracts and I would say for Q4 our silicon price will be definitely below $1 per watt. And as I said the next year, will depend on the market. If the market sees a little bit supply situation, I guess that we expect that it can only do better or stabilize.

Sanjay Shrestha - Lazard Capital Markets

Of course, so one last question then if I may. So you guys talked about your expectations of the shipment in China went down a bit for 2009, but can you talk about your expected shipment in China in 2010?

Zhengrong Shi

2010? Okay. If we can do installation (inaudible) this year plus some other sales. I guess if all these policies can be put into practice, we double the shipment in China, it should be also realistic.

Operator

Your next question comes from the line of Paul Clegg from Jefferies. Please proceed.

Paul Clegg - Jefferies

Good evening. Thanks for taking my question. The clarification question on GSF and the shipment guidance. You are looking at non-GSF volumes to be up 50% in 3Q if I understood correctly. What level of GSF volumes are you expecting for 3Q? I guess we are far enough along in the quarter that I would imagine you have a pretty good idea, and then I have a follow-up question.

Zhengrong Shi

You mean for the rest of the year?

Paul Clegg - Jefferies

Well, actually 3Q and the rest of the year.

Zhengrong Shi

Okay. And as I just said GSF particularly have 240 megawatt fully permitted in hand, and the general partner actually they are working on project financing for several project in parallel. And if that project financing can be successfully closed, so then we have opportunities to bid on more projects in Q3 or for the rest of year.

Paul Clegg - Jefferies

But in Q3, at this point I would imagine that you probably have pretty good sense of what that number would be.

Zhengrong Shi

I assume by this moment (inaudible) does not include any shipment to GSF.

Paul Clegg - Jefferies

Okay, it is not included. And then if you could talk about pricing outlook for the fourth quarter, where you would expect pricing to be in the fourth quarter, relative to the third.

Zhengrong Shi

Probably a single-digit decline.

Paul Clegg - Jefferies

Sorry was that mid-single digit decline, I didn't get that.

Zhengrong Shi

Less than 10%.

Paul Clegg - Jefferies

Less than 10% decline. Okay, thanks very much.

Operator

Your next question comes from line of Vishal Shah from Barclays Capital. Please proceed.

Vishal Shah - Barclays Capital

Thanks for taking my question. Sir, can you may be clarify this 600 megawatt guidance, does it include GSF at all in the second half?

Amy Zhang

It doesn't include GSF

Vishal Shah - Barclays Capital

In the second half.

Zhengrong Shi

For the second half, no.

Vishal Shah - Barclays Capital

No, okay. So if I do the math it looks like your Q4 shipment should be down between 25% and 30% sequentially is that correct?

Zhengrong Shi

I am not sure how did you do the math there. We are not in a position to give you that information

Vishal Shah - Barclays Capital

Okay. And so if you are going to ship 30 megawatts to China though in Q4 right?

Zhengrong Shi

Yes, likely yes.

Vishal Shah - Barclays Capital

Okay. And can you may be talk a little bit about your margins in Q4, what kind of margins do you expect. And then also in 2010 given some of your peers in China are talking about market share gains and aggressively competing on prices, what kind of pricing strategy do you have, do you expect to maintain a premium and then what type of margin outlook do you expect to have in 2010

Amy Zhang

Vishal, this is Amy. I think towards the end of the year, we feel quite comfortable with maintaining the gross margin at relatively flattened levels, even though you know towards the end of the year there is still again lack of visibility and also on the foreign exchange market it still depends on the euro versus US dollar and also versus RMB type of impact, but maintaining a flattened gross margin at current level I think we feel quite comfortable with that kind of outlook.

Zhengrong Shi

And so I believe for the next year scenario whether or not like there would be a [puzzle] or whatever, so we see our differentiation because as for next year we ship more Pluto products, and as Stuart just mentioned our module power is above average in the industry. So, of course, our price in general has to fall in a general trend in the market, but we believe we should be able to have some premium on our price compared to the pick up.

Vishal Shah - Barclays Capital

Very good. And just one other follow-up on GSF, it appears to me that with the pricing declines that we are seeing in the industry, a lot of these projects are getting bid on competitive prices. How do you expect to find an investor for the 40 megawatt GSF fund so far at $3 module price when a lot of the other competitive projects are selling for less than $2 a watt?

Zhengrong Shi

Yes, but the 40 megawatt GSF were all shipped at the same price, because they were all shipped in the early part of the year. Okay?

Vishal Shah - Barclays Capital

Yeah. But they would be trying to sell the project to some other investors, right?

Zhengrong Shi

Well I guess you're talking about the [IR]. We all know like feed-in-tariff in Italy and the insulation level in Italy, I guess even at the price you mentioned about. I think for IR it's still very attractive.

Operator

Your next question comes from the line of Parnab Sarmah from Daiwa Securities. Please proceed.

Parnab Sarmah - Daiwa Securities

Amy I think you have reported there were some bad debt on the last quarter from one customer. Could you give us the amount? What was the bad debt you had and from where this customer was?

Amy Zhang

The bad debt provision is not a bad debt provision made against one particular account receivable, against one particular customer. It's just a conventional way of providing a bad debt provision from the conservatively managing the P&L. And it's actually in line with our accounting policy. It's not any particular severe written-off of any bad debt.

Parnab Sarmah - Daiwa Securities

Okay. For your Pluto technology, when do you think that Pluto modules will be able to ship Germany and do you think that you will able to ship some Pluto module by fourth quarter this year?

Stuart Wenham

We already shipped some Pluto module to some of our customers. So yes, it seems our module has already passed our [IEC] certification tests. Now we are in a position to ship more Pluto modules.

Parnab Sarmah - Daiwa Securities

To Germany I am talking about.

Stuart Wenham

And other part as well.

Parnab Sarmah - Daiwa Securities

Could you give us your second half output by country like which country, how much you are expecting second half 2009 shipment?

Zhengrong Shi

You mean the production. I think talking on maturity of Pluto where they still [ship] up to Germany.

Parnab Sarmah - Daiwa Securities

It will remain about 50% or…

Zhengrong Shi

About 50%, yes.

Parnab Sarmah - Daiwa Securities

And US and [several others].

Zhengrong Shi

Italy, Japan, Spain, US probably evenly split up around 10% to 15%.

Operator

Your next question comes from the line Lu Yeung from Bank of America. Please proceed.

Lu Yeung - Bank of America - Merrill Lynch

I have a question on Pluto. How much of the capacity has been converted to Pluto at the end of the third quarter.

Zhengrong Shi

At the end of second quarter we have 100 megawatt, this is not a retrofit, actually we built a brand new Pluto lines.

Lu Yeung - Bank of America - Merrill Lynch

So, does that mean that you have actually 1100 megawatt capacity?

Zhengrong Shi

Yes.

Amy Zhang

Can you repeat your question again?

Lu Yeung - Bank of America - Merrill Lynch

Can you hear me? How much of the capacity will be retrofit to Pluto by the end of third quarter, total of Pluto capacity.

Zhengrong Shi

By the end of the year, we will have 300 megawatt Pluto capacity.

Lu Yeung - Bank of America - Merrill Lynch

So, when you say full utilization in July, does that mean that your total capacity minus the Pluto capacity?

Zhengrong Shi

Yes, but I will say Pluto capacity like it was still ramp up process. Yes, if we can fully utilize this 100 megawatt capacity now, we ship much more because we are seeing ramp up process.

Lu Yeung - Bank of America - Merrill Lynch

I see. One more question that Dr. Shi mentioned about feed-in-tariff could be as high as RMB1.5. Can you share with us your thoughts on how the feed-in-tariff will be carried out in China, is it based on (inaudible) prices, some of the resources or are we going to tap just one rate between 1.09 to 1.5?

Zhengrong Shi

I think it is range, because we believe it is unlikely the feed-in-tariff will be lower down 1.09. And but again it is also unlikely to grow above 1.5, and it probably is somewhere in between.

Lu Yeung - Bank of America - Merrill Lynch

So you think there will be only one fixed rate, when they release the feed-in-tariff subsidy?

Zhengrong Shi

I think so yes.

Operator

Your next question comes from the line of Nitin Kumar from Nomura Singapore. Please proceed.

Nitin Kumar - Nomura

Hi Dr. Shi, Amy. Just wanted to check on that operating expense as a percent of sales. Did I hear it right that it is going to expand again in 3Q?

Amy Zhang

Yes I think moderate increment would be the term I would use for the Q3 outlook for OpEx.

Nitin Kumar - Nomura

That is that percent of sales. So basically from 12% this quarter, it would move to say between 12% to 13% in next quarter. Would that be a right --

Amy Zhang

Yes I am talking about percentage OpEx percentage over revenue, and also especially after the production line commencing operation for example in thin-film plant. We also expect some OpEx arising from that, because there wouldn’t be any sales yet.

Nitin Kumar - Nomura

All right.

Amy Zhang

And also Europe sales team will be expanded with new people joining, and in rest of Asia as well.

Nitin Kumar - Nomura

All right. And how do you see the investments in Nitol and Hoku. When should we actually look at any positive benefits coming from there?

Amy Zhang

In our investments in Hoku and Nitol?

Nitin Kumar - Nomura

What are the project status on those two? Because I understand Hoku is quite delayed project and just wanted to have a project update on those two.

Amy Zhang

I think Hoku...

Zhengrong Shi

Stuart, can you update on that.

Stuart Wenham

So, with the Hoku investments we are continuing as an equity investor as well as recipient on long term supply agreements. I think you had recently renegotiated the contract a bit, and so we remain cautiously optimistic that the project will be successful.

Nitin Kumar - Nomura

And for Nitol?

Stuart Wenham

And for Nitol, we did receive a fairly large injection of funding earlier in the year, which puts them well on track to complete their large scale reactors. They already have an initial reactor up and running and they are producing quantity and we've taken some quantity from them this year. And so we also remain relatively optimistic about Nitol as well in terms of having production output to a pretty large degree starting next year.

Nitin Kumar - Nomura

And just one final question for Amy, if we are looking gross remaining stable, operating expenses going up. First kind of with the highlight the in 4Q we might actually have, I mean on the operating level you might have a lower margin compared to what we have in 2Q. I mean how should we look at in terms -- how should we look at in 2010? Should we look at OpEx going down, operating gross margins going up, how should we be doing that?

Amy Zhang

I think we better look at the percentage number instead of the absolute value of that process and operating margin. I think in longer run operating margin and also that process in term of percentage would be gradually coming down, towards the end of '09 and of Q1, 2010 as well.

Nitin Kumar - Nomura

I understand.

Amy Zhang

And I think, if you look at the operating expenditure, total percentage versus revenue. I think that would stay relatively flat, it is not going up gradually or slightly. I think we will do our best to control the total OpEx if the top line expansion is not as optimistic as we expect.

Nitin Kumar - Nomura

I understand. Thanks a lot.

Operator

(Operator Instructions). Your next question comes from the line of Sunil Gupta from Morgan Stanley. Please proceed.

Sunil Gupta - Morgan Stanley

Thanks for taking my questions. Amy I wanted to get a better understanding of your inventory, could you help me understand the breakup of inventory in terms of finished goods, wafers and work-in-progress and other materials for those four categories?

Amy Zhang

We normally don't go down to that detail, but I definitely we can give you some ballpark numbers. Finished product takes more than 70% of the total inventory.

Sunil Gupta - Morgan Stanley

Okay.

Amy Zhang

Sorry?

Sunil Gupta - Morgan Stanley

And how about wafer raw materials.

Amy Zhang

I think raw material takes mid-teen percentage of the total inventory.

Sunil Gupta - Morgan Stanley

Okay. And then a question for Dr. Shi. Given that you have renegotiated most of your wafer supply contract and a number of large business suppliers said that the wafer pricing has dropped to $1 or below $1. Why is it taking so long for Suntech to bring down its blended wafer cost, because it seems like in Q2 your cost was above $1, and just looking at your guidance for ASP and margins, seems like even in Q3 you might be about $1, and I'm just trying to understand what's delaying this reduction in your silicon cost?

Zhengrong Shi

Yeah, I think silicon wafer cost in our case is actually a reduction in price that occured in the beginning of Q3.

Sunil Gupta - Morgan Stanley

Okay. And would you expect it to go below $8 per watt in Q3?

Zhengrong Shi

Not yet.

Sunil Gupta - Morgan Stanley

Okay, all right. And then just shifting over to Pluto, where you have lowered your shipment expectation for this year from 50 megawatts to about 15.

Zhengrong Shi

Yeah.

Sunil Gupta - Morgan Stanley

I understand that there were some delays in.

Zhengrong Shi

Yeah, mainly some equipment like we did not foresee that, but for Pluto I think the good thing is like we initially saw the challenging part in sales side, but in the sales side it's quite good and just like the module requires more [automations]. So I think we can get under control fairly quickly.

Sunil Gupta - Morgan Stanley

And if I was to just connect this is earlier what Rob was asking with your Pluto capacity of more than 300 megawatt as you exit this year and then I guess you will convert for more next year. It seems like, and if you are going to get full utilization of that, you could do 300 to 400 megawatts of Pluto next year, is that reasonable to expect or the utilization…

Zhengrong Shi

Preferably it's our intention. That still is our intention, because all our customers they walked [closer], they are eager to receive Pluto products.

Operator

Your next question comes from the line of Sam Dubinsky from Oppenheimer. Please proceed.

Sam Dubinsky - Oppenheimer

Yeah, hi guys, I have several question. Since GSF won't pay you until year-end, does that mean that the 40 megawatt you sold to them won't be installed in time to take advantage of this year feed-in-tariff. If so will you have take account receivable charge? Then I have couple of follow ups.

Zhengrong Shi

Actually they already started serious work on the ground, and once they receive the funds after this holiday season I believe they still intend to get it done before at the end of the year, because as they said, they still want to catches the high feed-in-tariff of the year.

Sam Dubinsky - Oppenheimer

Okay. And if I recall correctly you have commitment to invest up to €258 million in GSF, how much have been invested as of Q1 and how much invested in Q2 and I have one last question.

Zhengrong Shi

We do not invest in anything since the beginning of the year so far.

Sam Dubinsky - Oppenheimer

Okay. And then also in Q2, what percent of your sales was not module and how much came from equipment or systems.

Amy Zhang

Oh, it's actually quite trivial. Majority of the revenue is generated from the core business which is wafer-to-module business, and all the others added up together is not higher than 10 million.

Sam Dubinsky - Oppenheimer

So that’s 5 to 10 million a quarter or 10 million?

Amy Zhang

10 million in a quarter.

Sam Dubinsky - Oppenheimer

10 million. Okay, great. Thank you.

Operator

Your next question comes from the line of Kelly Dougherty from Macquarie. Please proceed.

Kelly Dougherty - Macquarie

Hi. Thanks for taking my call. Just a quick follow up on a previous question. I'm wondering if you can quantify what you think your premium is relative to some of the other publicly traded Chinese companies. Your module premium.

Zhengrong Shi

Definitely we can get some premium price from our customers and maybe around 10%.

Kelly Dougherty - Macquarie

Do you think right now you're selling at a 10% premium to like a Yingli or something like that, is that the base that do you are --?

Zhengrong Shi

We don’t know that particular company, but we believe according to our customers the indication is around 10%.

Kelly Dougherty - Macquarie

Okay. And do you think that that’s sustainable going forward as they start to price more aggressively are you assuming that that premium starts to narrow?

Zhengrong Shi

Well, we still believe that we can receive some premium price, and lots of percentage it depends on market situation.

Kelly Dougherty - Macquarie

Okay. Then I'm hoping that maybe you can give us a little bit of insight into what margins look like or how you're thinking about them geographically and maybe the difference between Europe and then US and China, from maybe a margin perspective?

Zhengrong Shi

I would say apart from China, the price across all the regions are pretty similar at the present time, and then for China ASP is lower. So, lower than the average.

Kelly Dougherty - Macquarie

And in kind of ballpark on how much lower or you know if you are going to earn let's say 20% margin in the US and Europe, is it going to be 15%, 10% in China.

Zhengrong Shi

In China this price is really hard to sort of, how to put it, quantify, I'll give you the statistic is like significant because the market is still too small, and the majority of the business is down by bidding process.

So I think like all companies bid for a project, not necessarily based on like this sort of market condition or market situation. So sometimes they are more likely to promote the brand or get the recognition by government and so on.

So I think it's hard to quantify this price in terms of percentage.

Operator

Your next question comes from the line of Prava Marchinof from Raymond James. Please proceed.

Prava Marchinof - Raymond James

Hi, two quick questions about your US strategy. First you mentioned that you have two gigawatts of proposals with Gemini. Assuming hypothetically all of those were accepted, what would be the timeline for actually doing those installations?

Zhengrong Shi

Steve?

Steven Chan

Just to clarify, Prava, the 2 gigawatts is not just with Gemini, it's a combination of Gemini as well as other project initiatives that we are working on with other customers, and so the timeline of that would be between 2010 and 2013.

Prava Marchinof - Raymond James

That's helpful and then a follow up on that. You mentioned the two potential sites for the US manufacturing facility, but have you decided what the capacity of that facility will be?

Steven Chan

We are still sizing facility based on some market analysis that we are doing about the addressable market for the modules that will come out of that facility. And so what we are doing right now is, we're assessing the demand environment and we're also working in our headquarters and we will see essentially like an automated pilot line facility that will enable us to set up the facility in a cost-effective manner.

So, that product line will be line like between 30 to 50 megawatt. And so, it would be fairly modular, and we could expand to the extent that we see demand increasing.

Operator

Your next question comes from the line of Jed Dorsheimer from Canaccord Adams. Please proceed.

Josh Baribeau - Canaccord Adams

Hi, thanks for taking the questions. It's actually Josh Baribeau for Jed. You touched on it a little bit when you were talking about how the traditional modules, the pricing is coming down to the point where the thin-film are more of a 7% type efficiency is becoming less competitive.

Can you just give us a little bit more color on why you continue to pursue this strategy, and especially given the high CapEx cost that's required to complete this facility?

Zhengrong Shi

I think about one-and-a-half years ago, or two years ago, when we announced this initiative to investors, we made it very clear. I want motivation to pursue this direction and we do see there is a potential, huge market opportunities for the BIPV thin-film product.

So during the last couple of years because of targets of supply of silicon. So people sort of started shipping some [Indian] silicon product into market and they were well received because of lack of product.

So I think from beginning we always thought our intention is to try to really make BIPV product. So I think I mean like now the market condition is changing and we still pursue our original plan very aggressively.

Josh Baribeau - Canaccord Adams

Okay. Just on a follow up. So if you are mainly targeting BIPVs that will clearly not include those large 5.7 square meter panels, is there a risk to that equipment that you've purchased that produces those panels to be written down.

Zhengrong Shi

I think the panels are at a unique advantage for us to pursue this direction.

Josh Baribeau - Canaccord Adams

Okay, I will pass it on.

Operator

We are now approaching the end of the conference call. I would now turn the call over to Suntech's Chief Executive Officer, Dr. Shi for his closing remarks.

Zhengrong Shi

Thank you for joining us today, and please feel free to contact any of our IR representatives for any other question. Thank you. Have a nice day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Suntech Power Holdings Co. Ltd. Q2 2009 Earnings Call Transcript
This Transcript
All Transcripts