Trina Solar Ltd. Q3 2009 Earnings Call Transcript.

Nov.19.09 | About: Trina Solar (TSL)

Trina Solar Ltd. (NYSE:TSL)

Q3 2009 Earnings Call

November 19, 2009; 7:00 am ET

Executives

Jifan Gao - Chairman & Chief Executive Officer

Terry Wang - Chief Financial Officer

Sean Tzou - Chief Operating Officer

Thomas Young - Director of Investor Relations

Analysts

Ming Shu - Piper Jaffray

Lu Yeung - Merrill Lynch

Kelly Dougherty - Macquarie

Rob Stone - Cowen & Co.

Vishal Shah - Barclays Capital

Gordon Johnson - Hapoalim Securities

Sanjay Shrestha - Lazard

Operator

Good morning. My name is Christy, and I will be your conference operator today. At this time I’d like to welcome everyone to the third quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Now, I would like to turn the conference over to Mr. Thomas Young, Director of Investor Relations; you may begin sir.

Thomas Young

Thank you, operator. Hello and welcome to Trina Solar’s third quarter 2009 earnings conference call. This is Thomas Young, Trina Solar’s Director of Investor Relations. You can follow along with today’s call by downloading the supplemental presentation which can be found on the investors section for Trina Solar’s website at www.trinasolar.com.

With us today are Trina Solar’s Chairman and CEO, Jifan Gao; Chief Financial Officer, Terry Wang; and Chief Operating Officer, Sean Tzou. Before I turn the call over to Mr. Gao, may I remind our listeners that in this call, management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions.

Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company’s filings with the Securities and Exchange Commission.

In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 19, 2009. Trina Solar assumes no obligations to update these projections in the future as market conditions change. For those unable to listen to the entire call at this time, a recording will be available via webcast for 90 days at the investor section of our website at www.trinasolar.com.

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

Jifan Gao

Thank you, Thomas and good morning everyone. We are very pleased with the results to our third quarter performance, which we believe will affect our increased market shares in key solar markets worldwide. We achieved the highest shipment volumes and net income in our company’s history and beat our guidance in shipments on the gross margin.

We are focused on cost of leadership, price quality, and improving customer service as it reached our market position. In the third quarter we continued to improve our cost structure and have reduced our blended non-silicon cost to $0.82 per watt in Q3 from $0.85 per watt in Q2.

We launched it as a center for excellence to ensure a current label of the quality assurance and testing solution for our products. In an ongoing performing tester conducted by Australia’s National Solar Research Center, our panel’s product to produced the basic performance value compared to modules from leading European Japanese and American brands.

We have vast our global operating structure by the establishment of our regional sales and operating headquarters in Europe and the North American to support these effects. Q3 highlights include has following; providing to a new sales agreement with established international PV and energy development companies such as, Kerself and PROINSO, which affects significant shipment volume in the first quarter 2010. We continue to see strong demand in the present fourth quarter and first half of 2010 from an increasingly diversified customer and country sales mixed in established and a new key markets.

We have strengthened our balance sheet with successful completion of the following product offering of $5.175 million ADS. We have also received a five year syndicated credit facility for our East Campus capacity extension project. As our new East Campus facility, we are ahead of schedule and about 150 megawatt during Q4 to reach the year end target of 600 megawatt of cell and module capacity by the end of 2009. We have assessed of Trina Solar business model and increasing product efficiency, we are in best position to capture the long term growth of the industry.

With that, we would like to give the call to our CFO, Terry Wang to share our excellent third quarter financial results.

Terry Wang

Thank you Mr. Gao and welcome to everyone participating in today’s call. At this time, I’d like to brief you on our financial results for the third quarter of 2009, as well as provide insight. We are very pleased with our strong third quarter results, which saw our company’s record shipment volume and a net margin on top of a significant growth margin expansion. We have also significantly improved our balance sheet by way of our successful follow on offering, the finalizing of long term credit facility for our East Campus expansion and efficient management of inventory balances.

Despite of an anticipated decline in average selling price, we continue to reduce our manufacturing cost at fast pace both in silicon and non-silicon base. As a result, our third quarter gross margin expanded. With the macro economic environment improved and a strong demand for our product due to our growing brand recognition, our sales in the third quarter exceeded our guidance as we nearly doubled our shipment sequentially.

In terms of fund raising during the quarter was successfully completed our follow on offering raising net proceeds of approximately a $143 million. Secondly, we announced our five year syndicated loan facility of approximately $304 million to support our East Campus capacity expansion project.

Our total net revenue in the third quarter was $249.7 million. Total shipments were approximately 123 megawatt, a 91.9% increase sequentially. This sequential increase was primarily due to increase in our brand name and market penetration in the major European markets, improved customer access to PV system financing and increasing number of government incentive programs for solar energy project in Europe, North America and Asia.

Gross profit was $71.1 million in the third quarter, an increase from $41.2 million in the second quarter. Gross margin was 28.5% in the third quarter of 2009, an increase from 27.4% in the second quarter and exceeding our previous guidance of between 23.5% and a 26.5%.

Our silicon material cost declined more than 25% sequentially, which reflected changes in our long term poly supply price as a result of the effective management of long term contract and effective control of our inventory returns. Our mono and multi non-silicon cost including depreciation, decreased to approximately $0.82 per watt via our non-poly silicon cost for multicrystalline production, exclude depreciation was also reduced to $0.70 per watt.

Operating expenses were $25.6 million, or 10.3% of net revenues in third quarter, a notable improvement from 15% of net revenues in the second quarter. Operating expenses included a $3.6 million write-off of account receivables and approximately $1.2 million of share-based compensation expenses. Operating income was $45.5 million compared to $18.6 million sequentially. Our third quarter operating margin of 18.2% was a significant increase from both 12.4% in the second quarter of ‘09 and a 16.1% in the third quarter of 2008.

Net income was $40.1 million in the third quarter of 2009, increase of 112% sequentially and a 25% from the third quarter of 2008. Net income includes a foreign currency exchange in net gains of $7.9 million and account receivables write-off of approximately $3.6 million. Net margin was 16.1% in the third quarter of 2009, compared to 12.6% in the second quarter of 2009 and 11% a year ago. Earnings per fully diluted ADS for the third quarter were $1.29, which include effect of the accounts receivable write-off of $0.11 per fully diluted ADS.

Turning to the balance sheet as of September 30, 2009, we had about $384.8 million in the cash and cash equivalents and our restricted cash, an increase from $203.9 million on June 30. Our working capital balance was $250.4 million. Our total bank borrowings were $381.3million, which includes $24.3 million of long term borrowing.

As of October 31, the company’s total credit lines including the long term syndicated loan facility increased to approximately $850 million, of which approximately $280 million are in used available credit lines. This brings us to our guidance for the fourth quarter and our fiscal year 2009 as follows.

For the fourth quarter 2009, we expect a shift between a 145 to a 165 megawatt of our PV modules, we believe our gross margin for the fourth quarter were likely to be between 25% and the 27%. For the full year 2009, the company expects the total PV module shipments of between 380 to 400 megawatts, compared to our previous guidance of between 350 to 400 megawatts.

One year ago, during the time of a macro economic uncertainty, we stated our focus was physical management involving working capital management, cash balance preservation, and the prudent demand driven capital expenditures, with ultimate goal to strengthening our balance sheet to emerge into 2009 as a healthier and stronger global solo company. As we built out our new East Campus, we’ve increased our investments in sale and module capacity to exceed our new invest in the wafer capacity, this will allow us to meet increased demand for our modules from a growing customer portfolio.

In summary, it is important to our firm the business strategy is supported by our belief in our abilities to continually meet or exceed our announced goals to reduce our non-silicon manufacturing cost for our core silicon destocks to module manufacturing. Thus we all have to sustain a strong companywide gross margin, going forward, despite the need for provision of wafer to be external source driven by customer demand.

I’d like to turn the call over to our COO, Sean for some closing comments. Sean.

Sean Tzou

Thank you, Terry. Hello to everyone with us on this call today. To summarize, we are extremely pleased with execution of our overall operations in the third quarter, which was highlighted by our sequential growth in shipment of approximately 92%. Our record shipment came from an increasing diversified customer and geographic sales mix in traditional and new PV markets, which give us increasing visibility into 2010.

We review of our year-to-date operations. We’ll reiterate its expectation to reduce our 2009 non-silicon cost by between 15% to 20% through specific lean manufacturing, and technology initiatives. Our commitment to quality was further advent by the launch of our on side Center of Excellence and in house test lab which allow us to test new and existing products and very adoption of new materials by using advanced highly accelerated stress test systems.

To assure our product quality and performance over the 25 years warranty period and lastly, we also developing an exciting group of product applications, which are summarized in our new release. Looking to 2010, we continued to see strong demand in the first quarter and second quarter. This visibility includes approximately 70 megawatt for each of first and second quarter for the two recent announced major contracts involving Spain and Italy, as well as other significant volumes linked to Germany.

The newer market contributing to this demand includes the Czech Republic, Israel, and the Netherlands, the U.S. as well as our Domestic Chinese market segments. For the U.S. market, we are responding to an increasing number of inquiries from system integrator and project developers as well as the EPC companies addressing both smaller scale projects as well as linked scale commercial to utility scale projects.

The U.S. PV distributors are also realizing our value proposition offered of which a selected queue will be added to our existing distributor portfolio. To meet our increasing market shares, we have successfully launched the commercial production as our new East Campus facility, which we are ahead of schedule to add 150 megawatt of module capacity during the fourth quarter.

Our present planning target is to achieve a total sale of module production capacity of between 850 megawatt and 950 megawatt by the end of 2010. This range however, may ultimately be adjusted based on our ongoing monitoring of sales event going forward. Finally, to further differentiate our business model to sustain our long term manufacturing cost leadership in 2010.

We look forward to receiving initial logistic and efficiency benefit from our first two supply partners at the Changzhou Trina PV Park, our strategic initiative that is to co-locate with our manufacturing campus. We believe this initiative will enable us not only to accelerate the manufacturing and product development cycles, but will lower our inventory and logistic overheads by also serving as a major R&D test pad to evaluate advanced heavy material technologies.

We that, we will be happy to open the calls to your questions, operator.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Ming Shu - Piper Jaffray.

Ming Shu - Piper Jaffray

Your Q4 shipment guidance is very impressive, seems like you guys are taking market share. So can you give us some more color on the Q1 shipment trend? If possible, 2010 shipments gross outlook?

Terry Wang

Following the strong quarter in Q3 and we’re experiencing strong continuous sequential growth in the fourth quarter of this year. Looking for next year outlook, we still given the visibility that we have so far, indicated our strong demand continuously at least the half year of next year. We are looking for the demand right now is actually, is above 350 megawatt for the first six months of next year and that will give the strength of demand front. Going forward, the second half of next year, we have few building the visibility and once the visibility build up and we’ll release give us to the capital markets.

Ming Shu - Piper Jaffray

So a follow-up question, the Q4 gross margin guidance is 25% to 27%, which is a sequential decline of Q3. Can you give us some color? Do you expect more than normal ASP decline or what’s the reason for that?

Terry Wang

Actually, it’s not sequentially decline, if you look at the guidance we gave out in the third quarter, which is between 23.5% and 26.5% and this time, actually if we use that as reference will build up in sequential growth with a certainty and above middle range of 20s, that’s why we committed to the street, and we were sustainable our gross margin and mid of 20s, but the reason that we put in the conservative view is, we have to pickup some of the ASP in the market that might be really uncertain, but so far we relatively okay, but still that can also we do have, small portion that we’ll built out for outsourcing that’s number one.

Number two is, we are building up our capacity up to 600 megawatts and we are relying and it take some of the drop off wrecking off schedule of these cost that we are building into the cost. So, for the conservative view, and even firmly believe in-house cost of what of vertically integrated, we will continue beating the SP trends. So expecting to offsetting those be the cost which might coming from both capacity renting up, and portion outsourcing, but that we put a conservative view as a result.

Operator

Your next question comes from Lu Yeung - Merrill Lynch.

Lu Yeung - Merrill Lynch

Hi Terry, could you provide us with some of the outlook for your cost reduction trend next year and also some of your capacity collaboration with some of your supplier that might be setting up some wafer capacity close to your headquarters.

Terry Wang

Let me answer a portion of this question, and then going to turn to our COO for detail, and Lu as not to share you on the phone, next year as we still will stick to what we do the best, which is aiming for the cost leader in the sector by influence continuously including effectively cost reduction program in conjunction in process area with a technology innovation, also the supply chain management continuously, consolidate over this suppliers, so that contribute to continued decline of our cost.

So, we’re targeting and as non-polysilicon cost include depreciation up, down to $0.70 per watt from this year and $0.80 so that’s roughly about 13% or 15% reduction that we are looking for, I would turn this question to Sean if he still can add some of the detailed color on that.

Sean Tzou

Lu, first of all what we’re going to continue our demanufacturing supply chain and also the approach and also the wafer technology advancement, we are continue looking for the reduction of our non-silicon manufacturing cost. So, this year the Q4 we would calculate to get below $0.80 and then like Terry said, the next year, our internal target is trying to drive it to $0.70 as well.

So, we believe that our current approach is very accurate along with the new Trina PV Park and also some of the strategies suppliers we link up, that will help us further to get a better cooperation and as well as efficiency again. So, those are the things we are trying to do at this moment.

Lu Yeung - Merrill Lynch

One more question I have is, today one of your poly supplier just announce a joint venture investing in solar projects, so I just wanted to see if Trina will have some synergy there, and what are you guys planning to do in terms of further downstream.

Sean Tzou

That’s the program it’s one of the demonstration program, we are trying to do in China.

Jifan Gao

You are referring to the GCL investment, is that correct?

Lu Yeung - Merrill Lynch

That’s correct.

Terry Wang

Yes, GCL and they have the setup we signed an MOU with a PV Park here, they have a strategy to invest that in downstream area and yes they are our one of the largest supplier, and we are building partnership with them from since few years since we signed a contract, so far and the thing is synergy for us to partner continuously and we are help us continuous lower price the cost and Gao that I think that’s the synergy to that.

Operator

Your next question comes from Kelly Dougherty - Macquarie.

Kelly Dougherty - Macquarie

I’m just wondering, you seem to have pretty good visibility at least through the first half of next year and I am wondering how much of that 350 megawatt expectation is under contract or with purchase orders and how much you think will be first half versus second half weighted in 2010?

Terry Wang

The first half of next year, the visibility we’re just talking about the 300 visibility, the 350 megawatt and just want to give you some of the security that we signed a contract and we now have announced one major contract with PROINSO, 120 megawatts for three quarters and it’s close to more than 80 megawatts in first half of next year and committed up to 42 megawatts for the first quarter of next year.

The other contract that was signed with Kerself, Italy and we have visibility above 25 megawatts first question and continuous we’re going to have more commitment to us. On top of that, we have also signed some other smaller contract, relatively smaller just two contracts.

So that we will put us on a very good position that we have a large visibility or secure and be able to deliver and we’re talking about around 350 from the customer, in the process of talking with the customer demand from in the pipeline and we are in scheduling in the terms to discussion.

Kelly Dougherty - Macquarie

Then what is their pricing set for these 350 megawatts? If you could give us an idea, maybe what pricing would look like in the fourth quarter and then as we move into the first half of next year?

Terry Wang

Kelly, I want to clarify it. 350 megawatt is our visibility and we haven’t said it’s secure, because it’s too early to secure and 350 megawatt so far. In our visibility, we have and some of the contracts we’ve signed with a fixed price for the first quarter, and some of it’s with volume and commitment, and no pricing is stated, but for those contracts we’ve signed, we can see that in next quarter, which is the first quarter of next year and compared to this year, we see only moderate decline with a single digits.

I think that because of demand mostly from is actually out of our experience of diversified customer base from Italy and Spain that offsetting the shipments volumes might, because of the seasonality from Germany. So we have put out very good position in strong demand in first quarter and second quarter as a relatively moderate decline. So put us in a very good position to maintain our gross margin.

Kelly Dougherty - Macquarie

You talk about a single digit decline in the first quarter and that will be from the fourth quarter level? So maybe you could just give us a little color about what you think about pricing in the fourth quarter?

Terry Wang

At this time, it’s really hard to see average, what I’ve said in the contract that we see as stated is approximately 5% range, but we will see once we have them, more contracts signed and we’ll be able to give a more clear picture about ASP.

Kelly Dougherty - Macquarie

One quick follow-up and then you obviously have a great cost structure and you have some of your peers out there talking about perhaps moderating price aggression next year. So I’m just trying to think about what you think a reasonable margin might be for 2010 going forward, is this 25% to 27% guidance that you’re talking about for the fourth quarter? Is that a sustainable number throughout next year, do you think?

Terry Wang

We will for sure and take this the conservative view, the ASP in decline and we have a much better position to be able to handle the ASP decline with our cost structure. Our cost structure is, we’re now in leading position and we’re confident that we will maintain the leading position throughout the next year, and I believe the gross margin will be sustainable throughout the next year.

Given the cost problem running and continue with excellence in operation and our management of the inventory poly and non-poly materials and we have put up our hats, because a result of a single sight and vertically integrated and also new East Campus facility coming online, with actually upside level of operation efficiency. So put out their hat, and we firmly believe we will maintain our attractive or competitive gross margin going forward.

Operator

Your next question comes from Rob Stone - Cowen & Co.

Rob Stone - Cowen & Co.

A question relative to outsourcing, you mentioned Terry, that you’re going to be outsourcing in Q4, is that only for wafers, or well, you also have to outsource something at the cell and module level?

Terry Wang

As a result of strong demand, if we’re talking to look at there are guidance give out and we’re really stretched to limit of the capacity and we’ll have to go out to do some of the outsourcing thing. Outsourcing right now we’re talking about is, small portion of sales and also small portion of wafer, but I would say going forward, outsourcing for wafer will be a little bit going forward, normal.

So we’re going to build out flexible what’s going to integrate model, but still outsourcing is not going to be, we’re not going to be just temporarily at this quarter, and/or temporarily for one or two quarters utmost.

So we’ll be most of the going forward, just the wafer outsourcing and on top of that, and in cap on the gross margin a long term and driven by outsourcing wafer will be approximate by 2%, but we believe our cost reduction program in-house, we’ll move, the cost cut down faster than ASP, so that the cost will be offsetting the outsourcing in 2% add-on costs. So, as a result, so as results, we will maintain a gross margin for them.

Rob Stone - Cowen & Co.

Do you foresee any circumstances in the future where you might catch back up to full vertical integration, or do you feel like you want to continue to maximize market share by concentrating more on sale modules schedules?

Terry Wang

Yes, we will concentrate first one, number one, that we believe vertically integrated on business model has worked and successful and we’re good at it, where we continue to step to it, but same time, we’re facing increasing demand for our modules. So, in our case, we have to use our money in the modules. So, we put little emphasis in downstream, but we will also gradually ramp up our wafer and things as well, that’s going to be our business model, going forward.

Sean Tzou

I think Rob; one thing may be I can add to help. We are trying to take advantage of our Trina PV Park in Changzhou, so actually what we did is we invite, we did invite a few, our potential partners into Changzhou PV Park to set up the wafering facility and therefore, we will be much closer to enjoy it, the vertical integration as advantage as well as the outsourcing advantage altogether. So, this is the strategy we are trying to execute in the mid term.

Rob Stone - Cowen & Co.

Sean, you mentioned that two suppliers were already setup in the PV Park; can you mention what it is that they are supplying? Are you already having wafers co-located?

Sean Tzou

No, so these two particular suppliers, is not wafer supplier. These two particular suppliers, one is the slowly recycled supplier, which is one of the key component we have to use in order to reduce the cost and is also a very heavy logistic involved and therefore, we said the VMI program that we can enjoy all the advantage as well as the cost, second one is the glass supplier, they are doing the glass for our PV modules. They are still more in the process to also coming in.

Rob Stone - Cowen & Co.

Could you mention what you expect for capital spending in Q4, and then any kind of a range for 2010 CapEx?

Terry Wang

Yes, you can see that as of today, or as of the end of the September, we only spent about $70, less than $80 million relative capital expenditure and that because that we maintain our prudent and the cash management and by going forward, as we are ramping up our capacity we will in this course, which is third or fourth quarter, we will spend more than, $10 to $20 million in this quarter, so for the year we are expecting roughly could be approximately $20 million this year and next year as we ramping up our 850 megawatt to 950 megawatt capacity we’re expecting to spend about $200 million in capital expenditure next year.

Operator

Your next question comes from Vishal Shah - Barclays Capital.

Vishal Shah - Barclays Capital

Two questions, one is on Q1 visibility, can we talk about what your shipments will be in Q1, will be up or down from Q4 levels and secondly, can you talk a little bit about some of the work that you are doing to reduce your non-silicon cost to $0.70 per watt, it seems a bit aggressive, but can you maybe just walk around, talk about, what some of the measures, you are taking to improve your cost structure, thank you.

Terry Wang

I will answer the first question, and second question I will turn it to Sean. The first question that you are talking about visibility of first quarter of next year and at this time, we have a visibility as I stated, we have a two major contracts signed, our talks involve and more than 80, it’s close to 80 megawatts, but first for the loan and also I have some other contract we signed we’ve announced and we also have demand from the customers that in the process to secure, so pipeline in our book, is already very strong, so we do not expecting the first quarter of next year, we would decline, honestly, so we will be executing our shipment as much as we can, and subject to our capacity and outsourcing capability.

Vishal Shah - Barclays Capital

So, Q1 next year is flat, do you think?

Terry Wang

I would say, it’s a flat in a plus or minus into single digits.

Vishal Shah - Barclays Capital

What percentage of your Q1 shipments will be to Germany?

Terry Wang

This one that we had very strong in the third quarter close to 40%, and the fourth quarter relatively lower because of seasonality, but with our Spanish and market comeback, and Italy, we increase some share in our portfolio, and fourth quarter -- a first quarter next year in Germany is relatively lower, but I would say, it’s going to be about 20% at least, but keep in mind, our pre-installed contract alone up to 40 megawatt for first quarter, I mean is offsetting enough per quarter. I would say enough for the potential fall in the demand of our German market.

Vishal Shah - Barclays Capital

The non-silicon cost please?

Sean Tzou

This is Sean, on the ongoing cost reduction, as I earlier mentioned we do the lead manufacturing supply chain technology advancements, three major one and I can clearly go down a little bit detail on the technology side of the sale efficiency certainly is the biggest one, but at the same time we are looking at multiple areas as well, right for example, how to reduce the cost in the module side, I think it’s very, very important and which is we are focusing on at this moment.

We’re also looking at these different manufacturing opportunities. One advantage we actually have is we installed the MES system, which is fully in effect right now and the MES system is a shop floor system. Only the first step, we finished the installation, we actually realized quite a lot of efficiency gains.

For the cost reduction portion in reality, on the Q3 result and the forthcoming Q4 result, and probably even Q1, we will have to realize quite a lot of training cost, the ramp up cost for the new facilities, which is all inclusive in the cost speculation. So actually the actual cost reduction is quite aggressive, we setup the target on the both manufacturing end, as well as the supply chain end already. So this is especially a continuous improvement program, which I have to setup for the forthcoming couple of years.

Operator

Your next question comes from Gordon Johnson - Hapoalim Securities.

Gordon Johnson - Hapoalim Securities

Terry, I just wanted to talk to you about the operating expense line. It seems like that’s operating expense was significantly below expectations. Can you talk about what you guys did to improve that? Then I just have a couple of follow-ups.

Terry Wang

I think, operating expense and this quarter, and as a result I want to point out the second quarter we did have 5% or $5 million of write off there, but this quarter we do have $3.6 million write off. If you take those out, you will still see that regular operation related expenses. Now we managed well, especially in our G&A area that we’ll focus a lot of efforts to be more efficient to use and even we’re facing global expansion, which will be more expense related.

In fourth quarter and throughout the next year, but I would expect in the third quarter our guess is try to run some of the cost with the programs efficiently on a present basis. I think that it works, but its cutting for operating expense is not our goals. Is the more efficient to running our business is our goal. So going forward that we’re expecting to have increased our operating expense, but related to revenue, we will stick up with the current rates that going forward as the benchmark.

Gordon Johnson - Hapoalim Securities

So we should expect operating expense as a percent of sales to remain at the same percentage level, but to increase with your increased sales?

Terry Wang

Correct.

Gordon Johnson - Hapoalim Securities

That’s very solid execution there and then if you look at some of the expansions that have been announced by your customer as Canadian Solar 400 to 700 megawatts, Solarfun expanding from, I believe 500 to 700 megawatts, Yingli expanding quite aggressively, you guys are expanding quite aggressively. Do you see any potential risk in the first half to ASPs as maybe potentially market doesn’t expand along with the aggressive capacity expansions and are you guys positioned or how are you positioned to kind stay off that ASP pressure should it present itself?

Terry Wang

Capacity is always the topic for people we mind in this industry and we will see that how we will bring and the capacity, compact of a specific capacity that we always think and given this year we are running out of capacity and the demand has to drag up to also, but I heard other companies which with a high cost business model attempt to shutdown their product line.

In other words, we have to see whoever got competitive in branding in cost structure and quality. We will gain effective capacity and potential that’s supplementally lay out, but in terms of other companies, we cannot comment on those companies guidance or their aggressive plan or their ramp up plan, but we will stick to what we believe and we deliver as we delivered in the past and we continued to committed and deliver to the streets.

Gordon Johnson - Hapoalim Securities

Then one last question if I may Terry, it seems like the German Solar Industry Association made a proposition to the government yesterday of a feeding fare of cut of an additional 100 basis points to the ground mounted FIT in Germany so, that seems like a best case scenario that we’re going to get some type of cut on January 1, 2010.

So if indeed the government potentially exceeds that expectation and maybe there is a bigger cut in Germany, do you see risks that maybe some of your other market segments because it seems like you guys have done a much better job diversifying into other markets, but if indeed Germany does fall off with guys like Yingli getting 60% roughly of their sale there. Do you see potential risk in some of your other markets that you are targeting, and then again and then lastly congratulations on a good quarter guys?

Terry Wang

Thank you, I would turn this question to our COO, Sean.

Sean Tzou

Okay, yes, actually I think that we are seeing the days fee-in tariff reduction, which is regularly over the year, and also we are seeing there are some additional reason that of what we did is by building the low brands and services that actually we in the past six months I would say, we are much stronger in the market that on providing the services to the customer.

We deliver our commits and according to our commits, and according to our commits that wins quite a lot of customers trust in the past few months. So what we are seeing is, we do believe that German market is going to continue to be a great market, and the reason was very simple that we believe the IRR is going to continue to be attractive to the developers and also the end users.

Also we are looking at the new market development that would help us to diversify some of the demand as well. So, we do not see an impact to in Trina’s performance, especially for the first half of the year.

Operator

Your final question comes from Sanjay Shrestha - Lazard.

Sanjay Shrestha - Lazard

Most of my questions have been answered, but just a couple of quick ones, did you guys disclose what you expect your poly cost to be in 2010?

Terry Wang

We do disclosed the poly commitments from long term contract approximately by 80%.

Sanjay Shrestha - Lazard

What sort of a pricing do you have under those long term contracts?

Terry Wang

This varies from different contract because we have the DC Chemical, Hemlock and Wacker into sales and some of the contracts are below 55, some of those above 60 so on average bases, we’re expecting little below $60 or it should be below $60 on our average basis.

Sanjay Shrestha - Lazard

Next year your non-silicon processing costs is also going to down so, one of the question guys, what’s your thought process now, it seems like everybody is sort of bit more optimistic about ‘10 outlook, do you guys still see being a price leader and or do you see kind of being more because you can given your poly and non-silicon processing cost be even more aggressive from a pricing standpoint to gain more share. So how should we think about what sort of like the absolute minimum that you are willing to go with your gross margin numbers in terms of capturing additional market in 2010?

Terry Wang

Yes, Sanjay that’s good question I think that we’re I want to clarify that, we are a cost leader and we will consecutive we are cost leader and going forward throughout next year and going forward in the near future, but we are not pricing leader and because we believe with our high quality product in our excellence to improving our service in local countries as we expand out globally, with the local on the ground support, which is now under pricing premium, but pricing strategy is not our strategy.

Of course what we will expand on market shares and we’re gaining market share not through our pricing decline, but that’s driven by our including our services and brand name, the quality product, so we continue to increase our market shares and that’s our strategy.

Sanjay Shrestha - Lazard

One last question guys anything you guys could share with us in terms of what is the NDRCs view on the national feed in tariff could we still expect to get back before year end or is that more of a March 2010 event?

Sean Tzou

I think it’s everybody’s question and we certainly are hoping the government will be able to come out with feed in tariff by the end of this year, but it will be more likely to be early next year at this moment.

Operator

At this time I would like to turn the conference back over to Mr. Thomas Young for your closing remarks.

Thomas Young

Okay, thank you operator and on behalf of our entire Trina Solar Management Team, we want to thank you again especially for the early hour. If you have any interest to contact us please do so through our IR address. This concludes Trina Solar’s third quarter 2009 earning conference call. Operator, you may now disconnect.

Operator

This concludes the conference call you may now disconnect.

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