LDK Solar Co. Ltd. Q3 2009 Earnings Call Transcript

LDK Solar Co. Ltd. (LDK)

Q3 2009 Earnings Call

November 23, 2009; 8.00 am ET

Executives

Xiaofeng Peng - Chairman & Chief Executive Officer

Jack Lai - Chief Financial Officer

Xing Tong - Chief Operating Officer

Dr. Yuepeng Wan - Chief Technology Officer

Pita Christensen - Investor Relations

Analysts

Sunil Gupta - Morgan Stanley

Vishal Shah - Barclays Capital

Sanjay Shrestha - Lazard Capital Markets

Jesse Pichel - Piper Jaffray

Emily Lu - Johnson & Johnson

Sam Dubinsky - Oppenheimer

Edwin Mok - Needham & Co.

Hendi Susanto - Gabelli & Co.

Paul Leming - Soleil-Princeton Tech

Sunil Gupta - Morgan Stanley

Presentation

Operator

Ladies and gentlemen, welcome to the LDK Solar’s third quarter conference call on the 23, November 2009. Throughout today’s recording presentation, all participants will be in a listen-only mode. (Operator Instructions)

I would now hand the conference over to Pita Christensen. Please go ahead madam.

Pita Christensen

Good morning and thank you for joining us on today’s conference call to discuss LDK Solar’s third quarter 2009 financial results. This call is being broadcast live over the web and can be access on the Investor Relations section of LDK Solar’s website at www.ldksolar.com for 90 days.

On today’s call are Xiaofeng Peng, Chairman and Chief Executive Officer; Jack Lai, Chief Financial Officer; Xing Tong, Chief Operating Officer; and Dr. Yuepeng Wan, Chief Technology Officer.

Before the market open in the U.S. today, LDK Solar issued a press release discussing results for the third quarter 2009. We also filed a press release on Form 6-K with U.S. Securities and Exchange Commission. This press release is accessible online at the company’s website, as well as the SEC’s website or you can call The Blueshirt Group at 415-217-7961 and we will fax or e-mail your copy.

We would like to remind you that during the course of this conference call, LDK Solar’s management team may make projections or other forward-looking statements, providing future events or the future financial performance of the company made pursuant to Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Although LDK Solar believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected. We refer you to the documents that LDK Solar files from time-to-time with the SEC, specifically the company’s most recent Form F-20 and any Form 6-Ks. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Now, I’d like to turn the call over to Mr. Jack Lai, Executive Vice President and CFO to go over LDK Solar’s third quarter 2009 financial results. Jack.

Jack Lai

Thank you very much Pita. Good afternoon and thank you for joining us to discuss the results of LDK Solar’s third quarter of 2009. Net sales for the third quarter were $281.9 million, up 23% from $228.3 million in the second quarter. Wafer shipment, including our processing service business increased to 38% sequentially to 320.5 megawatts.

Wafer sales, which exclude the processing services business increased from 182.2 megawatts in the second quarter to 257.6 megawatt in the third quarter. The average selling price was $0.91 per watt. Sales returns met in the third quarter of 2009 were $2.1 million. OEM shipment was 62.9 megawatts in the third quarter.

Modules shipments were 9.5 megawatt in the third quarter. By geography, revenue was 25% generated from China, 61% from the rest of Asia, 12% from Europe and 2% from North America. Our top 10 accounts in the third quarter accounted for 76% of our total revenues reach the top three accounts combined accounting for 40%.

Gross margin in the third quarter was 20.1%, as we will able to negotiate lower prices with some of our polysilicon material suppliers, we recognized a $13.4 million in the third quarter from the positive reversal of the provision for loss and firm purchase commitment of polysilicon materials we have taken in the second quarter. Excluding this item, the underlying gross margin was 15.4%.

Our wafer conversion cost was $0.31 per watt and average cost of silicon we consumed was $79 per kilogram. Operating expenses were $19.7 million in the third quarter down from $29.5 million in the second, which had reflected the write-down of prepayment to suppliers of approximately $9.2 million. Our share based compensation expenses were approximately $3.2 million in the third quarter.

Operating margin in the third quarter was 13.2%. Government subsidies increased to $13.0 million. This reflects the receipt of final approvals for subsidies that have been approved in Q-Cell in prior quarter as well as the stop of the polysilicon plant. Net income for the third quarter was $29.4 million and earnings per diluted ADS were $0.27. Depreciation and amortization was $17.8 million for the third quarter.

Capital expenditure was $187.1 million in the third quarter, of which $35.5 million was for the wafers and $150.9 million for polysilicon. Our wafer production capacity at end of the third quarter was 1.7 gigawatts and we completed the first two train of the 15,000 metric ton polysilicon facility for total installed polysilicon capacity of 11,000 metric tons.

Poly in a heavy investment of the past two years, we expect our capital expenditure to be more modest going forward. For the first quarter, we expect capital expenditure to be around $100 million. For 2010, we expect capital expenditure to be in a range of $200 million to $300 million. Company headcounts was 13,705 at the end of the third quarter.

Now turning to the balance sheet, we ended the third quarter with $58 million of cash and cash equivalents. We continue to operate with negative net working capital. Accounts receivable began to 80 days, while our payables were equivalent to about 63 days. Even there’s increase slightly to $480 million including a $25 million non-current portion. This reflects very, that we are storing for future use, while we ramp up the capacity of our slowly recovery system.

We believe this is more cost effective than procuring materials from third party providers. Our polysilicon inventory at end of the third quarter was approximately 20100 metric tons at an average cost of $75 per kilogram, reflecting procurement of material during the third quarter under previous purchases commitment.

We expect the cost of train lower as we saw small material at spot prices and realize the benefit of in house production. There are two energy in which we hold a 51% ownership interest, this in the process of marketing to third party investors of the 41 megawatt project, which has been completed. We do not intend to invest in efficient of projects. Total debt decline slightly to $1.8 billion including $1.1 billion of short term bank borrowings and the $300 million of long term bank borrowings.

We are working with our China based banks to replace short terms loans with long term loans. Since September 30, we have refinanced around $120 million short term loans with long terms loans. On November 20, we completed a sale of 15% minority interest in the company holding the 15,000 metric tons polysilicon project to Jiangxi International Trust and Investment equivalent of $290 million.

We will continue to evaluate the private and public financing opportunities for our polysilicon business as we achieved operational milestones. We may also paid additional funding options for LDK Solar including the shelf registration we file during the second quarter of this year as well as other short term and long term sources.

Now, let me turn the call to Mr. Peng, our Chairman and Chief Executive Officer. Mr. Peng.

Xiaofeng Peng

Thank you, Jack. The third quarter was a strong quarter for LDK Solar across Hill PHOENIX metrics. We made significant progress in strengthening both our top line and bottom line financial results. Revenue and wafer shipments were about original expectations and importantly, we return to profitability this about for increase in gross margin and our weighted income. Our strong results were driven by our ability to leverage our cost competitive operations to capitalize on the solid rebound of demand for our solar wafers.

During the quarter, we saw solar industry dynamics is improving global economic conditions and photovoltaic environments for solar project financing in a number of market. They are working diligence to position the company, particularly to cut your future opportunities. We have taken significant core steps to diversify our business and increase into industry collaboration to expo new markets on the geographic.

Looking ahead, we see demand for solar insolation growing strongly in various countries and regions including multi-country in Europe, the U.S., Canada, Japan, China and other countries in Asia. We are believing a change for our wafer customers, particularly in Europe and U.S., to ship modules to them instead of wafers.

We expect our module shipment to increase significantly in coming quarters, as we rebound to the demand from customers and we expect wafer and module shipment, there will be 1.6 to 1.7 gigawatt in 2010. As Jack discussed, we remain dedicate to exploring a variety of option to strengthen our balance sheet and improve our liquidity.

I will now turn the call over to Sam Tong, our President and Chief Operating Officer, to provide a manufacturing operations update. Sam.

Xing Tong

Thank you, Mr. Peng. Let me start with updates on our wafer business. We are pleased to a rebound in demand levels in the third quarter, at the same time our focus continues to be improving our cost structure, which means optimizing productivity, yield material cost and realizing economics of few.

Our wafer production yield increased by 4% growing and 1.6% for slighting. We expect our labor cost to decline by 5% to 10% during the next two quarters as we optimize production management. We continued to work with to reduce wafer techniques in line with individual customers need. We had significantly reduced manufacture losses with the improvement of surface grinding, process, and flattening process and techniques.

Our 2,000 metric ton capacity flat recover system is now fully operational and we look forward to sub sequentially savings that this system will bring with us. We’re in towards our goal of reducing wafer conversion cost to as low as 20% to 25% per watt. We expect to reach 1.8 gigawatt wafer manufacturing capacity by the end of the year. First our investment will be revealed in response to demand as well as our balance sheet.

Now let me move onto our polysilicon plant. Our 1,000 metric ton facility continue to ramp up production. During the third quarter, we produced 60 metric tons of polysilicon and are currently producing to 60 metric tons of silicon per month around the cost of about $50 per kilo. We anticipate that the facility we will ramp up to the demand capacity by the end of the first quarter.

Our principal growth is to optimize the process to bring the production cost down to a reasonable level. We commenced trail production at the first 5,000 metric tons train of the later facility in the third quarter and expect to end the commercial production at the end of the year. The second train reached mechanical completing in the quarter and expected to commence production in the coming months. We have finished over 93% of the equipment installation for the 15,000 metric tons product.

The third train is expected to reach mechanical completion in the first half of 2010. We expect to reach full capacity of 16,000 metric tons by the end of 2010. Our initial target for the polysilicon production cost, from the 15,000 metric tons facility is USD 40 to USD 50 per kilo, which I guess to reduce this to 25 per kilo by the end of 2011. We expect the polysilicon production in the first quarter to be between 150 metric tons to 180 metric tons.

Now, let me turn the call to Dr. Wan, our Chief Technology Officer. Dr. Wan, please.

Dr. Yuepeng Wan

Thank you, Sam. Let me now bring you update on LDK Solar’s research and development program. We continue to make significant progress on number front many of which optimize our production processes. Leading to cost savings, this is a integral focus for our business. I would now like to discuss some of our recent achievements.

First, as central governments granted LDK Solar, the opportunity to build the national research center for our photovoltaic, engineering and the technologies. This is the only national research center in photovoltaic area in China and government partnership with LDK Solar represents recognition of our ongoing R&D efforts and achievements. With the joint financial support from the government and LDK Solar, the center is expected to be completed within three years.

Second, our research efforts on the recycling of feedstock materials and enhancement of ingot quality materialized into significant improvements of wafer quality, usage of recycled materials and yield of ingots. Ingot yield for enhanced activity requirement has increased by 4%.

Third, our research improving ingot quality and reducing the cost for ingot costing enabled us to repute the current process time by about 10% without impacting the ingot of wafer quality. This will reduce the production cost and energy consumptions for ingot production. In the meantime, we are also working on the development and a commercialization of wafers for production of high efficiency solar cells.

As I now, turn the call back over to Jack Lai.

Jack Lai

Thank you, Dr. Wan. Based upon current business conditions, we expect our fourth quarter 2009 wafer shipment to be in a range of 320 megawatt to 340 megawatt and the module shipment to be in a range of 20 megawatt to 30 megawatt. We expect revenues for the fourth quarter of 2009 to be in a range of $280 million to $310 million.

Now, we’d like to open the lines for questions. Operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Sunil Gupta - Morgan Stanley.

Sunil Gupta - Morgan Stanley

I have couple of questions, first on your silicon usage in Q3 on a per watt basis, if you could help us understand how much did you consume? Second, I would like to know what kind of ASP trends are you seeing especially going into Q4 and Q1 and then I have two minor questions on balance sheet perhaps I can follow-up later.

Xing Tong

First of all that the silicon consumption now for Q1, we consume between about 6.3 to 6.5 grams per watts. For ASP currently we see in the Q4, that for wafers around $0.85 or $0.90 the Q1, we see less similar change and they now and we see the demand for wafers of I assume and the visibility for the sales of Q1 for wafer also very strong for ASP for the module in Q4 is around $1.80 to $2 per watt and you will be see a similar inch in Q1 also.

Sunil Gupta - Morgan Stanley

Balance sheet questions that I have for Jack perhaps, I notice that there is a big movement on your customer advances from long term advances to short term. So just want to understand what’s causing that movement or reclassification? Then Jack you mentioned very quickly some of the write-offs and write backs that you had in Q3 and I miss those numbers, so if you could please repeat those?

Jack Lai

Concerning the prepayment, because we have some ongoing discussions with Q-Cells as we have a court order to set to this issue with Q-Cells, so from a candid point of view, we need to take of these 10 year contract deposit to move from our long term liability to the current liabilities. Actually right now we are still talking to Q-Cells on a fairly basis, so we believe in a very short period of time, we should reach agreements and these advance payments from Q-Cells should be moving back to the long term liabilities after a new agreement they signed.

Also you that you mentioned about the provision we put back into the third quarter we related to some of the purchase commitment that we had to write-down for about $9 million and because of the DOE we negotiate, vendor actually will need to reverse this provision in Q3, which we get a benefit of about $9 million as a benefit, which of course increase the gross margin in Q3 we’d just feel, I think our gross margin will be somewhere about 15.2% or so.

Sunil Gupta - Morgan Stanley

So just to understand this, there was a write back of $9 million at gross margin profit level?

Jack Lai

That is correct.

Sunil Gupta - Morgan Stanley

Was that another write-off at your OpEx level that you mentioned did I hear you talk about under the write-off?

Jack Lai

The OpEx write-off in Q2 was related to continue, as a prepayment to some of the vendors, which they didn’t believe product to LDK, so we have to write it down and that was non-recurring expenses incurred in Q2 and since this is a non-recurring expenses has been we’ll reduce OpEx to about $20 million level. So that’s a reduction due to the non-recurring expenses in the second quarter of 2009.

Sunil Gupta - Morgan Stanley

So that’s a Q2 write back?

Jack Lai

Yes, and actually Q3 was non-recurring.

Sunil Gupta - Morgan Stanley

I wrote down in number $13.4 million of some reversal in Q3. Did I hear that right? Did you mentioned, $13.4 million some reversal in Q3?

Jack Lai

So that was related to the firm purchase commitment about $13.0 million.

Sunil Gupta - Morgan Stanley

That came in at the gross profit level in Q3, is it?

Jack Lai

Correct.

Operator

Your next question comes from Vishal Shah - Barclays Capital.

Vishal Shah - Barclays Capital

Just a clarification of ASP, you said $0.91 per watt ASP. Is that a blended ASP including OEM, or is that just the wafer sale?

Jack Lai

No, that’s just the wafer sales.

Vishal Shah - Barclays Capital

Then you also mentioned non-silicon cost of $0.31 per watt, can you maybe help us understand what the cost was in Q2 and what drove the improvement?

Jack Lai

I think Q2 we were running at about $0.33 per watt.

Vishal Shah - Barclays Capital

So the improvement was just about utilization or something else?

Jack Lai

I think in Q3, our utilization was a much higher and I think Q1, Q2 was just operating from the slowdown starting end of last year. So Q3 actually, we were near capacity, so I think we are now getting back to the normal cost delivered. As our capacity, there were nobody will running at above $0.29 to $0.31 on a non-silicon cost.

Vishal Shah - Barclays Capital

You said that, you’ve converted about $100 million of short term debt into long term debt over the last couple of months. I’m just curious to know, what kind of discussions you are having with other banks and what’s magnitude of your short term debt that you’re looking to convert into long term debt? Is this long term debt, five year debt, per year can give us some color on what the long term nature of debt is?

Jack Lai

In China, still primarily the short term debt has still majority. However, I think the China based banks that they are now exploring more into the mid term, mid term means like, two to three years. So now we are able to discuss with all banks to use this longer term bank loans, which of course in the same time, also reduce the interest rate from probably somewhere 6.5% to maybe 4.5% to 5%. So from cost of capital point of view, also we got a little better in terms of a cost break.

Vishal Shah - Barclays Capital

So should we expect more of this? I mean, can you tell us, what kind of magnitude of short term debt you’re looking to convert into medium to long term debt?

Jack Lai

We have continuous discussion with our banks and of course that we continued to work with them. In the normal course of business, we renew all this short term loans for additional year, by this times that if the banker will offer two to three longer bank loan certainly that we will replace, so that we can increase the liquidity of the company’s position. In the same time, also reduce their cost of capital.

Vishal Shah - Barclays Capital

Then one last question, you said Q-Cells, you’re trying to renegotiate or try to amend the agreement. Is it just rise or something else and I believe that your volume to Q-Cells in Q3 was on almost zero, so what made up the shortfall again Q-Cells was it sales to some of your China based customers or were they some other international customers that came in and took the extra product for that you were not able to sell to Q-Cell?

Jack Lai

Our Q-Cells has been one of our key accounts and continuously actually you look Q3, they still maintain one of the top 10 accounting our business and we continue to work with them and of course that, because the market condition change and maybe some of our business model change and I think Q-Cells would like to talk about delivery schedule maybe to push out the some out of violence to later years.

Of course, I’d like to index the pricing to be more to the market and I think that the two companies actually we are working very hard to maintain very, very positive and a constructive relationship so that we can walk together and we believe, we can reach to a new agreement and it will benefit to both companies.

Vishal Shah - Barclays Capital

Just one last thing, who was already other customers that made Q-Cells shortfall in Q3?

Jack Lai

Well, as you know that I think our sales that into China and into Asia, especially a customers along Taiwan has been increasing very big and we look at the all as same settlement of pictures there in Taiwan they all increased to 40% to 50% sequentially and I think that if you look at our revenue coming from Asia and certainly is making all this big advances for our increase.

Xing Tong

Also we have increased from Korea and the Japan.

Operator

Your next question comes from Sanjay Shrestha - Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets

Again I just want to make sure, I’m still a bit confuse as to what was the net positive impact that had a positive gross margin in Q3, Jack can you just talk to that one more time?

Jack Lai

So, that gross margin in Q3 first of all that, we were expecting our ASP in Q3 to about $0.85 say to $0.90 that’s an incoming $0.91 actually. So, which is probably about 5% better than our expectation, plus I just mentioned that we have from purchase commitment reversal of a $9.2 million, which also result in maybe four, five points so combine that, we reach to the 20% level of gross margin for Q3.

Sanjay Shrestha - Lazard Capital Markets

I tell you mentioned something about $15.3 million in positive impact as well. Did you or did you not?

Jack Lai

Yes.

Sanjay Shrestha - Lazard Capital Markets

What was that?

Jack Lai

That’s a firm purchase commitment.

Sanjay Shrestha - Lazard Capital Markets

So it’s $9.1 plus $13.3 million even that’s the total of net positive reversal?

Jack Lai

No, the number was $13.4 million in the third quarter that we reversed.

Sanjay Shrestha - Lazard Capital Markets

Now second question here guys, obviously good quarter, but the balance sheet still remains bit stretched and obviously, I guess you haven’t receive the money for the 15% sale of your 15,000 metric ton poly plants. As a way to show up the balance sheet other than moving short term debt to long term debt, would you guys also consider potentially spelling off your poly business? Can you talk about what are some of the other ways that you guys are thinking as to strength the balance sheet?

Jack Lai

Sanjay, first of all that we’d receive the proceed in front of 15%, actually last week, what’s not reject on the September 30, but the money of $200 million already received. Secondly, of course that we are still looking into the right model for LDK including the private and public offerings to realize better investment returns for all our investors.

Right now, I think we are still exploring opportunity to see what’s the best way to realize to obtain capital and to quickly ramp up the poly plant, so we still looking at the different options to be able to get enough capital and to accelerate the ramp up of all polysilicon operations.

Sanjay Shrestha - Lazard Capital Markets

Two last questions for me then guys. So in terms of 2010 outlook for you, I think you guys have already mentioned about the wafer pricing dynamics. How much should we the expect module sales to account for your 2010 sales at this point in time? What’s the mix of that business to look like? Second is, in-house poly, how much you expect that to contribute and two, what do you expect your overall blended poly price to be for 2010?

Xing Tong

So for 2010, we think our module shipment will be significantly increase from the Bcf, because some of our customers, they have long term wafer contract. They’ve already replaced these wafer contracts to module contracts, so this will be a significant volume. So by now we expect our shipment into certain will be 1.6 gigawatts to 1.7 gigawatts including wafer and module.

The module position still negotiating of this customers, but we think we will be around 400 megawatt to 600 megawatt, depends how we negotiate with our customer, because some customers maybe still steak this wafer shipment, but maybe some of our customer to want increase a big portion of the module shipment next year.

Polysilicon price, next year we goes our in house silicon production for the 1,000 times is already ramping very well and current production cost is around $50, so now production around $50 to $60 metric ton per month. So we’ve been increased to nearly full capacity in next one or two months and our 15,000 metric tons of polysilicon and factory festering 5,000 times already starting channel production from September.

Now, it’s very well and on schedule to full production, so we’ll be full production very soon. We believe the initial production cost, we around $48 to $50 and we’re ramping up to $25 in the next two years. So next year definitely average cost will be less than $40 to $50 next year. So this will be a significant advantage for LDK to have less average selling cost as much as below market price.

Operator

Your next question comes from Jesse Pichel - Piper Jaffray.

Jesse Pichel - Piper Jaffray

A few questions, first given the write-offs some of the polysilicon you took in prior quarters. What was the poly cost? I heard, you say $35, but what was in the inventory, what was the actual cost in the income statement, about $65, or…?

Jack Lai

$75.

Jesse Pichel - Piper Jaffray

So it will be $75 poly, a little over six grams of utilization, $0.31 processing and $0.91 wafers gets you to around 15% gross margin, is that right?

Jack Lai

That’s about right, yes.

Jesse Pichel - Piper Jaffray

Then the tolling were about 60 megawatts that I hear?

Jack Lai

Yes.

Jesse Pichel - Piper Jaffray

60 megawatts, and with respect to selling the 15% of the poly plant, congratulations on that and now that there’s an investor in that, will the poly be sold at a transfer price to the wafering operation? How that affects your gross margin potential of the wafering business, because now there’s an investor involved.

Xing Tong

Yes, then we have a mechanism that with the polysilicon, we are selling on the base on the market price is slow so we sold on a market price and for a poly business, we are think about to private equity or to a public financing into get additional finance, because most of our amounting investments in the last two year is for polysilicon. So now we want to use the polysilicon business to finance itself and we have moving very well and we’re still negotiating with many investors for the poly business.

Jesse Pichel - Piper Jaffray

Are there other potential buyers, have they expressed interest in buying a percentage of the poly plant?

Xing Tong

Yes, we are negotiating with a couple of say investors, so they have still very, very interesting so, I think if we have any progress in the near future we will announce after it will reach any milestone.

Jesse Pichel - Piper Jaffray

On the wafering side of the house, one of the ways you were going to increase your gross margin was with lower cost polysilicon, because of your production and now that you’re going have to pay the market prices, because of this JV types structure. What do you think your margins can be in the wafering business longer term?

Xing Tong

I think our wafer beliefs as you see in long run, because to still be around 20% in the gross margin, but that even we’re setting a partial of our poly business, but we still have major interest on a poly business. So the major profits from the investment, still we all go to our total beliefs, so impacting is whereas limited.

Jesse Pichel - Piper Jaffray

My last question is you had government subsidies in the quarter of about $30 million. How should we model that going forward, because that plus that charge really was the greater part of your earnings in the quarter.

Dr. Yuepeng Wan

Well, just we have been bit a more difficult because some of they are not recurring and plus that’s all the cover subsidy accounting is based on cash receipt basis and some more subsides actually related to point as a long term trend, which need to amortize overtime. So I think to a model for all income related to that cover subsides to be more difficult.

Jesse Pichel - Piper Jaffray

Other than the 13 somewhat million in COGS that was reversed, was there anything in OpEx that was reversed as well, or that was reversed only in Q2?

Jack Lai

We just had some non-recurring that we wrote off in Q2 was not recurring in Q3. Cost of reduction in OpEx in Q3.

Jesse Pichel - Piper Jaffray

What was that exactly, because it sounds like that was a vendor payment, which should have been in COGS or my mistaken?

Jack Lai

That was some prepayment, where you met through some vendors and actually those vendors are fail to deliver or they went under and we have write down the prepayment to these vendors.

Operator

Your next question comes from Emily Lu - Johnson & Johnson.

Emily Lu - Johnson & Johnson

I just wonder what would be the impact from the sale of 15% poly plant on income statement balance sheet going forward, for example, we use separate PPE in terms of wafer and poly proportion?

Xiaofeng Peng

I think that, we will create a minority interest line in both the balance sheet and the income statement.

Emily Lu - Johnson & Johnson

So what kind of percentage would that be, because it strikes me like FS sales, but not like minority equity investment? How do you guys restructure that?

Xiaofeng Peng

So we still need to consolidate, of course the total polysilicon plant to the consolidated financial statement, but we’ll create 15% of the interest. For say, we make money $100 to $15 will be go into the minority interest, so we should reduce our net income of course.

Operator

Your next question comes from Sam Dubinsky - Oppenheimer.

Sam Dubinsky - Oppenheimer

Just a clarification, for polysilicon, is your $50 per kilogram production cost, is that cash cost or fully loaded?

Jack Lai

Yes, it’s a fully loaded in total cost.

Sam Dubinsky - Oppenheimer

It seems like you’re making very good progress on your new module business. Did you mentioned, how many megawatts you expect in 2010? What are the geographic distributions for these shipments and there’s one last question?

Jack Lai

Yes, because Sam, this is certainly depends how our negotiation we sell pent in customer for a wafer, because some of our customers for our long term wafer contract they want to remove that wafer shipment to module shipments. So this is why we have big shipment volume next year. We currently believe from the negotiation we still maybe 400 megawatt to 600 megawatt module shipment for next year, but this depends how customer want to replace the wafer contract to module contracts.

Sam Dubinsky - Oppenheimer

What geographies with the stake?

Jack Lai

This is mainly from Europe and some from U.S. and very, very small from Asia.

Sam Dubinsky - Oppenheimer

Then I’m just looking your income statement. I think you mentioned a short term interest rates are over 6%, but I’m looking your income statement and it seems like your blended interest expense is below 3%, can you maybe reconcile this?

Jack Lai

Actually, because almost half of the interest, there’s right now because of the construction of the poly plant, before the poly plant is fully completed, there’s some of interest raises actually capitalize into the fixed assets. Once we start depreciation loss expenses will be showing up our interest again.

Sam Dubinsky - Oppenheimer

So for modeling sake, what are the interest expense actually amount for next year? At what point do you think it will start hitting?

Jack Lai

Right now the blended costs are probably going to be around 5.5% to 5.6%, combining their short term interest and long term interest.

Operator

Your next question comes from Edwin Mok - Needham & Co.

Edwin Mok - Needham & Co.

First question regarding module, what was the ASP that you guys were getting and what kind of margins for the China using them?

Xiaofeng Peng

You mean, Q3?

Edwin Mok - Needham & Co.

Yes, in Q3.

Xiaofeng Peng

In Q3 it’s a little more than the average, we will be a little more than $2 per watt and gross margin is similar to around 20% to more than 20%.

Edwin Mok - Needham & Co.

Then on the poly plant you mentioned, thanks for giving us update on the poly plant. I was wondering, how is the 16 metric ton thus that you guys produced this quarter. Is that whole from the 1,000 metric ton plant? Then looking forward into the 4Q and also the next year, how to we look at the production of the large plant in 4Q? How much of that 150 times to 180 come from the last plant? In 2010, how much production do you expect given that you guys are ramping a new train, as well as ramping production in the first two trains?

Xing Tong

This guidance primarily for Q4, for 150 to 180 times primarily to more poly plants, because now is in production for almost poly production and for the big 15,000 times because still in our ramping process, we have not expected as significant volume, but I think in few week later maybe a more clear picture how about fall and we will ramping up to full capacity in next two to four months and there will be full production, so next year 15,000 ton the first run. We’ll produce nearly a big quantity, so we expect it will be produce totally 6,000 metric ton to 7,000 metric ton of polysilicon in 2010.

Edwin Mok - Needham & Co.

Does this 6,000 metric ton to 7,000 metric ton is including to 1,000 metric ton plant and…?

Xing Tong

This is including, yes.

Edwin Mok - Needham & Co.

Then finally just on the joint venture, I know on balance sheet there’s joint venture item investment into this, was also a joint venture item, which I imagine is the Q-Cell joint venture. I was wondering, is that booked on cost and if you were able to sell that or if the joint venture was sold, would you book a profit on that?

Jack Lai

At this moment, of course the investment is based on the total investment put into the project. At this moment, we are still looking into potential buyers, which we believe in the next two months, we should be able to find off taker.

Operator

Your next question comes from [Nicholas Zhang – Unidentified Company]

Nicholas Zhang – Unidentified Company

Just want to follow-up a little bit on your talks and then negotiate with the local banks. Can you give us some guidance on what’s the progress up to November? Have been further encumbered more short term debt to a long term one?

Jack Lai

Yes, we just continued to negotiate with local banks on talking to this mid term to long term bank loans. So we just got approval of about $200 million to $300 million shift converting to the mid term to long term loans, so about $200 million and $300 million just get approved.

Nicholas Zhang – Unidentified Company

Also another question regarding your diversified business model, you mentioned that you want to monetize or invest in this polysilicon factory, right. So you also mentioned you want a risk capital to finance further CapEx on that project. Are you planning to monetize your investment in this poly factory to reduce your balance sheet? Meaning, how are you going to channeling up on the NLPs cash proceeds to the level to reduce your [Inaudible]?

Jack Lai

At the present time that we are looking at different alternatives to help the company to strengthen the balance sheet and of course that we sold this 15%. We thought it was very helpful to strengthen our cash position. We are still looking at different alternatives including private equity, including even public offering to see if we can raise more capital to help us to ramp up all other full production quickly, because this is a very big huge plant that we are operating and we are hoping that the capital can be raised more so that we can ramp even more quickly to on schedule.

Nicholas Zhang – Unidentified Company

In term of equity offering for the polysilicon factory, it’s going to be primary shares, so we going to still down kind of second shares to improve your cash position?

Jack Lai

At present time, we are still doing something stability steady, so we don’t really have a big proposal yet, but we still continue what we saw investment bankers and all consultant to see what is the best thing to provide the value to all our investors. So we are still continuing to look on alternatives.

Nicholas Zhang – Unidentified Company

Are you going to remain continuing expecting on polysilicon factor whatever it happen?

Jack Lai

Yes, that is correct.

Operator

Your next question comes from Hendi Susanto - Gabelli & Co.

Hendi Susanto - Gabelli & Co.

First questions, how much do you expect your polysilicon cost in Q4?

Jack Lai

I think right now, we are running around $75 and the market probably somewhere between $65 to $70, so we believe that they’re going to trend down a little bit, but I think the 10-Q will be relatively small. We believe that cost will be relatively stable in the next three to four months.

Hendi Susanto - Gabelli & Co.

On doing transition to internal polysilicon, do you still have long term polysilicon supply contracts and at what price?

Xing Tong

We have a two long term contracts. We signed encumbered to poly producer. The price is around $60 to $65.

Hendi Susanto - Gabelli & Co.

Last questions for me, how should we look into your solar module cost structures? I assume you outsourced your module processing to a third party? How much is your average module processing cost?

Xing Tong

Currently, is around $0.40 and in solar fairly is around $0.35.

Operator

Your next question comes from Paul Leming - Soleil-Princeton Tech.

Paul Leming - Soleil-Princeton Tech

Two question, just first housekeeping. What was the basic and diluted share account for the third quarter?

Jack Lai

106.7 million shares, thus basic diluted shares will be 108.3 million shares.

Paul Leming - Soleil-Princeton Tech

108.3?

Jack Lai

Correct.

Paul Leming - Soleil-Princeton Tech

I just would like to spend a minute pursuing the length of time that it’s taking to get the first polysilicon plant of fully ramped up. You announced that it mechanically compete in late June and you’re now talking about commercial operation late December early January, six months seems to be a very long period after the commissioning of the plant been used.

Help us understand if there have been significant problems in the commissioning process? Certainly, as this plant was under construction, you were talking about having production up in running, no later than the second quarter this year. What really has driven the lengthy delays in getting the plant commissioned?

Jack Lai

If you look at the factory is starting a production on the early September and the mechanic completing is a few months early. Normally, as experience we get from 1,000 poly plant, it take us about seven months from mechanic completing to ramping into almost full capacity, but for big poly plant we believe, we get more experienced engineer and we learn already chains more where we are prepared.

We believe our first filed 5,000 tons polysilicon plants we will be ramping to full capacity. We will be much less than seven months. So I read this why we believe we now see every season moving very well. Our reactor area is moving very well. The system is running very well, the converter is running and the TCS certification is running, so most of our system is commissioning very well, and we believe; very soon we’ll be for the poly production.

Now it’s already affectively running and so, I think we will have a very, very clearly production cost very soon. At the moment we see, that all the milestones move we ramping up is moving very well.

Operator

Your final question comes from Sunil Gupta - Morgan Stanley.

Sunil Gupta - Morgan Stanley

Xiaofeng, I just wanted to understand your longer term strategy for the polysilicon plant. So you are clearly evaluating various options. Any of you, is that a minimum stake that you need to own this polysilicon plant, or if it is what’s that minimum number? What should we be expecting in terms of LDK’s ownership of the polysilicon plant over next two to three years?

Xing Tong

I think our targets at least have a major consul, so at a minimum 51% for the polysilicon plant and of course, we have polysilicon plant. Polysilicon sometime will be then can also produce high quality polysilicon and also even order some gas or some products. So now we are ramping up to full capacity for 15,000 times and as a polysilicon can be biggest unit for LDK. Also we will be release our balance sheet, if we continue to financing poly business.

Operator

I will now turn the call back to management for any closing remarks.

Xiaofeng Peng

Thank you again for participating in our quarterly earning release conference call. We appreciate your continuous support to LDK Solar. If you are traveling to China, please contact our Investment Relation Department for a plant visit. We will be very happy to share with you our opinions, update and the plant progress. I’ll look forward to meeting with you again on our upcoming conference or road show events. Thank you.

Operator

This concludes the LDK Solar’s third quarter conference call. Thank you participating.

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