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Bob Blair - IR

Tom Gutierrez - President & CEO

Rich Johnson - VP, Finance

Dave Gray - VP, Strategic Business Development

Analysts

Jesse Pichel - Piper Jaffray

Jeff Osborne - Thomas Weisel Partners

Satya Kumar - Credit Suisse

Stephen Chin - UBS

Adam Hinckley - GC Research

Adam Krop - Ardour Capital

Pavel Molchanov - Raymond James

Rafi Hassan - FBR Capital Markets

GT Solar (SOLR) F3Q10 (Qtr End 12/26/09) Earnings Call February 2, 2010 5:00 PM ET

Operator

Good afternoon and thank you for standing by. Welcome to GT Solar's third quarter financial results for fiscal year 2010. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). A as a reminder this call is being recorded. I will now turn the call over to Bob Blair, of GT Solar Investor Relations. You may begin.

Bob Blair

Thank you. As we begin I would like to remind everyone that certain statements made during this call may be forward-looking within the meaning of the federal securities laws. We may discuss our expectations regarding future events including estimated future financial results for Q4 fiscal '10 and fiscal year 2011 including revenue, gross margin and EPS or other financial information, backlog and backlog roll-off, the number of DSS units we expect to build, expansion of our reactor business, new customer orders, factory utilization, production capacity, the Company's technology leadership, product performance, the supply environment in the solar wafer market, market developments, new product development, capital expenditures, the cost of solar power and growth and the demand for solar power.

These statements are based on management's current expectations or beliefs. These forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside the Company's control, which cause actual events to differ materially from those expressed or implied by the statements. These factors may include the possibility that the Company is unable to recognize revenue on contracts in its order backlog although the Company's backlog is based on signed purchase orders or other written contractual commitments in effect as of the end of our third fiscal quarter. We cannot guarantee that our bookings or order backlog will result in actual revenue and we reasonably anticipate (inaudible) which could reduce our revenue, profitability and liquidity.

Other factors that may cause actual events to differ materially from those expressed or implied by our forward-looking statements include the possibility that changes in government incentives may reduce demand for solar products which would in turn reduce demand for our equipment, technological changes could render the existing products or technologies obsolete. The Company may be unable to protect its intellectual property rights. Competition from other manufacturers may increase. Exchange rate fluctuations and conditions in the credit markets and economy may reduce demand for the Company's products and various other risks as outlined in GT Solar International's filings with the Securities and Exchange Commission including the statements under the heading risk factors in the Company's annual report on Form 10-K for the fiscal 2009 filed on June 9th, 2009 and Form 10-Q for the second quarter of fiscal 2010, filed on November 10th, 2009.

Statements made during this call should be evaluated in a light of these important factors. GT Solar International, Inc. is under no obligation to and expressly disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise. The web cast and replay of today's presentation will be available for 30 days beginning tonight at 8 pm eastern time and can be accessed through gtsolar.com. An audio replay will also be available. Please refer to today's Earnings Release for details on those matters. I would like to note at the outset that we are in the process of posting a PDF rendering of today's PowerPoint presentation. Due to technical difficulties the web cast presentation of this is currently unavailable. So if you go to GT Solar's website there will be a PDF PowerPoint presentation posted to accompany remarks by GT Solar executives today. And now I'd like to turn the call over to President and Chief Operating Officer, Tom Gutierrez.

Tom Gutierrez

Good afternoon and thanks for joining us today. Rich Johnson, Vice President of Finance and Dave Gray, Vice President of Strategic Business Development are with me today. I'll provide a general overview of how we performed in the third quarter and Rich will follow up with a more detailed review of our financial results, our backlog and our full year outlook. Once we complete our review of Q3 and fiscal 2010 outlook, I'll lead a discussion focusing on GT Solar's market environment and our strategy. I'll then provide a preliminary view of how 2011 is shaping up. We'll take questions at the conclusion of our commentary.

We're quite pleased with our performance in the third quarter. We've seen an increase in business activity recently that we believe is driven by a substantial increase in the level of factory utilization our customers are experiencing. These customers are generally well capitalized and lead the market in the supply of low cost, high quality wafers. We believe they're taking action to build additional capacity, not only to service current needs in the market but with an eye towards building [search] capacity that will serve as a competitive edge as the market continues to develop and the difference in cost structure between Asia, European and U.S. players drives more business to Asia.

The realization by some of our key customers that they needed to add capacity quickly has proven be an additional differentiator for GT Solar as we’ve been able to offer our customers very quick turnaround on new orders for our advanced technology DSS furnaces. Our operations team in New Hampshire has quickly increased production to address this recent surge in demand. To give you a perspective on the extent of this increase in output and the flexibility and fast response nature of our operating model, I can tell you that we expect to more than double the number of DSS furnaces built in fiscal Q4 versus the number we built last quarter.

During the quarter, we booked nearly $59 million from new orders. This includes contracts with GSL Poly Energy Holdings, a new customer for DSS furnaces and our TCS Production Technology Solution. Our TCS solution provides customers with the services and know-how to produce TCS gas via hydrochlorination, which eliminates the need for power intensive converters and can help reduce capital investment for new facilities by 10% to 15% and power consumption by up to 30%. This is the second hydrochlorination package that we sold this fiscal year. These engineering service deals are very significant to us because they are expected to drive future reactor business.

In our PV business, order activity is growing and we expect to book several significant new orders during the fourth quarter. We're seeing significant interest from new as well as existing customers. In our polysilicon business, we're also seeing more opportunities for new business than we did a quarter or two ago, especially in the Middle East and China. While this polysilicon business takes much longer to develop and (inaudible) revenue, we believe that there is a significant potential for expansion with our existing polysilicon customers as well as with new accounts. Last quarter we reported that we had reached an agreement with Trina Solar to deliver the balance of their DSS units in backlog and I'm pleased to report that during Q3 we completed shipment and recognized revenue from these units.

Lastly, I would like to comment that our technology-driven lean and flexible business model continues to provide the foundation for a profitable business that has what we believe is one of the strongest balance sheets in the industry, with a cash position in excess of $194 million, zero debt, and deferred revenue balance of $378 million. Rich will now review our Q3 financials in more detail, followed by an update on our full year guidance and then I will elaborate further on the market environment and how we see 2011 unfolding. Rich?

Rich Johnson

Thanks, Tom. Third quarter revenues were $173.6 million, compared to $104.2 million last fiscal quarter and $205.2 million in the year-ago quarter. This quarter's revenues included $40.3 million of PV segment business, and $133.3 million of polysilicon segment business. Four customers accounted for 10% or more of our revenues for the quarter. Our revenue for the first nine months of the fiscal year was $349.5 million, compared to $402.5 million for the same period last fiscal year. The year-over-year drop in overall revenue was driven largely by a decrease in our PV business, substantially related to delays in deliveries requested by our customers on existing contracts.

Our gross margin for the third quarter totaled 44.2% of revenue or $76.7 million, compared to 32.9% of revenue or $34.3 million in the second fiscal quarter and versus 43.6% of revenue or $89.5 million for the third quarter of fiscal year 2009. As previously discussed, our gross margin percentages tend to fluctuate quarter to quarter and the Q3 gross margin percentage was higher than our average annual rate, largely due to customer and product mix.

For the first nine months of fiscal year 2010, our gross margin was 41.7% of revenue, or $145.9 million, compared to 43.5% of revenue or $175.2 million for the same period a year ago. We still expect our overall gross margin for this fiscal year will be approximately 39%. Gross margin was down year-over-year due in part to lower factory utilization. As Tom indicated, we are seeing increased order activity and as a result, we plan to more than double the output in our DSS factory in New Hampshire during Q4.

This increase in output is expected to reduce our unfavorable overhead absorption through the fourth quarter. The build rates into next fiscal year and beyond will be driven by market demand and dynamics which Tom will cover in more detail later on. Should we determine that demand continues to increase, we have the ability to rapidly increase our furnace production capacity to match such that we can continue to provide short lead times to our customers.

Operating expense was $19.1 million for the third quarter, versus $18.8 million for the last fiscal quarter and $18.5 million for the third quarter of fiscal 2009. The key components in this quarter's operating expenses were $5.3 million in R&D, and $13.8 million in SG&A, comprised of $2.4 million in sales and marketing, $10.6 million in G&A, and nearly $800,000 in the amortization of intangibles.

As we have indicated, technology is a key differentiator in the marketplace and we continue to increase R&D spending to enhance our technical position in both our PV and polysilicon businesses. For the first nine months of fiscal year 2010, operating expense was $57.3 million, compared with $52.9 million for the same period a year ago. The year-over-year increase in operating expenses was largely driven by an increase in R&D.

We expect R&D for the fiscal year to total between $23 million and $25 million. For the third quarter, our operating margin was 33.2% of revenue, compared with 14.8% last fiscal quarter, and 34.6% in the year-ago quarter. Our operating margin for the first nine months of the fiscal year was 25.4% of revenue, compared with 30.4% in the same period in fiscal year 2009.

Our tax rate for the quarter was 36% compared to 39.3% in the second fiscal quarter, and 38.3% in the year ago quarter. Our tax rate for the first nine months of the fiscal year was 36.8% compared to 37.7% for the same period last year. We believe our annual effective tax rate for this fiscal year is projected to be approximately 37.5%. Net income for the quarter was $36.8 million compared to $9.4 million last fiscal quarter, and $43.1 million for the same quarter last fiscal year.

This resulted in a fully diluted earnings per share of $0.25, versus $0.06 for the last fiscal quarter, and $0.30 in the year ago quarter. The key drivers of net income for the third quarter compared to the year ago quarter were reduced revenue, an increase in gross margin related to product mix, a reduction in other non-operating expense, and a decrease in the tax rate.

Net income for the first nine months of fiscal year 2010 was $54 million, compared to $76.2 million for the same period last year. This resulted in a fully diluted earnings per share of $0.37 for the first nine months of fiscal year 2010, compared to $0.52 for the first nine months of fiscal year 2009. Now I would like to turn to the balance sheet. Our cash balance at the end of the quarter was $194.7 million. The decrease of $9.3 million from September 26, 2009, was largely driven by federal and state income tax payments, offset in part by an increase in cash collection activity on outstanding receivables.

As of today, our cash position is approximately $215 million. Capital expenditures for the third quarter were approximately $1.7 million, related primarily the to our facility expansions both in China and in Montana. Consistent with the low capital requirements of GT Solar's business model, our projected total capital expenditures for fiscal year 2010 will range between $4 million and $5 million.

Deferred revenue on our balance sheet at the end of the quarter was $378.4 million. Although these revenues have not been recognized in our income statement, the related products have been shipped to our customers and in nearly all circumstances we have received a combination of letters of credit and payments covering at least 90% of the purchase price. I would now like to spend a few moments explaining how our backlog developed during the quarter.

We began the quarter with a $1.03 billion backlog. During the quarter, we added to the backlog with new orders of $58.8 million. Revenue of $173.6 million rolled off the backlog during the quarter, included in the revenue for the quarter was approximately $20 million associated with terminated contracts of which approximately $12 million was for forfeited, nonrefundable customer deposits.

In addition, we de-booked approximately $50.4 million and had approximately $8.5 million of negative adjustments. This brought our backlog at the end of the quarter to $856.9 million. The backlog was comprised of $253.7 million in the PV business and $603.2 million in the polysilicon business. This included 27 PV customers associated with 33 PV contracts and seven polysilicon customers associated with 17 polysilicon contracts.

Over 60% of our backlog is secured by a combination of $378.4 million of deferred revenue, $110.6 million in nonrefundable customer deposits, and $33.7 million of letters of credit, related to that backlog. As a reminder, deferred revenue represents the value of equipment that we have shipped to customers, and have received at least 90% of its purchase price through cash and letters of credit, but which is not yet accepted by the customer and therefore these revenues have not yet been recognized in our income statement.

Now I would like to walk you through the estimated backlog roll-off for December 26, 2009 backlog. It is very important to note that this analysis reflects management's best estimates of revenue recognition and adjustments out of backlog and does not contemplate future new orders. We expect approximately $490 million or 57% of our December 26 backlog to roll off through the fourth quarter of fiscal year 2011. We expect approximately $250 million or 29% of our current backlog to roll off in fiscal year 2012 and approximately $117 million or 14% of our current backlog to convert beyond fiscal year 2012.

The pertinent driver of the extended revenue recognition into 2012 relates to one customer and the manner that revenue is recognized on polysilicon contracts that have time-based cooperation provisions. These contractual rights are considered a separate element under our revenue recognition policy which is dictated by current accounting standards and extend beyond the period when we expect to have completed and delivered all other elements under the contract. As a result, contracts like these are subject to multi-year revenue recognition rules, where we recognize revenue ratably over a period of time, commencing when all other elements have been delivered and other contract criteria have been met and continue through the period that contractual rights expire.

We have three polysilicon contracts of this nature in backlog with a single customer. $168 million of deferred revenue relates to one of these contracts which is completely delivered. Revenue for this contract will be recognized ratably through fiscal year 2012. The undelivered backlog of $153 million relates to two of these orders that will primarily be shipped during the latter part of fiscal year 2011 and the revenue will be recognized ratably through fiscal year 2012. However, the future of revenue recognition is changing as the Financial Accounting Standards Board amended the revenue recognition rules for separating multiple deliverable revenue arrangements. The accounting board issued this amendment because it will better reflect the economics of companies by potentially allowing companies to recognize revenue sooner rather than keep it in deferred revenue. Adoption of the amendment is required for fiscal years beginning after June 15th, 2010 but early adoption is allowed and GT Solar is currently researching the impact of early adoption.

Turning to our outlook for fiscal year 2010, we are tightening fiscal year guidance to the upper end of our previous range of a revenue of $500 million to $550 million and fully diluted earnings per share of $0.52 to $0.60. As mentioned earlier, we will continue to believe we are on track to achieve our gross margin guidance for the fiscal year of approximately 39%. Now, I would like to turn the call back to Tom.

Tom Gutierrez

Thanks, Rich. As I indicated earlier, we'll now move into a discussion on how we view our markets, current market dynamics and our strategy going forward. I'll start with a view of the solar market in general. While there continues to be significant growth expected in the longer term, there is still a wide range of forecasts as to how the market will develop in the next several years. Current demand estimates for the 2009 calendar year range from 5 gigawatts to over 6 gigawatts and many analysts are predicting PV demand scenarios in the 15 to 30 gigawatt range in 2013.

Recently, we've seen equipment buying behavior at the DSS market which suggests that manufacturers are building capacity for the higher end of this range. During our fiscal year 2009 and 2010, we will have sold approximately a $1 billion of capital equipment into the market to support the build-out of installed end user capacity of approximately 8 gigawatts to 10 gigawatts. If the industry is in fact looking at a 25 gigawatt to 30 gigawatt of annual PV demand in the next several years, there is significant opportunity for capital equipment sales to support that growth.

In the short-term however, there continues to be considerable debate as to what the growth trajectory will be for PV end market demand and our products and to what extent the recent surge of demand which we have seen will be sustained, stalled or accelerated through the rest of this calendar year. We believe this is dependent on several factors, including the status of government incentive programs, the availability of project financing and the solar industry's overall progress towards cost reduction and grid parody.

It is our view that barring any disruptive changes in the cost of traditional energy and continuation of the cost reductions we have seen the solar energy industry make in the last several years, the potential for the grid parody achievement in several key markets is real, a real possibility in the near term. Progress toward grid parody is very important because we believe it will move the industry away from government incentive driven model and towards an economic model that should spur demand.

GT Solar has played a significant role in driving the cost of PV towards grid parody by enabling new polysilicon entrants to come online, improve supply and drive down the price of polysilicon. As is widely known in the industry, polysilicon prices have dropped significantly over the past several years. We believe that spot in contract prices have converged around $50 per kilogram, and we expect poly contract pricing to decline further in the coming quarters.

We believe that although industry margins are shrinking, polysilicon producers with attractive cost structures will still be nicely profitable at these levels. GT Solar's enabling technology and advanced CVD reactors and hydrochlorination can that’s still provide silicon producers with an important key to achieving cost below $25 per kilogram.

Polysilicon is the largest cost component of silicon PV modules and as a result of rapidly falling poly prices, cost reductions and the silicon PV modules over the past year have been substantial. In addition, we believe GT Solar's leading technology DSS equipment has been and will continue to be a catalyst in reducing the cost profile for some of the world's leading wafer manufacturers.

In 2010, we expect that the best integrated module producers in the world will achieve all-in cost close to or about $1 per watt, allowing the profitable sales of modules in the range of $1.30 to $1.40 per watt. While these factors that we have discussed and I give you a view of the capital equipment firm market. We believe that demand growth does not directly track short-term PV market growth for a number of reasons. Most notably, investments in capital equipment are typically made in advance of end market demand.

These investment decisions also can be impacted by market sentiment as-well-as customer access to capital. Also, demand for PV capital equipment can vary significantly by region and by customer share shifts occur due to regional incentives and cost structure differences between regions. The industry's drive towards lower cost and higher efficiencies does, however, demand the newest and best equipment.

We're currently seeing these factors play a part in our near term demand, as many of our Asian customers position themselves for future market share gains. As evidenced by our Q3 results and revised fiscal year guidance to the higher end of our range, we're seeing increased order flow and an increase in the number of inquiries for quick delivery. Our Asian customers are bullish on long-term growth in PV and generally improved their balance sheets and as a result are ramping capacity in advance of demand growth.

We're also seeing new well financed players investing in PV and polysilicon facilities in Asia as-well-as in emerging market areas like Saudi Arabia where new large scale projects are under consideration. We believe that our technical expertise and reputation as the preferred provider of technically advanced systems position us favorably till these projects move into the execution phase.

Driven by the view of the market and our position that I've just expressed, I can describe the strategy will be deployed to build on our strength and solidify the company's position in the years ahead. First and foremost, we will prioritize and expand our investment in R&D such that we can expand our leadership and help our customers deliver lower cost per watt solutions to the marketplace.

I noted this as a key area of focus in our last quarterly discussion. In a moment Dave Gray will provide you with more insight into our R&D program structure, key technical goals, and new business opportunities. As we develop new products, we also believe that it is essential to provide our customers that have already made significant investments in GT Solar technology with an upgrade path that does not [strand] our effort as cost of performance targets in the industry become more challenging.

We would expect that many of the innovations we are working on can and will be offered as upgrades to our existing customers. Last point that I want to make relates to our operational structure. To ensure the best possible customer satisfaction experience, we will continue to invest in GT Solar operations in sourcing in regions where our customers are based and our business is growing. In this context, we will continue to expand our operations, sales and customer service functions in Asia.

This will allow for shorter lead times, more responsive technical support, better sales support and contribute to an overall leaner cost structure. We expect to be openly viewed as a local supplier in all of our key markets as a matter of strategy. We will maintain our significant presence and corporate headquarters in New Hampshire, where we will strengthen the center of excellence under developments and initial manufacturing of new technologies and products to be delivered to customers in other regions of the world.

Before moving on to a discussion of our forth coming fiscal year, Dave Gray will provide you with some additional insight on our R&D focus and business expansion opportunities. Dave.

Dave Gray

Thanks, Tom. This next chart represents some of the advancements we've made in our SDR reactor platform over the past several years and the impact of those advancements on polysilicon production cost, the left Y axis in the blue line show the relative improvement in throughput in our reactor generations. And the right Y axis in the green line show the relative reduction in electricity consumption on a kilowatt per hour per kilogram basis that we have achieved.

The figures along the top show a theoretical cost for a 10,000 metric ton per year plan using each generation of our reactor technology, plus hydrochlorination. As you can see, over a three to four year period we have reduced the potential polysilicon production cost by over 20%, taking cost down from $30 to the $22 to $24 range for large scale producers using our hydrochlorination technology. Let me point out that in the case for producers not using hydrochlorination technology, the cost would generally be $4 to $5 per kilogram higher at this plant scale.

In a competitive low price polysilicon market these cost reductions become even more significant because they will result in substantially higher margins for low cost producers. Also as we have said, silicon is the largest driver of PV module cost, typically 30% of cost at today's silicon price levels. As a result integrated producers can realize this benefit as a substantial module cost reduction. We expect advancements we have made in our SDR program to spin off upgrade products for our installed base and we're committed to further reducing silicon production cost and developing additional capability within our SDR platform as we move forward.

With our furnace products strategy, unlike some of our competitors, GT Solar does not just subscribe to increasing ingots size. In fact, this metric can be a bit of a red herring without complete data on cycle time and material quality. Our customers think of value that our furnaces provide in terms of Watts per hour of quality, waferable materials that they can produce. As such, our furnace R&D is focused in increasing value in two ways.

First, we are working on increasing throughput by looking at decreasing cycle times as well as increasing charge sizes. We have programs in both areas. Our next set of upgrades to the DS 450 platform will provide 15% to 30% more throughput and an up to 18% reduction in energy consumption. We also have R&D and new platform concepts, which have the potential to offer 2X throughput increase per dollar of capital invested. Next we are also focused on enhancing value by increasing the quality of the crystal that we generate which results in higher solar cell efficiencies.

There is significant leverage in increasing cell efficiency because it affects the dollar per watt cost structure of the entire manufacturing flow. Our R&D in this area has directed average efficiency improvements in the one half to one point range. This can result in very favorable 3% to 6% cost improvements in a typical factory. We expect to be able to deliver this technology as a field upgrade solution to our current DSS platform as well. Together, these R&D programs drive total value for our customers, ultimately reducing their cost of ownership for our equipment. GT Solar has long been in the business of changing the cost structure of the PV industry and we remain focused on that mission. Our strong balance sheet puts us in a position to consider a number of both organic and inorganic opportunities to advance the strategy.

The next chart outlines the scope of opportunities we are considering. In evaluating possible business expansion opportunities, we are looking at technologies that could disrupt cost structures in the industry through innovations that are not currently in place. The top left quadrant of this chart represents areas of expansion within the solar value chain that would represent new product or technology opportunities for GT Solar. Our recently introduced hydrochlorination technology offering is one example of an organic expansion into this quadrant. Other opportunities which we are evaluating include expansion into the mono silicon market which represents approximately 40% of PV wafers consumed and is an area not currently addressed by GT on a production equipment basis.

We do offer a pilot scale float zone system for mono materials qualification which we sell in low volumes and we have internal technical expertise in the mono materials area. The mono equipment market is highly competitive and we monitor it closely. Where are able to develop or identify technology that would create an advantaged position with attractive potential is certainly something we would consider. We are also looking at opportunities to expand deeper into other parts of the solar value chain, with additional equipment and technology offerings in wafer and cell line. In this area we are focused on game changing technologies which can enable the next generation of solar cells.

The bottom right quadrant on this chart identifies expansion opportunities into new markets that would leverage our technology and expertise in the areas of crystallization, thermal management, and advanced materials processing. We have taken this approach with our Silane market entry with a product that offers what we believe to be a disruptive solution to an otherwise mature market that has not seen innovation in many years. Another example of a market outside of solar where we could leverage our technology, manufacturing know-how and expertise is sapphire.

The Company has historically built sapphire crystal equipment for one of the world's largest producers and we retain organic know-how in this area. As one of the primary end markets for sapphire expands LED’s we are re-examining the potential there for GT Solar. We have the flexibility to approach these opportunities with a combination of tools, including organic capability, technology licensing, and M&A. Our priority will be on market opportunities and approaches that generate the most shareholder value.

Finally, let me mention that the top right quadrant in this chart represents what we consider to be high risk opportunities that require both new products and new markets. We are unlikely to move this far from our home base and intend to focus our new business efforts on opportunities that are close to the technologies and markets that we know. Tom?

Tom Gutierrez

Thanks, Dave. I think it should be clear as we move forward that our commitment to R&D as a way of continuing to differentiate ourselves from our competitors is very clear. And we believe that in the short term, the reaction of our key customers to the new products that we have shown them are building some of the short-term order profits that we've seen. I will move on to the fiscal 2011 outlook.

Now that I've been with the company for approximately three months, I thought it was important to update our investors on how I see the business developing next year. As we look ahead to our fiscal 2011, we currently see revenues in the range of $400 million to $600 million. That range is fairly wide because we are uncertain if the current increase in order rates will be maintained, and the fact that we are currently working on several new orders in the DSS business that have not reached the contract stage yet.

Success with any of these orders could have a very meaningful positive impact on where we fall within this range. I would also like to note that this revenue range does not include approximately $150 million of polysilicon equipment that we will ship during fiscal year '11 but that we do not expect to be able to begin to recognize revenue on until 2012, undercurrent revenue recognition rules.

From an EPS standpoint, the revenue range translates into $0.30 to $0.60 based on gross margins of about 39%, and operating expense is roughly in line with our third quarter run rate. We will be providing our regular annual guidance on our fiscal Q4 earnings call in May, and I expect to narrow these ranges at that time. Before we move into the Q&A area, I want to mention a policy change about disclosure that I think is important. We shared quite a bit of information with you today about the structure of our business, our view of how we intend to compete in the marketplace, and product development plans, etcetera.

As I reviewed our disclosure policies as they relate to the business of our customers, we've concluded that as a moderate policy going forward we will not disclose information about our customer's business that may be sensitive to them. And as such, as you ask questions about customers, we may indeed fall back on that new policy going forward. With that, operator, we can move into questions.

Bob Blair

Just before we move into questions I want to note that the PowerPoint presentation accompanying today's presentation is available as a PDF file if you go to GT Solar's website at the events and presentation page and select web cast, at the bottom of that page there will be a link for the PDF file. Thank you very much. We are ready for questions.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question and answer portion of today's call. (Operator Instructions). One moment, please, for the first question. Our first question comes from the line of Vishal Shah. Please proceed.

Vishal Shah

Can you just talk about the range of fiscal 2011 guidance for what assumptions you make for demand pretty clearly in markets like Germany and on the DSS segment, what kind of order strength are you seeing from some of these customers in China? Are you seeing continued orders from them in the next couple of quarters?

Tom Gutierrez

Well, I think the guidance that we gave for the balance of the year speaks to the strength that we're seeing in the near term, speaks to the trajectory that we see as we move into the first half of next year. I think I will not go into all of the details of our modeling going forward, but I will say that one of the key drivers as we move into fiscal '11 will be whether or not the current order rates that we're seeing which are robust and the new contracts that we're working on indeed come to fruition.

At this point in time, I felt that it was important to give you a wide range of what I thought the possibilities were, but I think it will take another quarter or so for us to really understand whether or not these patterns represent a bubble of activity in the marketplace or whether or not they can be sustained through the full large part of 2011, and that will drive which end of the range we fall into.

Clearly, the other thing that I would like to point out is that in the near term as we move through 2011, our business will be driven by the DSS side of the business to a large extent. We certainly have revenue recognition in our polysilicon business that will continue through 2011. The DSS business is a business that is rapidly moving towards a book and ship model which we think is a healthy way that the business should develop.

And we believe that our strong balance sheet will put us in a position to be able to have the kind of resources in place to respond quickly to our customers and be able to give them the kind of lead times that they're going to need as the market develops.

Question-and-Answer Session

Operator

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

Jesse Pichel - Piper Jaffray

Good evening, Rich and Tom. Well, first it sounds like the DSS business is coming back so congratulations on that. I do have some questions on the poly business which is the majority of the backlog. Can you tell us what are the major components of the $600 million of backlog that remains in the poly business? And while you probably aren't going to tell us the customers, can you tell us how much of that backlog is really from the Middle East and how much of it is from Russia, which I think are kind of risky areas of the backlog? And then a strategic question on that poly business is, now it seems like GT is embracing hydrochlorination and I'm wondering what products do you have that address this market and do any of your customers currently use the GT equipment in a hydrochlorination design? It seems like a major departure from what the Company has historically done.

Tom Gutierrez

I actually don't believe so. I think we talked about hydrochlorination and the TCS and gas side of the business on prior calls. I think we emphasized the fact that most recently we've moved forward with several customers and in fact those customers value the technology that we're putting on the stable to the extent that they are moving forward with implementation. As far as the polysilicon backlog is concerned, I think that we can safely say that the bulk of our polysilicon backlog is in Asia and that as I indicated during my prepared comments, the future opportunities that we're looking at, that have not yet moved into the execution stage are in the Middle East, predominantly.

Jesse Pichel - Piper Jaffray

But that's not in the backlog currently?

Tom Gutierrez

No. It is not in the backlog currently. Backlog consists predominantly of business in Asia.

Jesse Pichel - Piper Jaffray

And can you say how much of that $600 million is with existing customers that are using GT polysilicon reactors today? Is it reorders?

Tom Gutierrez

I think if it's in the backlog, it's with existing customers. They're using our products and so it's not new, undelivered customers.

Jesse Pichel - Piper Jaffray

And the hydrochlorination, you're not going to sell equipment then. That's part of the services business then; is that right?

Tom Gutierrez

Hydrochlorination is a technical package that comes along with services and we provide the Blueprint, so-to-speak, and the capability and know-how as to how to implement the hydrochlorination.

Jesse Pichel - Piper Jaffray

The sapphire furnace sounds very interesting. Is that something you've sold before? And how quickly do you think you can address that rapidly-expanding market?

Tom Gutierrez

Before moving into that, I think there is another part to the answer on hydrochlorination in our services business in the polysilicon side and that is that as we get invited into these opportunities to help people with that end of the business it does provide us a foothold for future reactor business development as it develops in the marketplace. I think Dave Grey can further respond to the sapphire question.

Dave Grey

I think you had a question regarding sort of what we had done historically. The Company, although it's been several years, has sold sapphire equipment previously. So that technology and many of the people that were involved in those efforts are still at the Company. So we do have an organic capability in that area as I mentioned. So it is an interesting market. Potentially very rapidly growing but off a very small base today. So it's something we’re evaluating seriously.

Jesse Pichel - Piper Jaffray

Can you disclose how large of a wafer diameter can you [ring] a diameter, rather, can you grow?

Tom Gutierrez

At this point, Jesse, we're alluding is evaluating all of the possible expansion directions there are so can take. What we were attempting to do in the presentation today is to basically put a ring around the kinds of things that we're looking at because I want to be sure that we didn't create the impression that we're going to move far from our home turf in terms of the kinds of things that we're doing. But we're in the evaluation stage. I think the interesting thing about that particular market, it has a lot of similarities to what the DSS market has and the potential for new entrants to perhaps spur growth that makes the market opportunities significantly bigger than what it is which is what happened with the DSS side of the business.

Jesse Pichel - Piper Jaffray

Got you. And then if I could just fit in one more. It sounds like you're having a change in your accounting policy, if I'm reading you correct there, Tom, that you're now extending the tail of the backlog duration so that $250 million is in fiscal '12 and $117 million beyond that and the reason for that is more accounting and not a customer push-out? Is that correct?

Tom Gutierrez

The important thing to say is, it is not a change in accounting policy. One of the things that we wanted to do as part of this call was to really add significant transparency and collect all the pieces of information that have been in the past of our backlog so that people would understand that current accounting practices in the industry force us to recognize that revenue, in some cases well after it's been delivered to the customer and in some cases well after we’ve collected the cash. And we have that situation as we go into 2012.

Our reference to the fact that the revenue recognition rules may be changing is that the accounting boards have recognized this issue and there is a new set of regulations that goes into effect with the fiscal year of your choosing after June of this coming year and we're evaluating the possibility of either adopting those new rules early or adopting them in fiscal '12 and I'm going to sort of anticipate your next answer is no, we don't know the answer yet as to whether or not those new rules would have an impact on the nature of our prior contracts. We would probably adopt it on a prospective basis going forward.

Operator

Our next question comes from the line of Jeff Osborne of Thomas Weisel Partners. Please proceed.

Jeff Osborne - Thomas Weisel Partners

Good evening. Thanks for the transparency on the call. I just had a couple of questions. One for Rich, you mentioned that one customer had three contracts that's associated with this change in [rev rec] rules in terms of modeling that. I just want to understand that I believe that customer had, their first contract was recorded in fiscal '09 and is the second one ongoing now and it's the third one that's the $150 million that now seems to be in fiscal 2012? I just want to make sure I have the same customer in mind that you folks are talking about?

Rich Johnson

That's correct. The first contract was recognized in the third quarter of fiscal '09 and then the second one while we started the ratable amortization in Q2 as we previously disclosed and that will continue to go into 2012 and then the third one will deliver in the latter part of this fiscal year.

Jeff Osborne - Thomas Weisel Partners

Is that going to?

Tom Gutierrez

And the second thing is that, Jeff, it's delivered, product is performing, but the revenue recognition on Phase II will actually not be completed until fiscal '12.

Jeff Osborne - Thomas Weisel Partners

Right. And then if that customer were to accelerate their CapEx plans, would that possibly change when you could record the revenue?

Rich Johnson

It would not under the existing accounting rules. But that's why we're doing the research for this new accounting pronouncement that came out. We are required to adopt it in our fiscal year 2012, but as I mentioned, we are looking at the possibility of early adoption.

Jeff Osborne - Thomas Weisel Partners

Understand. And then one other question we routinely get is on your last call you mentioned that 20% of your backlog was quote, unquote, at risk. I was wondering if you would just care to update us on that number, given the de-bookings you had this quarter. What would be an apples-to-apples number there?

Tom Gutierrez

Jeff, I think our intent in discussing the 20% figure last quarter was to sort of provide a reference points as to the level of rescheduling and adjustments that we were discussing with our customers. Our intent was also to highlight which perhaps we didn't do as good a job of, the fact that 80% of our backlog was extremely solid.

And so what I can say today is that the quality of our backlog has continued to improve. However, it's not my intent to update that specific number on a quarterly basis. I'm going to give you a qualitative answer to it and say that we have continued those discussions and feel that the quality of our backlog has improved quarter-to-quarter as a result of those discussions and actions that have been taken.

Jeff Osborne - Thomas Weisel Partners

Understand. Would it be fair to say, then, that the low end of the range for fiscal 2011 at this preliminary point would assume some type of moderate level of de-bookings or is that not factored in?

Rich Johnson

I mean, the lower end of the range or the higher end of the range is really all related to customer and product mix as the way the orders unfold in the quarter.

Jeff Osborne - Thomas Weisel Partners

This is for this year.

Rich Johnson

Fiscal '10.

Jeff Osborne - Thomas Weisel Partners

And then what about I think you mentioned, Tom, that you delivered now or this is what TCL your second hydrochlorination contract. I don't recall you ever receiving a first kind of falling upon Jesse's comments. So did you ever disclose who that was or could you give us a sense of when that was installed.

Tom Gutierrez

No, that goes back into the comment earlier that we wouldn't talk about specific customers and several of these customers are quite sensitive about us disclosing that they're moving down this path.

Jeff Osborne - Thomas Weisel Partners

I understand. And one last quick one. You just mentioned that for this upcoming quarter that DSS furnace shipments would double in terms of utilization in over head keys. Could you give us a sense of what units were in the quarter just reported?

Rich Johnson

Actually what we said was that we were going to double the manufacturing output in the facility. Some of those furnaces are slated for delivery early in fiscal '11.

Jeff Osborne - Thomas Weisel Partners

Got you. It would be helpful just if you could give the unit number, though. Do you have that?

Rich Johnson

That's a pretty sensitive number, I think.

Jeff Osborne - Thomas Weisel Partners

Okay. I was just trying to back in on the PV equipment group, your 10-Q gives some detail about DSS revenue versus turnkey. Is that something you could provide transparency for on the call just because it has pretty pronounce margin impact?

Tom Gutierrez

Form 10-Q. There was some amount of turnkey revenue in the quarter.

Operator

Our next question comes from the line of Satya Kumar of Credit Suisse. Please proceed.

Satya Kumar - Credit Suisse

Did you give some granularity on fiscal 2011 guidance of 400 to 600 between the different product segments, DSS silicon turnkey, has there any new business in that assumption?

Tom Gutierrez

No, I think at this stage my intention for giving such a broad range to sort of position the year relative to industry activity versus really getting into the nitty-gritty of PV versus polysilicon and specific new contracts. Clearly what we were trying to project is if the industry goes through a bubble of orders and slows down, then we'll have a front-loaded year and we'll be at the lower end of that curve. We were also trying to project the point that there are several contracts under discussion that could significantly change that scenario, regardless of what happens in the second half of the year from an industry slowdown point.

And lastly I think as you move toward the upper end is the question that I think all of us are asking and it will take a little bit more time to determine as to whether or not the industry is really focused on 2013 and the 25 gigawatt to 30 gigawatt capacity range that they need to put in place and as such, we'll continue another cycle series of investment. We believe our customers are really well-capitalized to execute that if they so choose but I think there's a level of uncertainty right now that puts us in a position to not able to pin exactly which end of that range we would be in based on the activity that we're seeing.

Satya Kumar - Credit Suisse

You mentioned that the guidance does not include $150 million of shipments in the poly business. That can’t be taken as revenue under the current accounting rules. And in another slide you mentioned that the new accounting rules applicable for fiscal years beginning after June 15th, 2010. Could there be an option that you could actually isolate the (inaudible) on that 150 in fiscal 2011?

Tom Gutierrez

I would rather not comment on that right now. These rules are very, very complex and there are a lot of puts and takes. There are options where you can adopt the rules retrospectively or prospectively and we're really in the process of analyzing which is going to better suit the Company and also if we adopt we would more than likely be an early adopter. So there's an extra level of care that we have to take in our analysis.

Satya Kumar - Credit Suisse

What actually got cancelled? The de-bookings that you got in the quarter, was it DSS or poly or where were the de-bookings coming from?

Rich Johnson

At this point we're really not going to disclose the de-bookings came from, neither by segment or by customer. But again, this is all part of how we're researching our backlog, looking at the quality of it and so forth.

Satya Kumar - Credit Suisse

And lastly, I guess it's off this fiscal 2011 guidance, can you give us a sense of what the actual shipments of new product is going to be in fiscal 2011?

Tom Gutierrez

I don't think so. I think what I can tell you is that we have new product in front of customers as we speak and that the reaction as I indicated has been very positive for some of that new product technology and the level of uptake is going to really depend on the number of early adopters that are in the marketplace and that also plays into the conversation about which end of the range you fall into. The more early adopters of new technology, the better our performance will be. But we've seen great excitement in our customer base as we talk to them about combination of particularly at the DSS side, the combination of throughput as being really, the driver versus just pure ingot size and I think we're getting very good reaction to the fact that as I indicated, we're not abandoning our customers, assets that already have our implants and they were really focusing on trying to figure out ways in bringing new technology to the party that allowed them to enhance those products, opens up a broader market for us in such a way that the capital investment that they have to make for their return that they get out of it is enhanced, is higher.

Satya Kumar - Credit Suisse

Amortized how would you characterize the new orders? Right now you're $60 million or so. Is that what you would characterize as a high level of orders? That level, can it grow based on the pipeline that you're looking at in terms of new opportunities. How would you characterize that order intake and how should we think about new order intake from the next quarter?

Tom Gutierrez

I would say that it's an order intake that is starting to ramp. Okay? And I think again, going back to the guidance into next year, it's the rate of ramp and the length of the ramp that's going to drive the numbers into next year. But the ramp that we're seeing would suggest a significant increase in orders in that segment.

Satya Kumar - Credit Suisse

Got it.

Operator

Our next question comes from the line of Stephen Chin of UBS. Please proceed.

Stephen Chin - UBS

Just a follow-on to that last question, Tom. Do you think orders will grow here in the March quarter for furnaces sequentially?

Tom Gutierrez

I think we pretty well flagged that. We said that the order rate is climbing, that we expect to start building twice the number of DSS that we built in the prior quarter. We've guided the market towards the higher end of our range and as you know, the polysilicon business is more static in the short-term than the DSS business. So, therefore, it has to be driven by the DSS side. And so long way of saying I think we're saying yes, the ramp appears to be increasing.

Stephen Chin - UBS

Okay. So orders should be higher than $60 million for the March quarter. Just a question on the March quarter gross margin. If we take the full year estimate of 39%, we get something in the mid-30% range for this March quarter. Is that simply because of the doubling of manufacturing or is there something else happening in the March quarter?

Rich Johnson

Again, it's related to the product mix. But, when we ship furnaces we recognize 90% of the revenue and we have to hang 10% up and delay that to customer acceptance but we do recognize a 100% of those costs when we ship. So that also drives your margin down for the quarter.

Stephen Chin - UBS

Okay. Thanks, Rich. And lastly, Tom, I think you showed a slide, the backlog roll-off is about $490 million in fiscal 2011.

Tom Gutierrez

Steve, let me correct you first. That's five quarters of roll-off, okay. If you look carefully at the slide, it starts from the backlog at the end of Q3, and goes through the end of fiscal '11.

Stephen Chin - UBS

Okay. So I guess what I was trying to get from that slide is can we assume that the remainder of your guidance for fiscal '11 is all turns business, if that's the backlog roll-off?

Tom Gutierrez

Steve. I'm sorry. Say that again.

Stephen Chin - UBS

I guess if you try to hit your high end of the revenue guidance, the $600 million in fiscal '11, and your backlog roll-off is $490 million, does that assume you want to hit about $110 million in turns business to perhaps hit the high end of the fiscal '11 revenue number?

Rich Johnson

Well, $490 million includes Q4 of this fiscal year.

Tom Gutierrez

We have to subtract Q4 roll-off from the $490 million in order to come up with what the roll-off is in 2011, and then the magic sort of like filler is the extent to which the ramp-up with the DSS business continues or not to get to either the low end, the mid-range or the high end of the preliminary guidance. I should repeat that it is preliminary guidance because we will provide the guidance as we always have in May when we finish the fiscal year.

Operator

Our next question comes from the line of Adam Hinckley of GC Research. Please proceed.

Adam Hinckley - GC Research

Hi, good evening. Just wanted to follow-up on what was Satya was asking about earlier in terms of the de-bookings for the quarter. I know you don't want to give too much color but this was a sizable jump in terms of de-bookings. Can you say if this was one isolated customer or was this coming across multiple customers?

Rich Johnson

I can tell you that when we were talking about the 20% at the end of Q2, we were doing research on the integrity of our backlog and so I will tell you it's more than just one.

Adam Hinckley - GC Research

More than one. Okay and then just for further color on the 4Q gross margin, are you expecting higher levels of revenue of turnkey business? Is that what's really diluting it? I know you said you recognized 90% of the revenue but 100% of the cost but you should also get the kickback benefit of the higher utilization and less under absorption so if you could help me understand those dynamics a little better.

Rich Johnson

We would. There would be some favorability compared to previous quarters on factory utilization in the fourth quarter, and as we mentioned before, there is a turnkey order that we haven't recognized revenue. We're still in the completing phases of that and that is either going to be in Q4 or may move into the first part of fiscal '11. At this point we just don't know. So again, that would drive some of your margin change for the quarter.

Operator

Our next question comes from the line of (inaudible) of Gilford securities. Please proceed.

Unidentified Analyst

Hi. Thanks for your time. First of all, congratulations on a great quarter. I have a couple questions here. I'm trying to reconcile about the third quarter. Number one is that on the CVD business, it looks like you had a negative order in the CVD business in the third quarter and also a jump in sales in the third quarter in the CVD business. Is that fair to say, by imputing from the other numbers out there?

Rich Johnson

You're talking about the polysilicon business, right?

Unidentified Analyst

Yes, polysilicon business, CVD reactor business, yes.

Rich Johnson

So part of that was the adjustment would have been within the polysilicon business, yes.

Unidentified Analyst

There was your total orders for third quarter in the polysilicon business was negative, that means more cancellations than orders?

Tom Gutierrez

I think that the numbers sort of speak for themselves. I think your logic appears to be correct. I think their policy line in that was fall into the territory, having to talk about a specific customer which I would rather not do but I think your logic seems sound.

Unidentified Analyst

If you look at the sales, there was a significant jump in sales. The estimate for the third quarter was about $140 million or so. You did $173 million. Even if we assume that the analysts collectively did not call the quarter correctly, what is this happened in the third quarter, which gave you the upside on the sales? Is it possible to add some color on that? Is it one customer? Is it from multiple customers? What happened there?

Tom Gutierrez

I think the assumption that we don't give quarterly guidance, number one. I think the significant amount of, I'll call it noise around the backlog in the quality of the backlog, is a potential for the backlog to fall off after last quarter and the range of our forecast in the marketplace is huge from one end to the other. And so our view of the year actually didn't change particularly much between the end of the third quarter and the end of the year. Okay? What's changed that we did talk about is that the order rate going forward into the first half of this coming year has ramped up substantially and so our view of the year has not changed. There has been no major development that sort of drives the end. Quite honestly, I think the width of that range is part of the issue.

Secondly, I think the noise around the backlog and the possibility that we had very, very significant potential for customers to go away in the fourth quarter may have driven the difference between us and the analysts. I think moving forward, what I would say as we move into 2011 and beyond, one of the things that should be clear I think by now in my third month of being here and second quarterly call is that we'll be providing sufficient clarity and transparency on our backlog and what's happening in the marketplace so that hopefully we don't have that kind of a disconnect again.

Unidentified Analyst

Okay. It looks like what you are implying is that the high end of the sales in the polysilicon business might be due to seasonality and the product mix within your business model which I think makes perfect sense. I think when your cycle time is longer than the quarterly 90 day period, that tends to happen in the capital equipment business.

Tom Gutierrez

Remember that most of the polysilicon business is rolling out of backlog. It's not book and ship business. It's not business that we book and whereas the DSS business is turning into much more of a book and ship business. Polysilicon business, we're rolling off backlog of products that was delivered much earlier in the year and in the prior year in some cases. For example, the Phase II of the one customer that we talked about was delivered well before we were able to start taking revenue recognition last quarter and so that ramps up and it looks like new orders and new business but in reality it's the backlog roll-off of business that we completed.

Unidentified Analyst

If I may, I have just second question on a different take here. Just during the conference call, a couple of times you mentioned that there is a possibility, a very distant possibility but there is a possibility that the order rate you're seeing right now, at least in the DSS side, you used a word that you want to make sure that it is not a bubble. Given the end market demand and all the uncertainty out there, why should there be even a slight bubble in order rate? Is it customer-specific or is it driven by some other factor? Can you add some color on that?

Tom Guiterrez

I think there is a couple of factors that I mentioned. One, there is dislocation going on, capacity moving from higher cost regions to lower cost regions, and so you have a little bit of a situation where customers that are able to produce high quality ingots and wafers at low cost are getting a disproportionate amount of new business. Okay? Fortunately, those happen to be our customers that we are dealing with, and so the utilization rates in low cost, high quality regions to customers is going up from what it appears.

I think the other factor is, and it goes back to the behavior of competitors, who have a view, a bullish view of the marketplace in terms of where it's going to go to in 2012 and 2013 and very much like we have the ability with our strong balance sheet to basically put ourselves into the positions to deliver quickly. Okay, some of the customers that we're working with have the capital to put themselves into the same position so that even if there is a dip in demand as you go into fiscal '11, you would see as it comes back they would be the powerhouse in the industry to take the share and so I think we're seeing behavior that's based on the bullish view of some customers, relative to how to position themselves for the next major upturn.

And we're seeing behavior based on the dislocation from high cost to low cost regions. And we're also seeing some activity associated with new entrants and which frequently happens I think in high growth industries which as new entrants enter the market once they believe that it's real and there's going to be long-term potential, they're generally better capitalized players and they jump into the market with agreement. But the broad set of drivers.

Operator

Our next question comes from the line of Adam Krop of Ardour Capital. Please proceed.

Adam Krop - Ardour Capital

Just a couple of quick follow-up. On the fiscal '11 guidance, can you add any color in terms of, I know in the past you've mentioned targeted $20 million in kind of OpEx per quarter. Is there any reason to believe that that's going to change in fiscal '11 or should we still be looking for that number?

Tom Gutierrez

I think actually the words that we used was that the EPS guidance that we gave is based on a run rate of operating expenses similar to third quarter. And although I am looking at increasing the focus in R&D, I believe that there are ways of maintaining stability in that number by being more efficient in other areas and so that's not going to drive the number substantially up. And as we also indicated we would be keeping our gross margin pretty much in line with what this year looked like. And so the answer to your question is yeah, I think that answers your question.

Adam Krop - Ardour Capital

Okay. And then just kind of a bigger picture question. Obviously we've seen a lot of activity from some of your competitors in the furnace and polar space. There's an IPO in the Chinese market late in 2009 and just looking for some general comments on the competitive landscape, what your customers are looking for in terms of differentiation number one, and number two, are you seeing any major kind of pricing pressure on the furnace side currently?

Tom Gutierrez

I think I'm going to sort of step back a little bit to the macroeconomics of the industry because I think that as you look forward, as the industry starts to move to $1.50 price per watt marginal costing and players drive to go even below that point, as you move forward, it really puts pressure on the players that are in the polysilicon and in the wafer and ingot side of the house because the cost structure and the performance that they have to achieve is ever-changing and ever getting tougher. And so on a competitive standpoint, what we believe we've been able to do is convince our customers that we can help them win that battle on quality which is efficiency of the resulting wafers that come out of the ingots and come out of our furnaces, as well as the quality of polysilicon because we also believe that there are differences and that the ultimate winners in the marketplace are probably going to be those that have the highest position, lowest cost product in the marketplace and we fit into that beautifully in terms of what our strategy is, which is to do exactly that, to help our customers drive that cost per watt down, with new technologies and when Dave was talking about the furnaces, for example and we indicated focusing on big ingot doesn't necessarily mean that you're going to win that war of total cost per watt and so focusing on size, throughput time and efficiency is the kind of thing that our customers are rewarding us for, I believe.

Adam Krop - Ardour Capital

Okay, and any pricing pressure you're seeing out there now?

Tom Gutierrez

I think there's always pricing pressure in the marketplace and I think our ability to retain our gross margins and to perform as we have relates to some of the operational things that I talked about, about continuing to drive to become more of a local player than (inaudible) where most of our customers are at.

Operator

Our next question comes from the line of Pavel Molchanov of Raymond James. Please proceed.

Pavel Molchanov - Raymond James

Most of them have been answered but to follow up on the previous one about OpEx, based on what you said about R&D expense for fiscal 2010, that suggests an exit rate of $7 million, maybe even $8 million a quarter. Should we assume that remains in place through 2011?

Rich Johnson

In 2011, as Tom indicated that we're still going to invest in R&D and our cooperating expenses will continue to hold really where they've been. So we'll be gaining efficiencies in other areas, but we still will focus more on R&D spending in fiscal '11.

Pavel Molchanov - Raymond James

Got it. And on fiscal '11 top line guidance, I realize this is preliminary, but do you have any sense of what the curve is going to look like in the course of the year? Is it going to be more back end loaded or is it going to be more evenly distributed?

Tom Gutierrez

I think based on the ramp-up that we're seeing right now, it's inescapable that if it's in the lower end of the range it will be a front end loaded year and if it's at the tail end, towards the upper end, it will be a more extended curve into the year.

Pavel Molchanov - Raymond James

Got it. So early 2011 should we assume your quarterly revenue recognition declines from Q4 levels or should we assume it essentially stays at those levels for the foreseeable future?

Tom Gutierrez

I don't believe that's guidance that I'm prepared to give at this moment.

Operator

Our next question comes from the line of Mehdi Hosseini of FBR Capital Markets. Please proceed.

Rafi Hassan - FBR Capital Markets

This is Rafi Hassan. I have a couple quick questions. One is where do you see the margin profile for your service side business? What is your expectation in 2011 in terms of is it going to push the poly equipment margins higher or where do you see it for 2011? What are your building in your model?

Tom Gutierrez

I think the first thing I would have to say to you is that the services business pales in comparison to the actual polysilicon CVD reactor business just by its very nature. The services business is a business that basically is in place to drive future of CVD business and including people and technical consulting work to a large extent.

And so while we don't intend to sort of reveal the margin for that kind of business, I think that you can sort of view it as along the lines of more of a consultant business than as an equipment business. But its size is really significantly below the size of the CVD reactor business and as such, I wouldn't expect it to wiggle the needle.

Rafi Hassan - FBR Capital Markets

Okay. Another big picture question is where do you see your customer's capital intensity going forward? I mean, polysilicon prices have been falling but equipment prices haven't really gone down that much. So I'm just trying to understand to what extent do you see capital intensity changing in the industry?

Tom Gutierrez

When you say capital equipment prices, you're talking about the manufacturing products that we sell or are you talking about end market solar panel?

Rafi Hassan - FBR Capital Markets

Your customers basically, their CapEx.

Tom Gutierrez

Well, I think you have to look at it from the standpoint of return on capital investment. Not what the capital intensity is. I think we're in the business of delivering high capital return products. And I don't see this becoming a commodity market by any stretch of the imagination given our ability to drive the technology forward. So I think capital intensity doesn't change as a result of what we're doing.

Rafi Hassan - FBR Capital Markets

All right. Couple of quick housekeeping questions. One is your turnkey revenue is expected to be $75 million for the year but PV segment recognition of revenue for this quarter was $40 million. Can you say what was the revenue from turnkey?

Tom Gutierrez

The turnkey component for the quarter was minimal. As I mentioned before, that there is still one order that the timing of revenue recognition still isn't defined so it could be in Q4, it could move into the first part of fiscal '11.

Rafi Hassan - FBR Capital Markets

One last one. You still are modeling OpEx for $20 million per quarter?

Tom Gutierrez

For fiscal '10, yes. Okay. Well, I want to thank all of you for joining us on today's call. Excellent questions. Hopefully we've achieved our goal of providing good transparency. And a good view of what's happening in the marketplace. We look forward to keeping you informed of our progress in the quarters ahead. And I want to thank GT Solar team and our customers and supply partners for helping us achieve the success to date and for bringing up the learning curve very quickly. Well, thank you. Good night.

Operator

Ladies and gentlemen, that concludes our presentation. You may now disconnect. Have a good day.

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