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Executives

Rory Macpherson – Director, IR

Dr. Zhengrong Shi – Founder, Chairman and CEO

Andrew Beebe – Chief Commercial Officer

Dr. Stuart Wenham – Chief Technology Officer

Amy Zhang – CFO

Analysts

Burt Chao – Simmons & Company International

Jesse Pichel – Jefferies & Company

Vishal Shah – Barclays Capital

Sanjay Shrestha – Lazard Capital Markets

Rob Stone – Cowen and Company

Tim Arcuri – Citi

Mark Bachman – Auriga

Gordon Johnson – Axiom Capital Management

Sam Dubinsky – Wells Fargo Securities

Kelly Dougherty – Macquarie Research

Paul Clegg – Mizuho Securities

Edwin Mok – Needham & Company

Nitin Kumar – Nomura Singapore

Mehdi Hosseini – Susquehanna International

Pranab Sarmah – Daiwa Institute of Research

Suntech Power Holdings Co., Ltd (STP) Q4 2010 Earnings Call March 8, 2011 6:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Suntech Fourth Quarter and Full-Year 2010 Earnings Conference call. My name is Dominique and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Rory Macpherson, Director of Investor Relations. Please proceed sir.

Rory Macpherson

Thank you. Hello, everyone and welcome to Suntech’s Fourth Quarter and Full-Year 2010 Earnings Conference call. On the call today Dr. Zhengrong Shi, Suntech’s Chairman and CEO will give an overview of our performance and major initiatives. Andrew Beebe, our Chief Commercial Officer; will discuss sales and markets. Dr. Stuart Wenham, will provide an update on Suntech Technology and Amy Zhang, will summarize our financial performance. Ian Tu, Suntech’s Financial Analyst will also be on the call to answer any questions if required.

Before we continue, during this conference call we will make certain forward-looking statements in an effort to assist you in understanding the company and its results. The forward-looking statements will be made under the Safe Harbor provisions of the U.S. Private Securities Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, Suntech’s future results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our earnings release issued today and our SEC filings. Suntech does not undertake any obligation to update any forward-looking statements except as required under applicable laws. To enhance our presentation of information and data during this conference call, we have provided a set of PowerPoint slides for your reference. This presentation is posted on the main page of the Investor section of our website.

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

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

Dr. Zhengrong Shi

Hello, and thank you for joining us. In the fourth quarter, we shipped above expectations, continued to diversify our sales and closed the acquisition of the wafer facility with a view to significantly reducing our costs in 2011. The extremely strong demand drove record shipments for the fourth quarter of 2010, which were up approximately 20% quarter-over-quarter.

To achieve this, our operations team was shipping as much as seven megawatt per day after the peak of the quarter. This enabled us to generate $945 million of revenues, up more than 27% over the third quarter. In 2010, Suntech shipped more than 1.57 gigawatts of solar product, or 125% more than in 2009. This elevates Suntech to the number one supply of solar panels worldwide. This not only gives us leverage over our supplies, it is also a clear indicator of customer’s belief in the Suntech brands.

Operationally, we made a significant shift from pure panel sale and a module manufacture to a more vertically integrated producer of wafers, cells and modules. This vertical integration process has been very smooth to-date. We closed the acquisition of Rietech Solar, a spin-off of Glory Silicon at the end of the fourth quarter. And I am pleased to report that Rietech is already generating returns for Suntech. In the fourth quarter, we recognized $24 million equity income from Rietech’s earnings.

We will fully consolidate the operating earnings in 2011, and this will to add gross margin expansion to approximately 20% in the first quarter. Our wafer business reached 500 megawatt of ingot and wafer manufacturing capacity at the end of 2010, and is on track to reach greater than 800 megawatt annualized capacity by the end of Q1. The internal wafer production is targeted to be close to 200 megawatts during the quarter, however due to the time required to process the wafers into cells, modules and then ship the product, only about 150 megawatts of the internal produced wafers will be used in the first quarter.

By year-end, we expect to reach 1.2 gigawatts of installed wafer capacity, which equates to 50% of our expected total sales and module capacity. This balanced semi-integrated strategy will enable us to lower our cost structure, while preserving enough capital to continue to expand our module capacity and maintain market share. It will also minimize the risk of underutilized wafer capacity and a higher fixed costs in the event of cyclical downturn.

Another key initiative of Suntech is our joint-venture with two Wuxi based companies to jointly own and operate a 1.2 gigawatt PV cell production facility located at our Wuxi campus. This JV will enable us to more effectively leverage our capital to expand capacity. Suntech will provide technology and a chain of management team for this facility so that we can ensure that PV cells meet our stringent quality and the performance standards.

We plan to achieve 600 megawatt of cell capacity by the middle of 2011 with the second phase of 600 megawatt to be completed in 2011 or 2012, depending on demand projected. Due to our focus on the wafer, cell and module segments of the value chain, we no longer fear it is necessary to invest in polysilicon facilities, and during the fourth quarter, we divested in full, our 20% stake in Asia Silicon. We have decided that the best way for us to ensure low cost polysilicon supply while minimizing capital outlay is to partner with some other leading poly players, by leveraging our scale and a market position, we intent to secure supply at below spot market price and we will continue to procure silicon from Asia Silicon going forward.

Next, I will provide an update on our investment in the global solar power. In the fourth quarter, we recognized revenues of approximately $54 million related to shipments to GSF investee companies. We collected the majority of the receivables during the quarter. In addition, I am pleased to say that we have also collected all of the outstanding payments related to the 2009 receivables.

We only had about $10 million of outstanding receivables from the GSF investee companies, as of the end of the fourth quarter. Secondly, GSF investee companies made excellent progress developing solar projects. They completed the construction of 95 megawatts of projects in the fourth quarter and the target to achieve grid connection before the end of June 2011 under the government decree. In accordance with ASC 323-10-35-1, we recognized our share of the earnings or losses of our equity investment in GSF. As GSF is an investment company, its net income or loss is effected by the changes in the fair value of its investee companies.

Due to the completion of their project, GSF pay a value substantially increased and Suntech realized equity income of $250 million in the fourth quarter. The fair value of GSF investments was determined according to discounted cash-flow analysis of the future energy revenues and with reference to target returns of project buyers. The inputs and assumptions used in a discounted cash flow models, reflect the best estimate of assumptions that market participants would use in pricing the same or similar investments in a current transaction as of the measurement date.

GSF measurement believes that all the projects completed by GSF investee companies in 2010 will be connected to the grid in order to receive the 2010 feed-in tariff in Italy. GSF investee companies are targeting to complete the construction of around 40 megawatt of projects in the first half of 2011, and GSF will continue to build its top line beyond that in Italy and other global solar markets. Now that project has been completed, GSF is investigating options to monetize some of the projects. The sale of projects should result in the payment of cash dividends to Suntech and then become a source of cash going forward. We will update you on their progress in due course.

On the CFO search, I have great news for you. We recently almost concluded the searching process with the way credential candidate. He is seasoned executive with a strategic vision and a global perspective. He comes from a successful (inaudible) sized public company in the U.S. He is also bilingual and a bicultural. I believe that he will walk away with our management team and help Suntech to grow and compete globally. As he needs to transition out of his current role, I would tell you more about him in the coming weeks.

At this time I would now turn the call over to our Chief Commercial Officer, Andrew Beebe who will provide an update on global sales and marketing. Andrew?

Andrew Beebe

Thank you, Dr. Shi. Let me start by saying we are very pleased with our progress and developing our business through diversification into new markets and investment in our sales channel. We’re honored that our customers have shown these strategies are working by giving us the number one position in the market globally in 2010. As part of the ongoing diversification of our business, Europe represented 61% of our revenues in the fourth quarter, down from 67% in the third quarter.

Germany and Italy were the dominant markets in that region representing 20% and 15% of total sales respectively. In Europe, Suntech is focused on partnering with best-of-breed value-added resellers and EPCs that have mature channels to market and the capabilities to grow their businesses in line with Suntech’s. For example, we recently signed a framework agreement with Siemens Energy which has secured order for 80 megawatts of PV plants from six different countries.

In addition, we signed two two-year agreements for a total of 175 megawatts with leading Italian solar companies. Importantly, their focus on the rooftop segment of Italy’s PV market which we expect to be the focus of solar incentives in coming months and years. Now I’ll discuss a couple of the key markets. The German market continues to be a strong demand driver for us in 2011. Here are keys to our view of the German market.

Demand in Germany is widespread. It’s a stable market with a clear feed-in policy, feed-in tariff policy that creates a consistent environment for solar project developers and suppliers, and we expect demand to respond elastically to price changes overtime. As I am sure you all know the latest news from Italy is that the government has removed their 8 gigawatt solar cap by 2020, and will announce a new feed-in tariff policy by the end of April and implement it in June of 2011. While we have yet to see draft proposals of the new policy, it is clear the Italian government will restrict installations on usable agricultural land to less than one megawatt in size and tier subsidies to encourage a higher proportion of rooftop installation.

This suites our business model well, and as I mentioned earlier, we are building strong relationships with customers that focus on this rooftop segment. While we expect near-term uncertainty in the new policies in development, we are confident that Italy will continue to support a healthy market due to the dependence on energy imports, high retail cost electricity and high solar radiation. The bottom line is that Italy really has the perfect conditions for a healthy long-term market and that’s why we plan to continue to invest there.

We are very involved in the development of the Italian solar policy given our participation in GIFI, the Italian Solar Industry Association. Through our work with GIFI, we encourage the Italian government to adopt the feed-in tariff policy that enables fair, predictable investment returns bringing transparency, longevity and certainty. Of course because we have robust sales channels into all key foreign markets, we have the ability to redirect product as needed.

In 2011, other key European drivers will be France, Benelux, Greece, the U.K., and Bulgaria. All areas where we have been developing channel relationships in recent years. Shipments to Europe will continue to grow year-on-year with as a proportion of sales we are expecting a shift from 66% of total sales in 2010 to around 50% in 2011 for the whole region. Turning now to the Americas, I am pleased to announce that we were the number one supplier of solar panels in the Americas in 2010 with more than 250 megawatts of shipments there.

In the fourth quarter, shipments to this region increased by more than 80% sequentially and represented 20% of Suntech’s quarterly revenues, up from about 17% in the third quarter. To address the residential and commercial segments, we’ve built a national sales network incorporating close to 400 dealers. Due to supply constraints we were only able to provide product to about 150 of these dealers in 2010 which means that there is significant opportunity to increase market penetration in 2011 as we get to know these new partners.

In fact Dr. Shi and I are dialing into this call from our manufacturing facility in Goodyear, Arizona where we’re hosting a two-day customer conference to get to know not just the pre-existing customers, but many of the new customers as well. In the utility market, Suntech has quickly established itself as a leading player in the Americas. Roughly 30% of our shipments in this region service this segment in 2010 and we expect that this will grow to approximately 50% in 2011.

We’re particularly excited about some of the recent wins in this market. These include agreements with some of the largest names in solar that give us clear visibility for 80% of our shipments to the utility segment in the Americas. Grounding the multiyear push into the utility solar market with Suntech and Zachry’s recent selection by Sempra to design and construct a 150 megawatt AC project in Arizona. This will involve the delivery of over 800,000 panels over the next 18 months.

Our utility strategy is to minimize conflict with our channel and Zachry, a leading EPC with a track record of constructing more than 90 gigawatts of traditional energy plants partnered with us because of our bank ability and because of our lack of competition in the EPC channel. In 2011, we expect solar demand in the Americas to more than double in size. We intent to grow our shipment in tandem and maintain that market share of around 20%.

Outside of the Americas and Europe, we continue to see growth in the Asia-Pacific, the Middle East and African markets. Sales to these markets represent 20% of revenues in Q4, up from 17% in the third quarter. China, Japan, the Middle East and Australia were the top markets and we expect these to continue to be strong drivers in 2011, although the Australian market has been impacted recently with the floods early in the year.

In addition we expect Thailand, India and a number of African countries to evolve into vibrant solar markets. In short, we’re very excited about the EMEA market as we have been for the past few years and we’re starting to see our investments there payoff.

Now I’ll discuss pricing trends. Across all markets, Suntech’s offering is respected as superior to our Asia based peers. Our customers care about bank ability, things like power tolerance, low life performance, quality, customer service, warranty and brand drive their purchasing decisions now more than ever. We are confident that bank ability of our product and our company will only be enhanced in more competitive environment as customers seek to minimize risk and focus on brands they can trust for 25 years.

The bottom line is that we’re reentering a truly competitive environment and we welcome that phase. Despite the shift, our ASPs increased by around 4% in the fourth quarter due to a slightly higher average Euro rate and better customer mix. In the first quarter of 2011, we expect ASPs to return to roughly third quarter levels. For the remainder of the year, as we explained at our Analyst Day in December, we expect pricing even for tier one bankable products to continue to decline.

Our leadership in this industry is only as good as our innovation. But our innovation is unconfined to our global R&D labs. In addition to product quality and manufacturing excellence, we will continue to innovate in channel marketing, sales support, customer service, warranty and corporate social responsibility. For example, Suntech was recently recognized with the global – 2011 Global Leader Award by the sustainable investment firm, Murphy&Spitz. This award recognizes Suntech for exemplary, environmental and sustainability standards.

To sum up, we had a strong year in 2010, while building a global platform for the future. Specifically, we increased shipments by a 125%, expanded our sales and service capabilities to new markets and forced partnerships with globally experienced EPCs and project developers that are driving the evolution of solar into a fundamental part of the global energy mix. Looking into 2011, 80% of our target shipments are already accounted for through agreements with customers. So we’re confident that we can meet or beat our 2011 goal of 2.2 gigawatt shipments and continue to Suntech as the premier brand in solar.

I’ll now turn the call over to Dr. Stuart Wenham to discuss our technology initiatives. Stuart?

Dr. Stuart Wenham

Thank you, Andrew. In 2010, we made significant progress enhancing the technology throughout our business. In the factory, we optimized our manufacturing processes and introduced in-house designed automation equipment enabling us to continue to reduce manufacturing headcount. For example, in cell manufacturing, we now only require 2.7 people per megawatt, down from 4.1 people per megawatt in 2008.

In cell technology, we transitioned our high efficiency Pluto technology to mass production and produced 50 megawatts of Pluto panels during 2010. Customer demand for Pluto continues to be extremely strong, and we target to quadruple production to more than 200 megawatts of Pluto in 2011. The ramp of additional manufacturing capacity towards the middle of the year will enable us to accelerate the transition to Pluto. So production will be second half weighted.

A portion of the panels used in the 150 megawatt Sempra project will be powered by Pluto technology. Similarly, our wafer R&D initiatives are progressing very well. We are optimizing the composition of our silicon wafers which will lead to create our product consistency and better performance. In 2011, we are investing in R&D initiatives across the spectrum of manufacturing steps from silicon material quality to sales and module performance, all the way to system optimization.

All of these initiatives are focused on reducing cost and improving quality and performance. We look forward to sharing the results of these initiatives in coming quarters.

Let me now turn the call over to Amy Zhang for our financials. Thanks, Amy.

Amy Zhang

Thank you, Stuart. Hello to everyone on the call. Suntech’s net revenue for the fourth quarter was $945.1 million, approximately 27% higher than our third quarter 2010 result of $743.7 million. This increase was driven by a 20% increase in shipments and around 4% increase in average selling prices of PV modules.

Total net revenues from GSF investee companies were $53.6 million in the fourth quarter of 2010. Gross profit increased in the fourth quarter to $153 million from a $122 million in the third quarter. However gross profit margin decreased slightly from 16.4% to 16.2% in the fourth quarter of 2010. The sequential decline in gross margin was mainly due to a higher than expected increase in the cost of silicon wafers.

Gross margin for the core wafer to module business was 17.4%. Our consolidated margin was lower than our core business gross margin mainly due to a lower margin system sales to China, solar cell sales and outsourced production which represented 5% of revenues in total. Silicon wafer costs including inventory impact increased approximately 9% during the quarter, due to extremely strong end-market demand in Italy and North America, and spot market purchases of wafers to facilitate higher than expected production.

Wafer costs used in production should drop by close to 15% in the first quarter of 2011, due to the utilization of 150 megawatt of internally produced wafer. The non-silicon cost to convert away for inter module remained flat at approximately $0.51 per watt in the fourth quarter, due to the increase in some commodity prices such as silver and the appreciation of the RMB. This may increase slightly in the first quarter of 2011. Please note that non-silicon costs include the cost of all non-silicon materials, processing and depreciation, but excludes around $0.05 per watt of freight charge and share-based compensation.

Operating expenses for the fourth quarter of 2010 were $63.2 million or 6.7% of revenue compared to $59.5 million or 8% of revenues in the third quarter of 2010. In the fourth quarter, income from operations was $90.2 million and operating margin was 9.5% compared to $62.6 million and 8.4% in the third quarter of 2010. Net interest expenses were relatively flat at $23.5 million in the fourth quarter of 2010. Please note that $10.7 million of this was non-cash interest expense, which was mainly due to the accounting treatment of our convertible notes.

Due to the increase in borrowing, net interest expenses should increase to approximately $31 million in the first quarter of 2011. With a relative stable U.S. to Euro exchange rate, we had a foreign exchange loss of $2.8 million in the fourth quarter of 2010 compared to a gain of $42 million in the third quarter of 2010. Net income after taxes before non-controlling interest and equity in earnings of affiliates was $61.1 million in the fourth quarter of 2010, compared to $10.2 million in the third quarter of 2010.

In addition, our recently acquired wafer business generated $24 million in equity income for Suntech. This translates to about $85.1 million of earnings from our core business or $0.43 per diluted ADS. The wafer business was fully consolidated in the first quarter of 2011. Equity in earnings of affiliates in the fourth quarter of 2010 was $322.9 million compared to equity in earnings of affiliates of $23.1 million in the third quarter of 2010. The equity in earnings of affiliates in the fourth quarter of 2010 was primarily due to $250 million non-cash equity income related to GSF, due to the change in fair value of GSF investments, as GSF investee companies completed construction of another 95 megawatt of projects in the fourth quarter of 2010.

And $49 million equity income among consolidation of the wafer acquisition which is equivalent to the difference between the fair value of the equity investments previously held and its carrying value. And $24 million equity income in earnings of acquired wafer business in the fourth quarter of 2010. Net income attributable to holders of ordinary shares was $383.4 million or $2.02 per diluted ADS for the fourth quarter of 2010, compared to net income of $33.1 million or $0.18 per ADS for the third quarter of 2010.

Please note that our diluted share count increased to 196 million shares from a 181 million shares in the prior quarter. Fully diluted share count increased from the third quarter of 2010 because the share associated with the 2013 convertible bond had a dilutive impact in the fourth quarter, whereas there was an anti-dilutive impact in the prior three quarters of 2010.

The major non-cash related expenses were share-based compensation, charges of $4.4 million, the $10.7 million of non-cash interest expenses that I mentioned earlier and depreciation and amortization expenses of $18.9 million. CapEx which was primarily for the newly installed cell and module capacity totaled $50.5 million in the fourth quarter.

And turning to the balance sheet, our cash and cash equivalents plus restricted cash amounted to a $1015 million at the end of quarter, down from $1099.7 million as of September 30, 2010. Looking at working capital, days sales outstanding improved to 47 days from 52 days in the third quarter and inventory turnover improved to 65 days compared to 66 days in Q3. Accounts payable days decreased to 54 days compared to 58 days in the third quarter due to year-end settlement with our suppliers.

Short-term borrowings were $1400.8 million as of December 31, 2010 compared with a $1024.2 million as of September 30, 2010. The increase in borrowings was mainly related to the balance sheet consolidation of Rietech Solar and our recent acquired wafer facility and working capital requirements. We’re in process of transitioning approximately $400 million of these short-term borrowings into mid-term loans in the first half of 2011, which will greatly help to improve our cash management.

Turning quickly to our full-year 2010 results. Total revenue, net revenue increased to 71% year-on-year to $2902 million due to a 125% increase in shipments, which was offset by a reduction in our average sales price from $2.40 per watt in 2009 to $1.82 per watt in 2010.

Consolidated gross profit was $503.8 million and gross margin was 17.4% compared to $338.8 million and 28% respectively in 2009. Net income off taxes before non-controlling interest and equity in earnings of affiliates was $13.4 million in 2010 compared to $89 million in 2009. Net income attributable to holders of ordinary shares was $262.3 million or $1.44 per diluted ADS for the full-year 2010, compared to net income of $85.6 million or $0.50 per diluted ADS for the full-year 2009.

The increase in net income in 2010 was primarily due to the equity income related to the increase in fair value of GSF investments in projects and GSF which was offset by an impairment of Shunda Holdings in the second quarter of 2010. In the full-year 2010, capital expenditure which were primarily related to the construction of production facilities in Shanghai and other infrastructure projects to support expansion of Pluto capacity, totaled $335.6 million. Depreciation and amortization expenses totaled $84.9 million.

Turning to our guidance. For the first quarter of 2011, we are expecting shipments to be relatively flat with the prior quarter, due to the consumption of a 150 megawatt of internally produced wafers in the first quarter, our consolidated gross margin is expected to increase around 400 basis points to approximately 20% in the first quarter of 2011. For the full-year 2011, we’re in an excellent position to achieve the guidance that we gave back on our Analyst Day in December 2010. I’ll recap the key points as follows. We target PV shipments of 2.2 gigawatts, an increase of approximately 40% year-over-year.

Revenues of $3.4 billion to $3.6 billion, subject to changes in foreign exchange rates. Consolidated gross margin of 20% to 22%. And we target to achieve 2.4 gigawatts of installed cell and module production capacity and 1.2 gigawatts of installed wafer capacity by the end of 2011. Full-year 2011 capital expenditures are expected to be in the range of $250 million to $270 million. Please note our stated guidance is based on the assumed exchange rates of $1.33 to the Euro.

That concludes our prepared remarks for today. Operator, please go ahead with questions.

Question-and-Answer Session

Operator

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

Burt Chao – Simmons & Company International

Good afternoon, good morning. Thanks for taking the questions. Congratulations on the Q4 results. Andrew, you mentioned something about avoiding channel conflicts in the U.S. in the utility business and perhaps you or Dr. Shi can address this, but with your investment in GSF and also kind of your different participation in different part of the value chain, how do you look at that channel conflicts competing with your customers globally and not just necessarily in the U.S. utility markets?

Dr. Zhengrong Shi

Andrew?

Andrew Beebe

Yes. I think the U.S. is a market that has been in development versus Europe which is a little bit more mature. We have not found conflicts and certainly as indicated by the recent deals we’ve signed in Europe, I think we’ve been quite successful in treating GSF as just another customer from within the Suntech’s sales offering and that’s exactly how the European team looks at them.

In the U.S. we made a conscious decision 2.5 years ago, as we saw the utility market really taking off to differentiate ourselves by not being competitive in that marketplace. And I think it really given the strength of other players in the marketplace in the U.S. I think it really has worked to allow us to be an unbiased partner in going into these deals. And to be clear, in U.S. we will support our customers in many different ways in terms of the strengthening their bids and there is a wide range of things we can do to support them, but we will not compete with them and bid sort of in front of the customers in the U.S. And that’s been quite effective in terms of marketing as obvious go to partner on any large deals in the U.S.

Burt Chao – Simmons & Company International

Okay, great. And looking on the company as a whole, looking forward to capital needs and somewhat of the lending practices in China, obviously banks have been tightening their lending even to these high-tech industries as well. When you look at the company as whole, moving forward with all of these expansion plans on capacity in China, but also looking forward to all these geographic expansion plans, does the tightening of credit worry you as a company concerned this on the radar and how do you look to address that, I mean is it more partnerships that kind of reduce the capital intensities in some of these expansions or what’s the kind of go-forward strategies to deal with that?

Amy Zhang

Hi, this is Amy.

Dr. Zhengrong Shi

Yes, Amy go ahead.

Amy Zhang

Yes, I think in the end according to our current budget in 2011, Suntech definitely will achieve a positive operating cash flow of around $300 million to $350 million. And based on the current CapEx budget, we will achieve probably close to breakeven or even marginally positive free cash by 2011. And also plus the current facility locked up for Suntech by our core bankers from both international players as well as China based are close to $4.5 billion equivalent facility.

And we have – actually the actual utilization of this total facility is less than 50%, actually I think it’s around 48% of the total approved facility. Even though the China government is tightening the total lending especially in the first half of 2011, I still believe that as a high performance company with the market exposure globally, we will still get a prioritized position to make the actual drawer when needed, but we will definitely plan for that very carefully to manage our debt to equity as well.

Burt Chao – Simmons & Company International

Okay, great. And just one real quick follow-up, sorry, can you actually give a megawatt number for Q4. I’m backing into the numbers that you’ve given on quarter-on-quarter growth for shipments? The numbers are coming a little short for the year to get to that 1570 number that you offered, given kind of the numbers that you gave last year. Are you able to give an actual megawatt number for any of the quarters during 2010?

Andrew Beebe

Yes, I am sorry, just traditionally we don’t give the guidance on the megawatt details.

Operator

And your next question comes from the line of Jesse Pichel of Jefferies.

Jesse Pichel – Jefferies & Company

Thank you for taking my questions and congratulations on your execution towards being relatively integrated and being top solar company around the world. You mentioned Dr. Shi your 2000 or Andrew your 2011 sales to Italy with 40 megawatts to GSF and 175 megawatts for roof. Is that the only sales from Italy in your guidance, and can you talk about if you’re starting to reallocate volumes out of Italy for April and May to other markets, and what do you think the impact of that is going to be if all the solar companies start to reallocate out of Italy. Is there enough demand?

Dr. Zhengrong Shi

Yes, Andrew I think that you can take this one.

Andrew Beebe

Yes, sure. Yes, let me just say first of all, long-term we think Italy is going to be a terrific market and clearly in the last couple of weeks, we’ve seen some things gets running to question for the near-term. We’ve had a strong Q1 there but, and we’ve also modeled what Italy and what Europe can look like for us if things get truly frozen up over the next couple of weeks. That’s not what we anticipate, but that’s certainly what we’ve prepared for. And based on that kind of a scenario where there continuous to be a lack of clarity and a lack of predictability beyond the end of April where we expect they will get finalized.

We are prepared to move that product very easily into other markets. As I said earlier, we were 15% Italy last year, we’ve been in the 10% to 15% Italy this year in terms of cap [ph] and I think that likely we would see that go down to 5% to 10% in a worst case scenario for Italy this year.

Jesse Pichel – Jefferies & Company

Can you highlight any markets Andrew in particular that could absorb, call it 5% to 10% of your megawatts plus say 5% to 10% of everyone else’s megawatts, I mean that adds up to a couple of gigs, so what markets it will take that?

Andrew Beebe

Yes, I’ll just say and may be Dr. Shi can comment as well, but within Europe, we’re seeing surprising growth or I would say growth that we had not anticipated in our sales in places like Spain, Benelux and Greece. And since we were not overweighed in Italy and since we’ve had a lot of sell through already in the first quarter, even within Europe, most of that can be absorbed, even just regionally within Europe. But additionally, I would say that China is already surprising us with growth this year and the Americas markets are off to a very strong start.

So there is plenty of places globally where that can go. I’ll make a comment broadly about the markets just that I think as we’ve talked about in the past and as we’ve mentioned in our December Analyst Day, this is where the distinction between bank ability and tier two, tier three products really comes to shine. And I think the key question is, is there sufficient supply of bankable product versus bankable demand. And I think that that question will be answered in the next couple of quarters and we’ll certainly see prices change as we had anticipated, and will certainly go down as we’ve anticipated.

So we think there will be a downward price pressure from this action, almost regardless of the outcome but we’ve anticipated it and we’re ready for it.

Jesse Pichel – Jefferies & Company

That’s great.

Dr. Zhengrong Shi

Yes, I think even like Andrew said in the worst case scenario, I think our regional allocation to Italian market will be from the indication will we actually redirected within European markets.

Jesse Pichel – Jefferies & Company

That’s interesting, and if I could follow-up with Amy. Amy could you talk a little bit about your AR days, it’s still a little bit higher relative to some of your peers. Is that the impact of the 95 megawatts of GSF, and could you talk also about how much of your poly input, now that you are away from it, is contracted and how should we look at contract versus spot and how will that affect your margins going forward? Thank you.

Dr. Zhengrong Shi

Okay, maybe I can take this one. And I think 95 megawatts from GSF, I think almost all collected yes, so there will, this AR issues all together from GSF, probably now is around $10 million AR. And our silicon supply situation is about 70% in the long-term contracted.

Operator

(Operator Instructions) Your next question comes from the line of Vishal Shah from Barclays Capital:

Vishal Shah – Barclays Capital

Yes, hi. Thanks for taking my question. Can you talk about the price reductions that you expect to see given the changes in Italy right now, and can you also maybe talk about your expectation for shipments in the second quarter? Thank you.

Dr. Zhengrong Shi

Andrew?

Andrew Beebe

Yes. As I think we’ve said publicly, we do think 2011 is going to be year – a year of price declines unlike last year. And when we look at it, our average ASP in 2010 was 182. And I think if you look at our guidance there is an implicit average of around 160 or something for the year. That’s a 12% year-on-year decline. As we built these models at the end of last year, we were expecting unless to say there were a lot of unknowns across the world including markets like Germany which we’re still uncertain in France.

We’ve gotten much more clarity from those markets and we’ve gotten some changes from Italy. So I think on balance, those changes match up with our expectation for the decline in the average pricing. I’ll just note that if you look at the December 31, 2010 kind of where we ended the year pricing and where we expect to end the year pricing for 2011, you’re talking about something much larger in decrease more like 17% to 20% in an overall decrease. And that’s in line with our models and we’re very comfortable with our gross margin and our shipment targets with that kind of price decline.

Vishal Shah – Barclays Capital

Great, thank you. And so – and what about your shipment guidance for Q2, can you talk about what kind of expectations you have? And I also I just noticed you haven’t provided EPS guidance for 2011? Is that still the same at $1.40 to $1.60 or you’ve taken that off?

Dr. Zhengrong Shi

Okay, maybe I can take that one, I mean when you look at historically PV industry does have seasonality like usually, the first quarter is sort of flattish or even lower compared to the prior Q4. So second quarter will be higher and Q3, Q4, like Q2 will be higher and Q4 will be also sort of flattish to Q3. So that’s like seasonality in PV industry.

Andrew Beebe

But I think in general we’re going to see gradual upticks, but of course we definitely have to see what happens in April on Italy because it will have a near-term impact.

Vishal Shah – Barclays Capital

Thank you and what about your EPS guidance, still $1.40 to $1.60?

Andrew Beebe

No change in EPS guidance.

Dr. Zhengrong Shi

Yes, yes.

Vishal Shah – Barclays Capital

Thank you.

Operator

And your next question comes from the line of Sanjay Shrestha of Lazard Capital.

Sanjay Shrestha – Lazard Capital Markets

Great, good afternoon guys. I’ve got a couple of quick questions, first off, Andrew and Dr. Shi, I think you guys mentioned that after sort of this near-term valuation Italy should be a pretty attractive long-term market. I was hoping if you guys could elaborate on that a little bit given there was a lot of information, that’s out there in the market right now. What do you mean by that when you say Italy has the potential to be a very attractive market on a long-term basis?

Dr. Zhengrong Shi

Okay, as Andrew said Italy is a very high electricity proud country and (inaudible) electricity. And the reason that government is definitely try to do some adjustments probably due to a little bit of overheat trying to switch over from the last year. So I think in general, we see Italian government support rooftop installation encouraging rooftop installation very much. So if in a worst case scenario what is the impact probably like a free green side type [ph] installation. So I think that’s like a much in Italy, Europe as a whole, they don’t have much land, so that set of markets is not going to grow very much in the future.

But on the other hand the rooftop, residential rooftop, commercial rooftop markets is continued to grow. So that’s our projection, as Andrew said the worst case scenario in Italy, we would see a short-term impact on the market. Mainly it is like green type installation like megawatt or less than megawatt type of agricultural land that’s what the government really want to discounts people to do so. But on the other hand I think the rooftop market should continue on. So that’s why when you look regionally we’ve planned 10% of our product is to market, honestly what’s already shipped to Italy. I think the impact on us particular which is very minimal. So that’s why we – as I said and easily by direct – a redirect to market other European countries if in the worst case scenario happens.

Sanjay Shrestha – Lazard Capital Markets

Okay, that’s great. One follow-up from me and two part question. Dr. Shi, how do you sort of think about your – how do you sort of think the poly prices is going to trend throughout 2011 and how do you sort of think about your internal way for cost forces external sourcing. And second question, outside of Europe, what do you think are some of the next mega market that can sort of sustain the growth of this industry potentially into ‘012 and beyond?

Dr. Zhengrong Shi

Yes, I think first of all like as we indicated look at our last quarter’s gross margin was down a bit, it’s mainly due to spiking of wafer price again in the market. So due to immaturity of the supply chain. So that’s why we decided to have some percentage of internal wafering. And this definitely is going to mitigate the availability issue and all the price issue of wafer market. So and but we decided to about 50% like that’s also again try to mitigate over supply of the wafer situation market.

Sanjay Shrestha – Lazard Capital Markets

Yes.

Dr. Zhengrong Shi

So for internal wafering costs, I think at this moment is probably around $0.25 fully loaded cost per watt and trending down for the rest of the year. And I think, if the market really become more comparative, I think the wafer price will also come down. So I think third-party wafer price will come down but in-house wafer costs will be always the lowest.

Sanjay Shrestha – Lazard Capital Markets

Okay.

Dr. Zhengrong Shi

So I think like branded cost we have a mixture (inaudible) gross margin. And your second question about, if European market gets more mature where will other market, and I can tell you we feel like the U.S. market as you can see will be at least double this year.

Sanjay Shrestha – Lazard Capital Markets

Okay.

Dr. Zhengrong Shi

And like at EMEA Asia-Pacific and Middle East and African market actually I believe will be also at least doubled this year. And like Japan markets is going up, it is very active there. And also most importantly probably most people didn’t pay attention to, China market is actually is working up. I think last year it was 500 megawatt to 600 megawatt of delivery in China. Nobody here noticed you know, where we had a fixed allocation American market and all the market, but China market is actually was developed very far this year, I feel China market would be at least one gigawatts. Next year will be more than double. So I think all other market will grow very fast.

I think I remember last week in (inaudible) and I always say that who knows maybe in two or three years China and U.S. market will compete. So in a growth rate, so I think that a very good positive sign for the industry.

Andrew Beebe

I’ll just add. One of the transitions we’ve seen in the last year building on those markets is just a transition away from the savior market kind of mentality where it’s Spain or Germany or something that is saving the industry as we continue to build out capacity and instead seeing what we focus on in gigawatt markets. So any market that within the next 12 months can reach a gigawatt scale, it’s clearly a place we’re investing. So Dr. Shi mentioned China, the U.S., Canada is on that path, Japan will certainly be in that zone in the next 12 months. But then there are other places like India, Thailand, Israel, Saudi Arabia and even South America where we have people now starting to see real traction that within – in those cases within a few years will easily lead to gigawatt markets.

Sanjay Shrestha – Lazard Capital Markets

That’s terrific. Thank you so much guys.

Operator

Your next question comes from the line of Rob Stone of Cowen and Company.

Rob Stone – Cowen and Company

Hi, my first question is just a little bit more detail on the revenue and shipment guidance for 2011. How much do you anticipate from non-module revenues out of your total guidance?

Dr. Stuart Wenham

Very negligible. Probably like definitely, we almost like in-house manufacturing.

Andrew Beebe

Low single-digits.

Dr. Stuart Wenham

Yes

Rob Stone – Cowen and Company

Or less than 5%?

Dr. Stuart Wenham

Yes.

Rob Stone – Cowen and Company

Okay. In terms of your net income in the fourth quarter, I guess because of the dilution treatment on the converts, you’re using the if-converted method and there is add-back interest Amy, is that right? Can you say what the amount was?

Amy Zhang

Yes, that is.

Rob Stone – Cowen and Company

Can you say what that number was that gets the EPS effort?

Amy Zhang

It’s simply because that our real operating margin has improved a lot compared to the previous three quarters of 2010. So this is anti-dilutive triggering issue is gone. And that’s why we’ve got higher portion of the convertible notes being treated as equity instead of as of debt. And that was the whole main reason why the fully – number of fully diluted ADS has gone up from $1.81 to now $1.96.

Rob Stone – Cowen and Company

Okay. So do you expect that treatment to continue in the first quarter or would this somehow specific to the very strong fourth quarter?

Amy Zhang

I think from – currently the budget has or the guidance has been given based on the organic financial achievements. By looking at that, I presume that the number of fully diluted ADS would remain back to $180 million to $185 million level instead of as what we have achieved in Q4, 2010.

Rob Stone – Cowen and Company

Okay, great. My last question for Dr. Shi, in the past you’ve been a little bit pessimistic about the economics of the megawatt potential in China. Is this becoming a more attractive market in terms of reasonable prices in returns for systems?

Dr. Zhengrong Shi

Well recently we – due to the lack of supply, shortage of supply last year I think also the price have been improved somehow. So I think that’s nice and better shape.

Rob Stone – Cowen and Company

Okay.

Andrew Beebe

I’ll just add that, the target in China have not moved down as aggressively as the pricing that the market has allowed us to move to. So we’re catching up with the Chinese pricing demand.

Rob Stone – Cowen and Company

Great, thank you.

Operator

Your next question comes from the line of Tim Arcuri of Citi.

Tim Arcuri – Citi

Hi couple of things. Can you talk a little bit about your non-silicon cost? It’s been flat for the last nine months or so, and certainly you’re going to probably get $0.15 to $0.20 lower wafer cost this year. But as you kind of look out into 2012, borrowing some big decline in poly costs, the cost curve begins to really flatten off. So I am sort of wondering how much more you can take down your non-silicon cost and what we can expect as you kind of move through the year? And then the second question, I had was one of your biggest peers is saying that their module share goal is that they want to be 30% of the global market if you ex out Japan. And I am wondering whether you have a market share goal, you were like 9.5% this year, but sorry, in 2010 but I am wondering whether you have a longer term share goal? Thanks.

Dr. Zhengrong Shi

Yes, and like non-silicon process I think in Q3, the process cost was about $0.50 per watt. And like I think it was $0.52 in exact number, that’s actually including some of U.S. cost from our Japan’s – Suntech Japan. So it was about $0.02. I think even this number this quarter number actually was already coming down about $0.50 because that’s also including Suntech Japan’s U.S. cost. So going forward, I think there is a several (inaudible) competition. And first of all, I do plan to scale off optimization in process in general process and costs should come down as we set a target to reach $0.45 in 2012 per watt.

So on other hand, still some materials that commodity and like sort of extract of oil or like for example silver price – is also somehow impacted by silver price. So I think from the price of – some of this consumer price tend to go up a bit. So I think overall as a fate, we still maintain our goal to reach $0.45 or lower per watt in our silicon cost by innovation, using new materials and so on. And for silicon part, wafer part as similar it saves about $0.25, but we believe we should be able to get level of $0.22 or lower in a year time.

Andrew Beebe

On the second question, I’ll just add, we’re roughly at around 10% now. And this year obviously we’re targeting increased shipments about 40% with the market performing between 10% and 20%. So obviously we’re going to grow share in 2011. And then in long-term 2015 range, we’d love to see, it could be around the 20% mark in terms of global market share including Japan.

Tim Arcuri – Citi

Including Japan. Okay, great. Thank you.

Operator

Your next question comes from the line of Mark Bachman of Auriga.

Mark Bachman – Auriga

Yes, hi thank you taking my questions. Dr. Shi, got a question for you on the China market here, I think you seem rather bullish about it. But maybe you can explain to us what role you think that the five biggest IPPs that are out there, the five biggest utilities are going to play in building out this market for large scale solar in China?

Dr. Zhengrong Shi

Okay. Yes, I think they will play – some of them will play big roles in developing solar projects in China. And now that we already know that some public announcements from the Chinese several departments has Golden Sunshine projects. There is a public permits bidding project and like a government stated public [ph] in next year, Golden Sunshine Project subsidy will be at least one gigawatt, so excluding all other subsidies and so on. So also like in China there is lot of activities going and actually especially this five giant generation companies. So they just develop their project and install the project themselves. And we even we love considering this government issue. And I think this part of the project actually, this part of market is quite big. And so that’s why I become more and more confident that China market is going to grow more rapidly.

Mark Bachman – Auriga

So do you think that the companies like Suntech maybe the (inaudible) the traders of the world are going to be relegated to just building out the Golden Sun Projects maybe doing some BIPV, maybe doing rooftops. And do you think that it’s possible that the utilities take the largest part of this market as China starts to build out its solar resources?

Dr. Zhengrong Shi

Certainly they have big pockets.

Andrew Beebe

Mark, I am not sure I get the question, I mean those companies will still be buying panels, whether we’re building them or not, that’s not – we do systems integration in China but our core business is selling modules and we’re happy to sell modules to those five large companies.

Dr. Zhengrong Shi

Actually that’s what I mean, like I mean certainly this utility company they have very deep pockets. So they can develop a lot of rooftop and uptick lot of projects. So far from Suntech point of view we have very – we have a range of this product which are very suitable for this type of market sector in BIPV, rooftop. So we do have EPC Company in China which actually is quite busy at this moment to construct all these projects in China.

Mark Bachman – Auriga

Okay. So Andrew you don’t foresee these large companies then entering into the manufacturing realm of producing their own solar modules? Is that correct?

Andrew Beebe

Yes.

Mark Bachman – Auriga

Okay. And then lastly Stuart here, on the Pluto production what is the expected monthly run rate do you expect to achieve when you exit Q4 of 2011?

Dr. Stuart Wenham

Well we currently have 450 megawatts of Pluto capacity installed. And during the first half of this year, we will be transitioning those lines into Pluto production. So by the end of the year, we will have that whole 450 megawatt of production capacity in Pluto functional.

Mark Bachman – Auriga

Right. But I think you’ve only guided 200 for the year, is that correct? And you said it’s going to be back half weighted, that’s what we’re trying to determine where do you think you’re going to exit on a run rate and where we might be able to look where Pluto could actually go in 2012, right? Because if you look at the total production this year, Pluto is still a very small portion of that, right, and we’re going to wait another year for Pluto to come on. I am trying to determine, at the end of 2011 what sort of run rate are you going to be at on Pluto?

Dr. Stuart Wenham

Okay, so at the end of 2011, we will have the existing 450 megawatts of Pluto capacity all fully functional with Pluto. But the other thing to realize is that all the new lines that are being installed this year through the joint venture etcetera, all of those lines are flexible lines that are Pluto enabled.

So all of those lines will be able to be ramped up if we use Pluto production. We’re just not giving the guidance at this point in time as to how quickly we will be able to do that.

Dr. Zhengrong Shi

So just to answer your question like, by end of the year we will at least have 40 megawatt Pluto process per month and so next year at least the production volumes for Pluto would be 450 megawatt.

Mark Bachman – Auriga

Okay, excellent. Thank you so much gentlemen. And by the way congratulations on a great quarter, it’s been some time that you guys have actually been able to report a very nice quarter with upside and without any distractions to it. So it’s just very nice to see this on the call.

Dr. Zhengrong Shi

Thank you.

Andrew Beebe

Thank you Mark.

Operator

Your next question comes from the line of Gordon Johnson of Axiom Capital Management.

Gordon Johnson – Axiom Capital Management

Thanks for taking my question. I just have a couple. One thing that has been scratching my head is you guys gave guidance before, and I guess we’re seeing that the Italian market is experiencing some delays here. And you mentioned that there was Benelux, Spain and in other market that you said can make up some of the shortfalls in Italy. But by my numbers Italy is about 31% of the global market and those other market combined are just 2%, less than 2% actually of the global market. So given that you’re having the falls in the Italy, some delays in projects and also I just want to clarify there will be an annual cap this year based on the law that was passed, how are you confident that you’re going to continue to achieve your guidance given those other markets of such a small percent in the overall market?

Andrew Beebe

Yes, thanks Gordon, I think it’s a great question. As I said, in early December we really had visibility for three months later, we have a lot more visibility when we look at all the markets. We’ve now sold in, sold – gotten through the changes in Germany, have a much better understanding of what’s going on in France. And in markets like Spain actually are really reviving as markets for us. So when I look across Europe, and I am looking at the spreadsheet right now where those changes happen. We’re very, very comfortable making it up.

But again I would also just point out that our products are now globalized. We spent a long time making sure that we could shift products on a moment’s notice, while they are waiting at the port in Shanghai for one market to another. And we’re now in a position to go to other markets as well.

Gordon Johnson – Axiom Capital Management

Okay, and I guess you ASP guidance is 160ish, exactly 159. That’s about where prices are right now. It just seems to me like clearly given again Italy is going to be about 31% of the market or was about 31% of the market and much more than that recently. If that market is stopping and if there is a cap which is being discussed of maybe one gigawatt a year. It seems to me like that will have an impact on ASPs. So again how are you guys confident that you’ll be able to maintain that ASP through the year. It just seems like there could be some pressure there.

Andrew Beebe

Yes, I think there may be some confusion about where the ASPs are today. As we said, Q1 will come back to Q3 levels from last year. So we actually don’t see ASPs in that range today. In tier one supply – and by the way I don’t think we’re unique, I think in the tier one range, people are seeing pricing, I assume people are seeing pricing at a higher number for Q1.

So this is a key point Gordon, getting to that average means that the second half for the year will be significantly or could be significantly lower than that 160, if things like Italy really turned out to be worst case scenarios. So that is how we’ve come to that average for the year. And I should just say it again, we’re one quarter of the way through the year. We have one quarter crystal clear visibility, almost one quarter crystal clear visibility on deals that have already transacted.

So we’re – right now we’re comfortable with that number and again we’ve modeled it based on a worst case scenario in Italy.

Gordon Johnson – Axiom Capital Management

And then just one more actually, you guys have mentioned that the Chinese market is going to be a significant market, but I am looking at what the government in China has said and they specifically said that they are going to take a year, at least a year actually to study some of the mistakes made in feed-in tariff policies in European countries before they enact any significant legislation. So I guess there seems to be somewhat of a difference in which you guys are seeing versus these comments that the government in China has made. Can you help me understand all you guys (inaudible) government?

Dr. Zhengrong Shi

Yes, Gordon that’s exactly right, we don’t have feed-in tariff policy in China. So the government still rely on just like other subsidy program like subsidy out information or permit by bidding. This causes us to determining the project. But again as you saw it, all the marketing I am talking now is the result in public and non-subsidy. Like you can imagine indeed there is a non-subsidy like I announced. So I think the market could be again could be hugely different, hugely much better. So I think with knowledge of whole China market is looking I think what I said is fairly accurate.

Operator

Your next question comes from the line of Sam Dubinsky of Wells Fargo Securities.

Sam Dubinsky – Wells Fargo Securities

Hi guys, couple of quick questions for you. A $250 million markup on your GSF project is a pretty significant. I think it equates to about $260 a watt. Can you explain the accounting treatment on GSF projects in more detail? What target or what terms are you assuming in a DCF [ph] basis?

Dr. Zhengrong Shi

Yes, as we guided in Q3 call and we did expect a bit write up from GSF investment, we talking 80 megawatt installation to be completed. And we ended up with actually more megawatts being completed. And all this projects were installed before 31st December 2010 and based on the regulation and utility companies, all these projects will be connected before June of 2011. And the valuation in particular it really much depends on specific projects for example, where the project is installed and its location and because the location also relating [ph] a solar radiation and so on.

So its best result to the power generation particular per kilowatt hour or per kilowatt, this generation ratio. So that’s why I think this evaluation is based on double-digit equity, low double-digit I believe from investment point of view. And also the valuation is non-necessary linear. So we compare to [ph] what is in Q3 is not necessarily.

Sam Dubinsky – Wells Fargo Securities

Just to better understand that when you first built the project or did you model, what is the marking it up? Are you assuming you’re going to sell the project at a more normalized return or I just want to understand the math behind it, what’s the discount rate you think [ph]?

Dr. Zhengrong Shi

Yes, it is like. For example there is a comparable based upon like a $20 [ph] in discounted cash-flow.

Sam Dubinsky – Wells Fargo Securities

Yes.

Dr. Zhengrong Shi

So that’s how we calculate and same for the project value is sold at this point of time, that’s a fair market value.

Sam Dubinsky – Wells Fargo Securities

But what’s the discount rate, what’s the ROI you’re assuming. Is it 10% versus returns of 13% to 17% when you first built the project? I am just trying to understand the math.

Dr. Zhengrong Shi

We have to – if you’re interested we have to go through the detail with you offline.

Sam Dubinsky – Wells Fargo Securities

Okay, and if Italy change this program, we have to revalue this projects?

Dr. Zhengrong Shi

Well as I just said earlier, like the current – the policies all the projects completed before the 31st of December, the utility company is obligated to connect all this before June of 2011. And in all these projects will enjoying the feed-in tariff level of 2010.

Sam Dubinsky – Wells Fargo Securities

Okay, my last question is, is your 10% to 15% yearly sales estimate, is that includes, is that direct sales or is that also include indirect sales. Customers are selling to in other geographies that end up strong in Italy?

Dr. Zhengrong Shi

Andrew.

Andrew Beebe

It includes both and I should just, I think it’s a great question I should note, that over the last nine months the European team has worked hard to make sure that we’re selling regionally within Europe. So while some product would sell into Germany, does go to Germany. For the most part our customers there are buying through Italian subsidiaries when they buy. So they’re buying into Italy instead of having it start in Germany and go elsewhere.

Sam Dubinsky – Wells Fargo Securities

I got you, just one more if I can. Just $24 million equity income from your wafer GV, that gets consolidated next quarter, correct? So we shouldn’t model equity income going forward in wafers. Is that correct?

Dr. Zhengrong Shi

Yes, I think it’s more as part of our business, that should be have some upside for our gross margin.

Sam Dubinsky – Wells Fargo Securities

Okay, it goes to gross margin but away from equity income?

Dr. Zhengrong Shi

Yes.

Sam Dubinsky – Wells Fargo Securities

Okay, thank you.

Dr. Zhengrong Shi

Thank you.

Operator

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

Kelly Dougherty – Macquarie Research

Hi thanks for taking my question. I just wanted to follow-up on Italy a little bit, talking about it being a long-term attractive market. Can you give us any sense of what type of cap you’re assuming would actually be instituted in Italy and then if you’re talking about long-term attractiveness the market beyond parity. Is that how you’re thinking about it?

Andrew Beebe

Yes, I mean I just don’t think we should – this is Andrew, I don’t think we should try and guess what’s going to happen with the cap just yet, but certainly in all markets that we look at, we are constantly modeling and very focused on investing in post subsidy marketplaces. So understanding the timeline for post subsidy environmental economics. And in Italy I want to just go back. We’re excited about the Spanish market, but Italy and Spain are different markets. Spain has a lot of similar characteristics environmentally in terms of installation and in low demand. But it has a much, much lower cost per kilowatt hour.

Italy has an extraordinary high cost of electricity per kilowatt hour. So it really sets it up nicely for that long-term free of subsidies with parity marketplace. And that’s – and so when I talk about the long-term value there, that’s where we’re focused on. In the mid-term we’re also very confident that and throughout work on GIFI, I think we have good insight into this that the Italian government is working hard to find a balanced approach that keeps this industry strong across Italy.

Kelly Dougherty – Macquarie Research

Okay, great. Thanks, and then maybe Dr. Shi just a follow-up on China. You talked about prices not coming down as quickly as many of us were thinking and on one hand that’s good thing, but on the other hand how those the Chinese market really take off if prices aren’t coming down? Are you expecting a new round of subsidies or the feed-in tariff or something else that might actually choose up the demand level of pricing isn’t coming down as quickly?

Dr. Zhengrong Shi

Certainly I think given the nature of elasticity of our market, I think way for us become more competitive I think that more people is going to – is willing to invest in this sector, because historically the electricity deposit in China is relatively lower than other part of country – other countries. So I think our SP [ph] is more I think the demand is going to go up in China.

Operator

Your next question comes from the line of Paul Clegg of Mizuho.

Paul Clegg – Mizuho Securities

Hi thanks for taking my question. Just another follow-up sorry, on the GSF further on the discount rates that you used. I just wanted to understand that if interest rates rise, I mean in a rising interest rate environment, you saw some of the GSF projects that you’ve market up. Do you then start booking losses?

Dr. Stuart Wenham

Sir, I didn’t get your question clearly. Do you mean loss, what do you mean loss?

Paul Clegg – Mizuho Securities

Well the fact that if interest rates are rising in this environment, you’ve used a certain discount rate to establish your DCF, if interest rates rising and then you sell the project?

Dr. Zhengrong Shi

Well I think the interest rate is related to the project financing. Amy can you maybe give some light on this issue – on this question?

Amy Zhang

Sure. Currently the interest rate has been fixed based on the LIBOR, and then LIBOR is floating while the basis points added on top of the LBIOR has been fixed. But given the current debt coverage ratio as well as the IR [ph] after leverage, I think with the LIBOR being float, the income and also the income versus the principal amount plus the interest payment would be fully covered, that’s for sure, because again the debt coverage ratio definitely needs to be go above at least a 120% to get the project financing fixed. And we’ve got different scenarios to make sure that the debt to equity is way above 120% to cover the LIBOR floating.

Paul Clegg – Mizuho Securities

Okay.

Dr. Zhengrong Shi

And another thing I think I would like to add is we believe GSF evaluation as we did is actually already fairly conservative to cover that your (inaudible) just mentioned.

Paul Clegg – Mizuho Securities

Okay. And then maybe just to follow-up on debt, since you brought up Amy, but you’re still targeting moving $400 million in short-term debt to mid-term. Are you looking at the medium term Chinese note market and then just given that your debt actually did go up due to the consolidation during the quarter, should we expect to do something more than $400 million now?

Amy Zhang

No, I think the reason we had to maintain a relatively higher level of debt by the end of the year was mainly for the rolling over of repayment and renewal of the short-term debt. And once the facility has been relocated from short-term debt to medium term or even longer term debt, we don’t need to maintain such a high debt level to rollover these debts, that’s for sure.

So probably you would see the debt level has come down, debt to equity has come down. Probably we don’t need to maintain the same high level of cash and cash equivalent at the same time.

Paul Clegg – Mizuho Securities

And any interest in tapping the Chinese medium term note market and what kind of rates do you think you could get there if you did?

Amy Zhang

You mean the offshore RMB bond or onshore?

Operator

Your next question comes from the line of Edwin Mok of Needham & Company.

Edwin Mok – Needham & Company

Hi thanks for taking my question. Can you clarify on GSF, you mentioned you plan to ship now 40 megawatts there. How is their pipeline, are they all in Italy and given the potential property change in Italy. Is it possible that they might not – they might have a relatively slow back half for this year?

Dr. Zhengrong Shi

Yes, I think the GSF that’s additional 40 megawatt in the process of installation, the module already outside or all close to richer side. So the module have already been shipped. And as we kind of see like our total outstanding receivables are about $10 million, so that means some of this 40 megawatt has already been paid to us. So but from a construction point, we believe they will be able to complete this will construction of 40 megawatt and a connect all of them before 31st of May. So they should be able to hit the FIT level of 2011.

Edwin Mok – Needham & Company

I see, but previously you have talked about GSF as 200 plus megawatt of pipeline, right? How much of that is outside of Italy, and would that drive it up as a result or change in subsidy into those?

Dr. Zhengrong Shi

Well those all countries they have – as far as I understand they have project in developing in Spain, Greece. Now they are even in Bulgaria.

Edwin Mok – Needham & Company

I see, and then just quickly on China – going back to China, you mentioned that the systems sales this year is still going to be relatively small and it sounds like mostly due to prices. And my understanding just from looking at your financials is, you’ve probably are still generating active margin of that business right now. When do you actually expecting get to have a positive margin points in that system business and is that the triggering point that you expect to grow – substantially grow that business?

Dr. Zhengrong Shi

I think Andrew.

Andrew Beebe

Yes, can you say that one more time please. Hello.

Dr. Zhengrong Shi

The question was about the systems margin in China.

Andrew Beebe

Yes, and do we expect this to grow, yes. The systems margin in China is a small portion of our overall revenue coming out of China, and I think that the margin on the systems deals themselves should be expected to climb overtime, but I think that the absolute dollars are going to decline as a ratio of the sales of modules within the China market.

Dr. Zhengrong Shi

Another one, I think China business, the overall gross margin is probably be somehow bit lower than our gross margin from other markets.

Operator

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

Nitin Kumar – Nomura Singapore

Hi guys great quarter. Just one quick question on GSF projects, it’s an amazing amount of affiliate earnings that you’re getting. Just curious as to how we should look at timeline when you want to kind of sell these projects and book these profits as real cash versus actually having it on balance sheet as probably some number there. So I am just kind of curious, is this something you want to continue holding on for the rest of life or do you want to actually sell these projects and make money?

Dr. Zhengrong Shi

It’s certainly our intention and also it’s certainly is GSF intention to monetize this project probably as quickly as possible. I think presently GSF management are evaluating several options to monetize this project. So I think when we they make a progress we’ll report to you, when it happens.

Nitin Kumar – Nomura Singapore

So is it a large demand for such projects in the market and, I assume the evaluations you are using is pretty much in line with what probably the kind of customers are giving you. So I am just curious as to how soon can we expect a turnaround on these projects.

Dr. Zhengrong Shi

Yes, so hopefully we can get it done this year. And but again in terms of the valuation, it depends on how – there is some people talking about with limited or reduced volume of projects with this and such high feed-in tariff and valuation could go up with time, so you never know. So that’s why by any case, it is our intention and GSF intention to try and monetize the project as quickly as possible.

Nitin Kumar – Nomura Singapore

Great, I think I’ll take up rest offline. Great, thanks a lot.

Dr. Zhengrong Shi

Thank you.

Andrew Beebe

Thank you Nitin.

Operator

Your next question comes from the line of Mehdi Hosseini of Susquehanna International.

Mehdi Hosseini – Susquehanna International

Yes, thanks for taking my question. I have two follow-up. Can you help me understand at what price point installation in Germany is going to improve, what I hear is project yields are rather unattractive and I am not seeing any meaningful pickup after the slow – seasonally slow driven month of January and February. So what is the sweet ASP that you would expect installation Germany pickup? And then number two, it’s very obviously that margin profile for module sold outside of the Europe is lower than what is going into Europe. How do you see that a speed decline or a lower margin going to play out into your long-term margin profile or how should we think about it?

Dr. Zhengrong Shi

Yes, Andrew.

Andrew Beebe

Yes, I think the Germany answer is pretty straight forward. We have been working with very mature project developers and channels to market on the distributed market of residential and commercial. And both of those remain strong. It’s absolutely true that the project IRRs have come down. And we’re seeing some readjustment where only a specific type of investor is capable of doing large scale deals. Those are happening. We’ve seen this coming for a while obviously and we have been focused on much more on a transition toward these channels that are going towards the rooftop distributed markets and we’ve seen a lot of success there.

So I think you’re going to see a shift there as it all occurs, we’re already starting to see that. And I don’t want tag a particular price for Germany, but certainly we have seen a number of re-ups [ph] from our pre-existing channel in the last couple of weeks with regard to slight responsiveness to a slight change in pricing.

Mehdi Hosseini – Susquehanna International

Okay. And so therefore if the large project IRRs are coming down, do you think the ratio of segment along is going to be able to get you five gigawatt for the whole year, or is that a risk that Germany as a whole could be actually much less than that given the fact that there is a 10% to 15% cut in feed-in tariff coming in a few months.

Andrew Beebe

Yes, I mean we’ve been watching and modeling that carefully. And I think 2011 will be down from 2010, but below five gigawatts would be unexpected. Certainly in 2012 and onward we might see a sustaining market below that number but not in 2011.

Operator

Your next question comes from the line of Pranab Sarmah of Daiwa.

Pranab Sarmah – Daiwa Institute of Research

Good morning and thank you for taking my questions, great quarter. My first question is on what is your overall market side projection – global market projections for 2011 and 12. And for 2011, how you are segregating different market, I think you have given lot of answers, if you can summarize that to one, that will be very good for everyone.

Dr. Zhengrong Shi

Yes, Andrew.

Andrew Beebe

Yes in 2011, in December we had been looking at an outlook of something 15% to 16% and now we’re monitoring what’s happening in Italy, but I would say something in the 17% to 20% range is appropriate.

Pranab Sarmah – Daiwa Institute of Research

And do you segregate the 17 to 20 [ph] gigawatt for 2011 like Germany, Italy how many percent it would be?

Andrew Beebe

Yes, I think in general we’re going to see Europe flat to down and I think we just talked about Germany being something like its somewhere between a quarter and a third, probably closer to a quarter of that market overall for 2011. So in general while Europe is going to continue to grow, there is – on a percentage base it’s going to remain flat and that’s why we’re carrying back, I would significantly in terms of our mix that goes into Europe.

Operator

Ladies and gentlemen, this concludes all the time that we have for questions today. I would now turn the call back over to Dr. Shi, Suntech’s CEO.

Dr. Zhengrong Shi

Yes. Thank you for attending our call today. If you have further questions, please just contact Rory Macpherson, Director of Investor Relations and or other staff in the future. Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. And have a wonderful day.

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