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

Executives

Donald Reilly - Chief Financial Officer

Michael El-Hillow - Chief Executive Officer, President and Director

Lawrence Felton - Chief Technology Officer

Michael McCarthy - Director Investor Relations & Governmental Affairs

Analysts

Theodore O'Neill - Wunderlich Securities Inc.

Timothy Arcuri - Citigroup Inc

Adam Krop - Ardour Capital Investments, LLC

Matthew Farwell

Christopher Blansett - JP Morgan Chase & Co

Evergreen Solar (ESLR) Q4 2010 Earnings Call March 10, 2011 8:30 AM ET

Operator

Good day, everyone, and welcome to Evergreen Solar Fourth Quarter 2010 Conference Call. [Operator Instructions] At this time, for opening remarks, I would like to turn the call over to Mr. Michael McCarthy, Director of Investor Relations. Please go ahead, sir.

Michael McCarthy

Thank you, David, and good morning, everyone. I'm joined today by Mike El-Hillow, President and CEO; Don Reilly, our Chief Financial Officer; and Dr. Larry Felton, our Chief Technology Officer.

In addition to the press release and 10-K that were filed, we have prepared several slides that may be referenced during this morning's call. If you've not already accessed them, you can do so by going to our website at evergreensolar.com, and clicking on the Invest tab at the top right part of the landing page.

Before we begin the call, we'd like to remind everyone that statements made in this conference call will include forward-looking statements made pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934. Management will be discussing its current expectations, beliefs, strategies, goals, outlook and other non-historical matters. Such statements will include details regarding the company's wafer furnaces, the ramp of our factory in China, expected manufacturing costs and expectations regarding product demand and pricing and the company's cash requirements.

Certain risks and uncertainties will cause our actual results to differ from what we expect. These uncertainties arise from the inherent difficulties in predicting the benefits of new technologies, the often volatile market for solar-grade silicon and the difficulty in forecasting customer demand. We refer you to our SEC filings for more information regarding forward-looking statements and the risks associated with those statements and our business.

I'll now turn the call over to Mike for his review of the fourth quarter. Mike?

Michael El-Hillow

Thanks, Mike, and good morning, everyone. On today's call, I will focus on two underlying themes: our decision regarding the closing of our Devens facility and the shift in our strategic focus of becoming a wafer manufacturer and supplier. Don will provide you with details regarding our fourth quarter financial results, including the impact of the Devens closure. He will also discuss our near-term liquidity needs.

As we announced in early January, we intend to completely shut down operations at our Devens manufacturing facility. The simple reason is that our costs at Devens cannot compete with those of our Chinese-based competitors, who have built substantial scale and have benefited from significant local financial support.

Closing the manufacturing plant and having to let hundreds of people go was obviously painful. However, this unfortunate event was necessary to preserve the liquidity needed to operate our business as we pursue an industry standard -- standard-sized wafer strategy built on our proprietary technology.

We will also continue to ramp our 75-megawatt facility in Wuhan, China and produce Evergreen solar-branded modules to our subcontractor, Jiawei. We are making good progress there and expect to be at full capacity during the second quarter, assuming that such level of production's warranted by market demand.

In beginning the discussion about our low-cost wafer supplier strategy, I want to highlight a few key data points. By the end of 2010, worldwide cell processing capacity reached approximately 30 gigawatts, a growth rate exceeding 50% over the prior year. Another 50% increase in capacity is forecasted by many in 2011, enabling the solar industry to support more than 45 gigawatts of cell capacity in 2012.

The market is very large and is expected to continue to grow substantially over the long term. Conventional wafer manufacturing technologies have existed for more than 40 years and is rapidly nearing its limits in terms of wafer thickness and its ability to minimize the amount of silica needed.

Companies supplying wafers using this technology will continue struggling to find ways to significantly reduce costs further. While they may be able to produce thinner wafers, it would certainly be a downstream yield impact which would offset any savings from a thinner wafer.

Then of course, no matter how thin they can make a wafer, they will always be throwing away about half the silicon. This, we believe, creates a large and attractive opportunity for our proprietary technology.

As a merchant wafer supplier, we offer a compelling economic value advantage. In fact, we believe that our technology is the only technology available today that can provide a step function improvement in wafer costs that can readily be implemented by existing low-cost cells and module manufacturing capacity. Our cost advantage is simple. We use half the silicon versus all other manufacturers of wafers and, and I want to stress this, our non-silicon process costs are lower due to an inherently simpler manufacturing process.

I'd like to recount to you a detailed explanation about our wafer costs as we provided on our last call, and I'll refer you to slides that we have posted on our website under the Investor Relations page that will give you some more detail about our current and expected wafer cost strategy.

The industry tends to characterize wafer costs into silicon costs and non-silicon process costs. Today, our silicon costs at Devens is about $0.20 per watt, based upon a cash silicon cost of about $55 per kilogram and a consumption of about 3.6 grams per watt. Our non-silicon process cost is about $0.35 per watt, which includes consumable materials, labor, overhead and depreciation. Therefore, today at Devens, we produce a wafer for a total cost of about $0.55 per watt based upon the cash silicon cost of about $55 per kilogram.

We believe we are producing a wafer for about the same as the very best -- the very best Chinese manufacturers today, despite being produced in low volumes and in a high-cost manufacturing region.

When our Wuhan wafer facility reaches full operating metrics by late 2011, our non-silicon processing cost is expected to be about $0.23 per watt. This compares to the estimated $0.25 per watt for our still larger Chinese competitors, and only then the very best-of-breed companies.

With a silicon cost of $50 per kilogram, we will reduce our silicon costs to about $0.70 per watt this year. Therefore, we expect to reduce our fully-loaded wafer costs of silicon and non-silicon process costs to $0.40 per watt in late 2011, which compares to $0.55 for our much larger competitors, consisting, in their case, of $0.30 per silicon and $0.25 for processing.

Furthermore, our target is to reduce non-silicon process costs to about $0.13 per watt in 2013, which is substantially less than projected by any best-of-breed Chinese manufacturers today.

Reducing silicon consumption to about 2.5 grams per watt, our silicon costs will be about $0.12 per watt, and our fully-loaded wafer costs would be about $0.25 per watt in 2013.

Our non-silicon process costs will ultimately be better than the best wafer manufacturers in the world, because non-silica material is used in String Ribbon wafers are lower cost than materials used in ingot growing and wire slicing.

For example, crucibles of sliced wafer ingot growing are used only once and are expensive. Crucibles used to make String Ribbon wafers last for up to two weeks of continuous operations. Wire slicing uses cutting wires, lubricants and abrasives, each of which has a finite lifetime and must be disposed of after use.

The string we use, which is technically a filament capable of withstanding the extreme temperatures in our furnaces, becomes integrated into the wafer, and there are fewer process steps, requiring less consumables, lower maintenance and less waste.

In terms of energy consumption, sliced wafers require more. This is attributed to having to melt more than twice as much silicon at over 1,400 degrees Celsius to produce a sliced wafer.

Finally, we think the best wafer manufacturers will never be able to match our silicon consumption component. We have a real improvement advantage, an advantage demonstrated to be highly sustainable.

Our wafer will provide cell and module manufacturers a major source, and potentially the only real source of a significant cost reduction, enabling them to produce modules for less than $0.75 per watt.

At this level, multi-crystalline technology becomes cost competitive with thin-cell modules, yet with higher modular efficiencies, further expanding market growth opportunities for our end customers.

Our strategy is to penetrate the merchant wafer market in two phases. First, we must develop our wafer and drive initial customer adoption. This process began late in 2009 when several of our Quad ribbon furnaces were converted to run two 156-millimeter-wide ribbons.

As we pointed out in quarterly updates, and during more than a dozen investor conferences all through last year, we progressed rapidly because making wafers is what we do best.

Today, about 100,000 standard-sized wafers have been harvested from these tools. The quality of wafer, plus the continued improvements we are making in processing and furnace efficiency. In fact, these wafers are comparable to wafers produced from our Quad furnaces in Devens and Wuhan today. Therefore, we are highly confident we will be able to substantially and quickly improve our standard-sized wafers even further, as our pilot furnaces begin producing wafers.

These early standard-sized wafers have been sampled with strategic customers and initial interest has been high. By the end of June, we will have 5 megawatts of production standard-sized wafer furnaces in operations. These wafers will also be sampled by strategic customers, each of which has now been assigned a dedicated team of process engineers. These engineering teams will further strengthen our processes and further align our customer relationships with Evergreen's growing low-cost capability.

By the end of this year, our plan is to install a total of 25 megawatts of standard-sized wafer furnaces in our Wuhan facility, representing the first substantial pilot production line. As we exit the year, we expect to demonstrate that the performance of our wafers will be widely accepted.

Phase II of our standard-sized wafer strategy shifts our efforts into driving growth. Foremost in being able to achieve our growth target is our ability to meet cost milestones, specifically achieving a total wafer cost of $0.25, and perhaps as low as $0.20 per watt. Our goal is to become the preferred wafer of choice by providing the lowest-cost, highest-performing wafer available. In doing so, we believe that Evergreen Solar can generate growth and investment that supports the operation of more than 3 gigawatts of capacity in the next three to four years.

At these levels, the company can generate resources internally to sustain future expansion and generate free cash flow. It is at these production levels that we've been talking to potential strategic partners and the Chinese government about.

Having just returned from two weeks in China with Don, meeting with potential strategic partners and the Chinese government, I can tell you that support for our technology, strategy and growth target is high. In-depth negotiations to obtain significant financing for our expansion and customer support for our industry-standard wafer are attracting very strong interest, and we're expecting to have more details to share on our progress as the year progresses, with substantial progress by early summer.

In closing, we have undertaken major changes in order for us to focus solely on our differentiated technology. String Ribbon proves itself everyday in the field, with more than half the gigawatts of modules utilizing String Ribbon wafers installed around the world.

With a standard-sized String Ribbon wafer, we expect that our technology will provide a step function improvement in wafer costs that no one else would be able to provide. It will enable the production of the lowest-cost solar modules in the world.

I look forward to updating you on our progress in the months ahead. For now, I will turn the call over to Don for his review of the quarter's financial performance, after which we'll be happy to answer your questions. Don?

Donald Reilly

Thanks, Mike. Good morning, everyone. So to many of you, this call will serve as our introduction to one another. Evergreen Solar's an exciting place right now, and I look forward to speaking with you and meeting with many of you in the days and weeks ahead.

This morning, I'll focus my prepared remarks on a brief review of our fourth quarter results and update on our capital structure and cash requirements for 2011, following the closure of our Devens facility.

So total revenues for the fourth quarter were $89.3 million, as compared to $86.5 million for the third quarter. Revenues increased slightly due to higher shipments, offset somewhat by a decline in average selling prices.

During the quarter, we shipped a record 46.6 megawatts compared to 42.6 megawatts in the third quarter. Average selling price during the fourth quarter was $1.90 per watt, down from $2.02 per watt in the third quarter.

Our expectation is that average selling prices will decline further in 2011 due to the increased amount of low-cost manufacturing capacity coming online in China and the continued uncertainty of subsidy programs in Europe, especially during the second half of the year.

During the fourth quarter, approximately 89% of our product was sold in Europe, approximately 11% was sold in the U.S. This compares to third quarter sales of approximately 79% in Europe and 21% in the U.S.

Gross margin in the fourth quarter was $75 million negative, due mainly to the write-down of prepaid inventory of approximately $75 million, which resulted from our decision to close Devens. I'll talk more about the impairment charges associated with Devens in just a minute or two.

Our blended manufacturing cost in the fourth quarter was $1.92 per watt, an increase of $0.04 from $1.88 per watt in the third quarter. Total manufacturing cost increased sequentially, mainly due to the countervailing duties imposed on us at the beginning of the fourth quarter and the continued ramp of our Wuhan factory.

While total blended manufacturing costs were $1.92 per watt, cash cost was approximately $1.61 per watt. As we mentioned on our last call, we were levied a countervailing duty associated with our aluminum framing that we sourced in China. Since then, we've been able to recharacterize the material we import from China, which has eliminated the duty, so it won't be an issue going forward. The duty accounted for approximately $0.03 of the $1.92 cost per watt in the fourth quarter.

With respect to wafers, during the fourth quarter, our non-silicon processing cost was $0.35 per watt for wafers produced at Devens. This includes consumable material, labor, electricity, manufacturing overhead and depreciation.

Silicon consumption was about 3.6 grams per watt in December, and with a cash silicon cost of about $55 per kilogram, our silicon cost was about $0.20 per watt. So we produce wafers at a total cost of about $0.55 per watt with the cash cost of silicon at about $55.

R&D expense was $4.4 million for the fourth quarter of 2010, down from $5.1 million in the third quarter. We expect R&D investments to increase somewhat through [ph] 2011 from the Q4 level as we strategically invest in our technology, more specifically as it relates to the pilot of our low-cost standard-sized wafer.

SG&A expense was $7.8 million, down from $13.7 million in the third quarter. SG&A expense in the third quarter included a doubtful account charge of approximately $6.4 million relating to our receivable from our Korean customer. Without that charge, third quarter SG&A expense was $7.3 million.

The facility start-up cost associated with the ramp of our Wuhan facility and, to a lesser extent, our Midland high-temperature filament plant, was about $4 million in the fourth quarter, a decrease in the third quarter of $5.5 million.

During the quarter, we incurred impairment charges of approximately $303 million associated with our Devens closure. Again, I'll go into more detail on that in a minute or two.

Our operating loss, which includes the startup costs and impairment charges were about -- was about $399.1 million compared to $22.7 million in the third quarter. Other expenses in the fourth quarter consisted of foreign exchange losses of $974,000 and net interest expense of $10.9 million. Other expenses in the third quarter included foreign exchange gains of $6.3 million and net interest expense of $10.8 million.

The net loss for the fourth quarter was $411 million, or $11.99 per share, versus $27.2 million, or $0.79 per share in the third quarter. Weighted average shares outstanding for the fourth quarter were 34.3 million, relatively unchanged from the third quarter, and reflects the -- which reflects the 1-for-6 reverse stock split which took effect on January 1.

Total debt as of December 31 was $452 million, of which $249 million relates to the 4% notes due in 2013, $155 million relates to the 13% notes due in 2015, and $38 million relates to the loan and accrued interest due to the Chinese government in 2014.

Now as I'm sure many of you are aware, we attempted to address our outstanding convertible notes on an opportunistic basis aimed at reducing our debt and cash interest charges well before the notes are due. While we did receive -- we didn't achieve the results we had hoped for, we were still able to exchange a portion of the existing 4% notes. Specifically, we exchanged $45.4 million of the existing floors for $22.7 million of new floors and, almost immediately, about $10 million of the new notes converted into shares of our common stock. Therefore, we reduced our total debt from $452 million as of the end of 2010 to $419 million currently.

So while we're disappointed that we weren't able to convince a larger number of our noteholders to accept our exchange offer, we still believe we are well-positioned to continue our transition to becoming a supplier of the lowest-cost industry standard-sized wafers in the world.

At the end of the fourth quarter, we had approximately $68.4 million of cash, including cash equivalents and restricted cash. As we discussed -- as we disclosed previously, the total impairment charges required relating to the Devens facility, totaled $377.5 million. Of this amount, approximately $303 million relates to the building, facilities and equipment at Devens, and approximately $75 million relates to the write-down of prepaid inventory.

As you may recall, at the time we entered into a silicon contract with OCI and we were making a cash prepayment, we issued shares of stock to OCI. We recorded the value of those shares as prepaid cost of inventory, which we have amortized in the cost of sales as the use of silicon over the cost -- over the life of the contract. This was the non-cash charge in our wafer costs that we've referred to historically, and has typically accounted for about $0.08 per watt. The $75 million write-down essentially relates to this prepaid inventory, so going forward, this amortization will have little impact on our wafer costs.

Clearly, managing Evergreen's liquidity and cash will be among my highest priorities this year. Our goal is to first assure adequate resources are available to meet our operating needs and then to fund the standard-sized wafer strategy that Mike set out earlier in this call. This work is well underway, but it's imperative that we remind you that the buffer available to us during this time will be thin, and this will require us to act decisively if and when circumstances are altered by virtue of an opportunity or an obstacle that we don't anticipate today.

So we ended the year with about $68 million in cash with, again, including equivalents and restricted cash. Closing Devens will help ensure that we preserve our liquidity in these uncertain market conditions. As Mike plainly stated earlier, 2011 is a transition year for Evergreen. As such, it will be necessary for us to carefully manage our cash throughout the year.

Our liquidity picture for 2011 in terms of softness and uses of cash can be summarized as follows. We will use $80 million in funding operations. We will invest $20 million in capital expenditures to support our standard wafer program, and another $5 million to support String development.

We'll use $30 million for cash interest payments, and we expect additional sources of cash from working capital reductions and the sale of assets of approximately $90 million. By shutting Devens, we were able to unlock a substantial amount of working capital, as we collect our receivables and work down our inventory. Our Wuhan, China operations doesn't require a significant amount of working capital, so that is a relatively small operation of about 75 megawatts.

Now while we expect to spend $20 million in CapEx, plus another $5 million in pilot expenses to support the standard wafer program, the timing of the spending will depend on how we realize proceeds from the sale of the Devens assets, which we expect to occur over the next six months. If we do not realize proceeds from the sale of certain assets within the time frame that we expect, or if the amounts are substantially different than we expect, we'll have to either delay some spending or secure other forms of financing in order to keep to our aggressive time schedule for our development programs.

We will continue our efforts to opportunistically address our capital structure to make sure we are properly funded to execute on our wafer strategy, including potentially accepting the capital market sometime within the next several months. I would highlight, though, that our current convertible notes, for the most part, are not due until 2013, which gives us ample time to address the debt situation.

In terms of forecast, we expect that for this year, we'll ship about 100 megawatts of Evergreen Solar-branded modules. This includes 35 megawatts of products in Devens and the remainder from Wuhan.

So that completes my prepared remarks. I'll turn the call over to the operator now so that Mike and I can respond to any questions that you may have. So operator, would you please open the lines?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Theodore O'Neill with Wunderlich Securities.

Theodore O'Neill - Wunderlich Securities Inc.

So a couple of questions. The equipment in Devens that you expect to generate $90 million in sale of assets, is that minus the equipment that's part of Devens?

Michael El-Hillow

Theo, it's Mike. It's the equivalents in Devens, but I also want to stress, the $90 million was a combination of selling off of the equipment and the building located at Devens plus the freeing up of the working capital.

Theodore O'Neill - Wunderlich Securities Inc.

And isn't -- will the equipment be difficult to sell because it's designed -- it's optimized for a nonstandard cell size?

Michael El-Hillow

Not necessarily. I mean, certainly in the wafer area, it's difficult to sell. But that's why, quite frankly, the proceeds expected Devens is well below the $435 million we paid for it. But there will be some interest in it.

Theodore O'Neill - Wunderlich Securities Inc.

And Mike, you talked about getting to three-gigawatt capacity in cell making in the next three to four years.

Michael El-Hillow

Wafer making.

Theodore O'Neill - Wunderlich Securities Inc.

Wafer making, yes. Wafer making in the next three years. What kind of CapEx requirement will it take to achieve that?

Michael El-Hillow

Probably about $0.35 per watt. That's probably the best way of doing it.

Theodore O'Neill - Wunderlich Securities Inc.

And just one more question here. The inventory that you've got, will that flow through in sale in the March quarter? Is that supposed to be worked down now, or is that going to continue on to the June quarter?

Michael El-Hillow

It's probably going to go on to the June quarter. I mean, anything's possible. I know you've listened to the calls from other companies that have been talking about the market situation. The fact is, it's a tough time in Germany. Warehouses are full. Everybody's warehouses are full. We all experienced the same thing at the end of last year, but more than likely, this is all going to flow through by the end of the June quarter, that there's going to be a great rush in that quarter. So more than likely, we'll finish the quarter with some modules of inventory, but we're confident we'll be able to push it through in the June quarter, and I think you're going to find that most other companies are in the same position.

Theodore O'Neill - Wunderlich Securities Inc.

And should that lead us to believe that the first quarter sales will be significantly lower than the fourth quarter?

Michael El-Hillow

That's certainly a possibility for us.

Operator

We'll take our next question from Chris Blansett with JPMorgan.

Christopher Blansett - JP Morgan Chase & Co

Gentlemen, just a quick -- so we should assume you've completely shut down Devens now, or should we still expect some wafer production out of that site in the Q1 time frame?

Michael El-Hillow

It will be shut down in the next 10 days, so there's significant production that's -- we're going to produce about 37 or 38 megawatts at Devens in this March quarter.

Christopher Blansett - JP Morgan Chase & Co

And then how should we view wafer production in Jiawei in -- during the same quarter?

Michael El-Hillow

During -- I'm sorry, Chris, what?

Christopher Blansett - JP Morgan Chase & Co

Wuhan during Q1. How should we -- what kind of wafer output should we assume on that?

Michael El-Hillow

They should be about 13 to 15 megawatts of output in the quarter.

Christopher Blansett - JP Morgan Chase & Co

So overall, you're actually increasing your total output versus Q4?

Michael El-Hillow

Yes. A little bit. Yes.

Christopher Blansett - JP Morgan Chase & Co

Okay. And then based on the change in the manufacturing, are you having to change any agreements -- supply agreements to any of your customers, given just the structural change that's going on here? Or do your module supply agreements relatively remain intact?

Michael El-Hillow

It's ongoing negotiations between us and our customers. Our customers have been very supportive of the situation, and it shouldn't be a problem.

Christopher Blansett - JP Morgan Chase & Co

And then, I guess, when you look at the $90 million you'd expect to get out of the Devens' assets, how much of that is the inventory versus the rest of the equipment and building? I don't know if you're willing to give a breakout on that.

Michael El-Hillow

Well, working capital is about $50 million. That includes receivables and inventory, and the remainder is Devens.

Christopher Blansett - JP Morgan Chase & Co

So you're really -- these are pretty highly discounted assets, so that's why you're pretty comfortable they'll sell?

Michael El-Hillow

Yes.

Christopher Blansett - JP Morgan Chase & Co

And then, I guess, as we go forward, how should we assume wafer production in Wuhan in Q2? You're going to shutdown Devens. We assume some of that equipment's going to move over there. How should we think of that transition?

Michael El-Hillow

Well, the 15 megawatts in the second quarter. It depends upon market demand though, Chris.

Christopher Blansett - JP Morgan Chase & Co

So basically -- and then, I guess, how long will it take for the general trends of wafer-making equipment from Devens to Wuhan until you think that most of it that exist. . .

Michael El-Hillow

There's no equipment being transferred from Devens to Wuhan, because the Devens equipment is the narrow wafer.

Christopher Blansett - JP Morgan Chase & Co

Okay. All right, then I think I'm good.

Operator

Your next question comes from Matt Farwell with Imperial Capital.

Matthew Farwell

Just curious, what flexibility do you have to sell equipment at Devens, given the security agreements in the indenture for the bonds?

Michael El-Hillow

We can sell everything at Devens that we want, we just must keep the capital in the United States. We have full flexibility to sell the location.

Matthew Farwell

And then have you considered raising equity at the project level as opposed to the holding company, like some of your peers?

Michael El-Hillow

Well, when you say at the project level, normally. . .

Matthew Farwell

It's at the operating company level.

Michael El-Hillow

Anything's possible. It's obvious that our ability to attract capital in the United States has been difficult. By the same token, I think -- now that we've spent time in China, as I said in my prepared remarks, I was there for several weeks, as was Don, as was Larry Felton, our CTO. A lot of -- what's going on -- we have a very compelling investment opportunity. We'll be out talking to prospective investors, me in particular, over the next couple of months. I look -- we should just take a second talking about our noteholders. They've shown a great deal of confidence in us, most recently a year ago. And when you look at the situation on the recent recapitalization that didn't happen -- we think it was a fair proposal. By the same token, we're trying to balance the needs of all stakeholders. We'll be in constant dialogue with potential equity investors, potential note investors. We do believe that we have a compelling investment opportunity, and we all have a common goal, which is to make Evergreen grow and to be this wafer supplier. So similar to -- as we're rolling out the wide wafer strategy on a commercial level, we'll take that same opportunity to find out interest in investing, whether it's at the holding company level, at an operating company level within, say, the geographic region itself. There could be a great deal of interest in having someone support the formation of a stand-alone company with a joint venture in China, similar to what we did with Sovello fine [ph] in Europe. So I think it's a great deal of possibility over -- as I said, in the last couple of weeks, we have been talking to many different interested parties, and there is a great deal of interest in our low-cost wafer. But to be perfectly honest, we'll just say we're making great progress. Larry and his team, especially, are doing a great job. We've got to show the world that it's really going to happen. The best thing that we have going for us is this, and we've heard this from our shareholders and our noteholders, is that when Evergreen Solar says they're going to do something operationally, whether it's opening up factories in Europe, opening up a factory in the United States with Devens, opening up a factory in Wuhan, we set aggressive metrics for how long it takes us to open the factory and costs we achieve -- operationally, we've met or exceeded all of our goals. We're telling the world right now, we'll have a $0.25 wide wafer. If history's any indication, the future is very promising. So we're really excited about getting out, talking to customers, talking to suppliers, furnace suppliers, silicon suppliers, and talking to interested investors. And so the very long answer to your very short question is this: we're open to any opportunity, financially, that will allow us to unlock the value that we see in our technology.

Matthew Farwell

Okay. And I guess in terms of your capital structure, given the high interest burden, can you outline any plans in the near term to address that capital structure? Is that something that will perhaps happen sometime next year?

Michael El-Hillow

No. Look, doing things like this, it's an ongoing dialogue. We had, I thought, very, very good meetings with about -- holders that represent about 85% of our notes. And they understood the situation, and in fact I think they were very supportive about what we're trying to do. So we'll continue the dialogue with them. But the important thing to note is that we don't have a credit event yet. We don't really have to do it, but we're all stakeholders here. And the thing we've stressed on this trip talking to the noteholders is that all the stakeholders have to make some kind of concessions if we're able to unlock the value of String Ribbon. Quite frankly, in our discussions over the last few weeks in China, we talked about the capital structure. Now we've got to find our share of the investment there. They are willing to provide us similar terms that we got -- similar to the loan we got a year ago, which is we provide about 1/3, and maybe a little more, maybe as high as 40%, and they will provide a guarantee to get us about anywhere from 60% to 2/3. But we've got to go find our 1/3. And so we'll be out talking to all the people that want to invest in us and that includes the noteholders. They have something they have to protect. We owe them $435 million. And we're not going to generate that cash with 75-megawatt Wuhan right now. But I will tell you that there's an operating model that's very compelling. It's a growth industry. We have a competitive advantage. Our wafer will perform. We're going to drive higher than that. So the long and short of it is that we do plan to reach out again to our noteholders, but not as part of the recapitalization we just tried to do. As a private company, there should be interest in helping us succeed. Because if we succeed, we'll pay their notes back.

Operator

We'll go to our next question. Chris Blansett has a follow-up from JPMorgan.

Christopher Blansett - JP Morgan Chase & Co

Mike, I wanted to ask you real quickly about the thought your customers have of this transition. I wasn't sure -- we do have an inventory correction out there. You have a dislocation in your manufacturing. Do you think you're going to have any issues selling some of that inventory you currently have?

Michael El-Hillow

Chris, it's an interesting dynamic. The fact is, is that when demand exceeds supply, we can all sell everything we have. When it goes the other way, it obviously goes the other way. Do I think there's going to be a problem if we scale back? Well, one thing that hasn't changed is this, we still make a module that is considered one of the best, if not quite frankly the best in the industry, from a quality standpoint. Our customers do have faith in us. So the long and short of it is that, assuming that there's not just this incredibly major correction, we're pretty comfortable. But, even if there is a major correction, my sense is, given the quality of our module, we're going to be able to find a home for the 12 to 15 megawatts we're trying to place around the world, as opposed to the companies that might be sitting there with a gigawatt or a 1.5 gigawatts of demand. But anything is possible. But the long and short of it is the exposure that we have is limited to 12 to 15 megawatts. So we have great brand recognition, our customers do like us. Yes, they are concerned about the transition, but we're still selling products out of China. The impact -- my sense is the impact will have more to do with the macro situation than a micro situation.

Christopher Blansett - JP Morgan Chase & Co

All right. And then the second question I had was tied to your thoughts on a module ASP kind of trajectories, Q1, Q2. Should we expect a significant step-down in Q1, with maybe a rebound in Q2, as people try to get in before the Germany subsidy cut? Or how do we think -- how should we think about this?

Michael El-Hillow

I don't think there's going to be a significant ASP reduction in Q1. I think we had -- maybe have a demand situation. From us, particularly, our ASPs are holding pretty steady. And I think the second quarter ASP will also hold pretty steady.

Operator

[Operator Instructions] And we'll take our next question from Adam Krop with Ardour Capital.

Adam Krop - Ardour Capital Investments, LLC

A question on the wide wafer. You mentioned that R&D would be up quite a bit in 2011. Can you just elaborate on what the growth rate might be year-over-year on the R&D for 2011?

Michael El-Hillow

R&D more than likely will be $5.5 million to $6 million a quarter this next year. And I think -- I mean, the fourth quarter of 2010, R&D, I think, was about $4.1 million. It was down a little bit. It's more of a timing issue, so -- I mean, Larry and his team -- for modeling purposes, $5.5 million, maybe $6 million a quarter.

Adam Krop - Ardour Capital Investments, LLC

Okay. And then as a follow up there, as you -- you internally kind of certify the wide wafer there. Are you required to go back and externally certify that? Can you just tell us about that a little bit?

Lawrence Felton

Yes. This is Larry Felton. Typically, the certification goes on at the modular level. So the people that would buy our wafers and make cells and modules out of them would go ahead and certify those. The wafer companies themselves don't typically do that.

Adam Krop - Ardour Capital Investments, LLC

Okay, great. And then in one of your previous press releases, you talked about possible write-offs for your -- maybe $150 million for some of your poly contracts. Can you just give us an update there? I mean, can you use some of that poly in the Wuhan facility, or can you just give us a little bit more color there?

Donald Reilly

Yes. This is Don. Well, first, we did write down that prepaid as part of our impairment and closing charges in the fourth quarter. It's about $75 million of write-down. The answer to your first question. The second part of your question is yes, we can use that silicon anywhere in the world, and we will.

Adam Krop - Ardour Capital Investments, LLC

So you wouldn't expect any further write-downs on that part of it right now?

Donald Reilly

We would not.

Operator

And we'll take our next question from Tim Arcuri with Citi.

Timothy Arcuri - Citigroup Inc

I noticed that you guys introduced for the first time a rough time frame for news relating to funding. I was wondering what is it that gave you the confidence to introduce this rough time frame and where we are in the process?

Michael El-Hillow

The discussions that both Don and I have had -- actually independently, when I said Don and I were together in China for two weeks, actually we were there for two weeks, but our paths didn't cross. He had some initial meetings with the Wuhan, Hubei government. And also the government brought in a bunch of different potential fundings sources that Don met with. And then I followed up with maybe even more in-depth -- it was a little bit more -- not in-depth but higher-level meetings over there. I guess the best way of framing it is, is that you may recall that when we went to Wuhan a couple of years ago, there was interest, and at that particular time, the one that we negotiated then, I was doing all of the negotiations. Don will be doing the things that I did a couple of years ago, but I can tell you that the interest that was there a couple of years is even greater now. They're really excited about focusing on our technology. There is still capital available in China. Yes, there have been signs that it sometimes tightens a little bit here and there, but they still have preferred industries and there is capital available. Also, we've said this for many years since we've started dealing with Wuhan, we are the only solar company in Wuhan. We are the solar company for Wuhan in the Hubei Province, and they appreciate what we've done for them and vice versa. So the money is available. We've got us the timing but, look, we're opening there, we've got to find our 1/3, and we're looking for the 1/3. And it's interesting, nobody is. People keep saying "You've got to raise money." Well, companies that expand typically have to raise money, especially from a start-up position. So the long and short of it is, is that there is a great deal of interest. And it's also supported by a thing I said earlier. We told the Wuhan government what we would do regarding the facility in Wuhan. We gave them a timetable, we gave them performance levels and we met or exceeded everything there. They are really impressed with our ability to execute and our commitment to success. So that's why we're talking about it now. We spent a couple of weeks there. I think Don is going back next week, I'm going back in about two weeks, and the dialogue will continue. Anything else?

Timothy Arcuri - Citigroup Inc

No, that's perfect.

Operator

We'll take our next question from Tom Cole [ph] with Taz Securities [ph].

Unidentified Analyst

I was just wondering -- so you talk about the 1/3. Are you kind of looking at a structure where the Chinese are willing to provide a loan for the 66%? So similar where they funded $35 million, $40 million for a portion of your first 100 watts that they could do something on a similar basis, and then you're just trying to find either debt or equity money for the other 1/3, and the economics would be split in that kind of fashion or...

Donald Reilly

Generally speaking, the answer to question is yes. Let me elaborate a little. With respect to the source of Chinese funding, it may be a combination of debt and equity. In other words, there are certain groups of investors in China who may be brought into a consortium, brought into a JV. That's one scenario. And the other scenario is there's debt financing in China. But the total funding that we expect is about, as Mike just mentioned and as you just said, about 2/3 from China, and we'll be expected to find the other 1/3 in various sources.

Unidentified Analyst

And could you just remind me, for the first bit of the expansion you did with them, they funded -- I can't remember, it's $35 million, $40 million. But you get 100% of the economics on it? You're just paying them an interest? I mean, I guess, it's a pit coupon but you just have to give them their money back in 2014 or that maturity date, but you basically get 100% of the economics on that?

Michael El-Hillow

This is Mike. It is a bit confusing. If we put in -- they gave us close to $33 million [ph], we put in the remainder. But they put it as an equity investment. However, we have to pay it back no later than the middle of 2014 principal and interest, so therefore, that's how we get all the economics. So theoretically -- even though legally, legally they own 2/3 of this location, from an economic standpoint, we fully consolidated because the characterization really is, from a financial point of view, is debt. And you're right, it will be in the middle of 2014.

Unidentified Analyst

So would you expect that, for the additional financings, It could be -- I know this is still wide open, but, I mean, are you kind of conveying the message that you think you could do similar type of terms?

Michael El-Hillow

Well, somewhat. But it's a little different this time because now they seem to be pointing towards a straight debt. It could be the other way, but it's a little bit different. The funds we got before were provided by the Hubei Science and Technology Investment Group, HSTIC. What they're doing now is they're facilitating us getting interested parties, whether it's banks or other companies, to invest in us. Banks, obviously, want to do debt, other companies want to do equity. So it's a subtle change. We still get full support, but instead of them just kind of driving the funds to us, they'll do it in the form of a guarantee. But the funds would come from a third-party. I think that -- let me just make one closing point, just to follow-up to our recent trips to China, so -- where does this stand? We are -- everyone's very enthusiastic, and in fact, the Hubei and Wuhan governments would like us to begin construction in May. Of course, that's contingent upon the time and the money, but I will tell you that the land has been picked out. It's in a new industrial zone, it'll be free trade zone in Wuhan. And our neighbor across the street is Foxconn. You all know Foxconn, they are the largest subcontracted EMS company in the world. They have a location in Shenzhen that employs about 500,000 people, and they're talking about employing about 250,000 people across the street from us. And so the emphasis [ph] that's being put in place quite frankly that we're hoping to make the lowest-cost wafer in the world. We want to sell wafers, but there's sometimes strength in specialization too. There's a good possibility that between us and Foxconn, and even another south [ph] company that comes in, that this could be, I don't want to use this term, but when you go into Germany, in the Thalheim area, to Solar Valley -- I mean, there is a lot of upside, there's a lot of interest in bringing even more jobs, solar jobs into the area. So in answer to Tim Arcuri's question earlier, that also gives us optimism as to our ability to move forward. So with that, I want to thank you all for taking the time. It's exciting times for Evergreen. It's also a very sad time. Our Devens facility will be closing, and we'll take a second to thank all of our employees that helped us there. And we look forward, Don and I and Larry and the whole team, of updating you in the future. Thank you very much.

Operator

Thank you. And that does conclude today's conference call. You may now disconnect.

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

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

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

Source: Evergreen Solar's CEO Discusses Q4 2010 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts