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Executives

Arthur Chen – Director of Legal Affairs

Miao Liansheng – Chairman and CEO

Bryan Li – Executive Director, VP, and CFO

Miao Qing – IR Director

Darren Thompson – Managing Director of Yingli Green Energy Europe

Robert Petrina – Managing Director of Yingli Green Energy Americas

Analysts

Min Xu – Jefferies

Lu Yeung – UBS

Cheng Eric – Deutsche Bank

Dan Ries – Collins Stewart

Satya Kumar – Credit Suisse

Philip Shen – Roth Capital Partners

Sanjay Shrestha – Lazard Capital Markets

Adam Krop – Ardour Capital

Sam Dubinsky – Wells Fargo

Colin Rusch – ThinkEquity

Shawn – Piper Jaffray

Pranab Sarmah – Daiwa

Mahesh Sanganeria – RBC Capital Markets

Yingli Green Energy Holding Company Limited (YGE) Q2 2011 Earnings Conference Call August 19, 2011 9:00 AM ET

Operator

Hello, ladies and gentlemen. This is Kim. I’ll be the operator for this conference call.

I would like to welcome everyone to the Yingli Green Energy Holding Company Limited second quarter 2011 financial results conference call.

All lines have been placed on mute to prevent background noise. After today’s presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you’d like to ask a question.

I would now like to transfer the call to the host for today's call, Arthur Chen, Director of Legal Affairs of Yingli Green Energy. Arthur, please proceed.

Arthur Chen

Thank you operator and thank you everyone for joining us today for Yingli's second quarter 2011 financial results conference call.

The second quarter 2011 earnings release was issued earlier today and available on the company's website at www.yinglisolar.com. We have already provided supplemental presentation for today's earnings call, which can also be found on our IR website. I hope you all had a chance to review it by now.

On the call today from Yingli Green Energy are Mr. Miao Liansheng, Chairman and Chief Executive Officer; Mr. Bryan Li, Executive Director, Vice President and Chief Financial Officer; Mr. Wang Yiyu, Chief Strategy Officer; Mr. Miao Qing, IR Director; Ms. Yin Tong, Financial Controller; Mr. Darren Thompson, Managing Director of Yingli Green Energy Europe; Mr. Robert Petrina, Managing Director of Yingli Green Energy Americas.

The call today will feature a presentation from Mr. Miao, covering business and operational developments. And then Mr. Li will take you through a discussion of the company's financial performance. After that, we will open the floor to questions from the audience.

Before beginning, Yingli Green Energy's management team would like to remind the audience that this presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as a mandate, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believes, estimates and similar phrases.

Such statements are based upon management's current expectations and current market operating conditions and relate events that involve known and unknown risks and uncertainties and other factors, all of which are difficult to predict and as many of which are beyond Yingli Green Energy's control, which may cause Yingli Green Energy's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in Yingli Green Energy's filings with the US Securities and Exchange Commission. Yingli Green Energy does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

I'd now like to turn the call over to Mr. Miao Liansheng. Please begin.

Miao Liansheng

[Interpreted]

Hello, everyone, thank you for joining us today.

First, I would like to share our business highlights in the second quarter of 2011. Then Bryan Li, our CFO, will take you through our financial results.

I'm pleased to announce that we had our best quarter ever in terms of PV module shipments, which increased by 36.6% over the previous quarter, primarily attributed to improved market position, solid management execution, and our diversified customer portfolio. With the significantly increased shipments, we managed to increase our global market share as well as to extend our sales geographies. In spite of decreased amount of selling prices this quarter, we achieved a solid gross margin of 22.1%.

In addition, to further strengthen our ties to existing customers, we have successfully developed relationships with new customers in both, mature and new markets. During the first half of 2011, we gained 46 new customers from markets such as China, the US, Germany, Spain, France, Japan, Israel and its surround. We delivered approximately 19 megawatts of PV modules to these new customers, representing more than 10% of our first half sales.

Our efforts on solar developing new markets are reflected by our leading presence in markets such as North America and China. North American solar market is exceeding expectations and growing into important source of demand with cumulative shipments of 250 megawatts to 23 US states, Canada, Mexico and the Caribbean, we have become the leading module supplier in the America. During the second quarter, we delivered more than 60 megawatts of PV modules to the 13 new customers spreading across utility, residential and the commercial sectors in the US.

The outlook for the remainder of this year is although positive given improved downstream economies and diversified customer portfolio. Last week, we became the first official renewable energy partner of US Soccer. We consider this affiliation to be the best platform for raising solar energy awareness, building lasting brand, and achieving recognizable presence in the US. We expect to capture nearly 15% of North American solar market in 2011.

The China PV market has experienced the roughest growth in the last two years. This is primarily attributed to Golden Sun program and concession feed-in projects. As a solar pioneer based in China, Yingli has been firmly committed to our domestic market and has emerged as the market leader. In the second quarter of this year, the China market contributed approximately 10% of our total sales.

Recently, we became the largest PV module supplier for Huanghe Hydropower and supported its construction of two ground-mounted solar projects in Qinghai province. One of which will become the largest solar power plant in China. Year-to-date we have secured to more than 200 megawatts orders from six Chinese customers to deliver in 2011. We have already delivered 70% of the volumes and is scheduled to deliver the remaining 30% before the end of this year.

With the announcement of the unified national solar feed-in-tariff for ground-mounted projects, we are seeing quickly emerging demand from China. We are actively discussing with our customers to seek to enhance the cooperation in this year and years to come. We are also expecting to further enhance our market leadership in North America and China, by allocating approximately 30% of our full-year 2011 sales.

Yingli has become well known for its cost and leadership. The pricing decline in polysilicon and auxiliary materials is one primary external force to drive down cost. Internally we believe improvements in cell efficiency and their production yields will be the major catalyst for further cost reduction.

On the research and development front, we are gauging very close to 18.7 of average cell efficiency on the existing 300 megawatts PANDA production lines to continuously optimize the manufacturing process on PANDA lines. We have achieved over 100% of utilization rate which will enable us to make strong customer demand with maximized development due to higher commercial efficiency and other advantage compared to traditional monocrystalline products, the untapped mono PANDA modules command a premium pricing.

In addition, we are also very exciting to say the results from efforts on multicrystalline cell production. The conversion efficiency in the lab has reached 18.39%. Product quality is delivering priority at Yingli. Our multicrystalline PV module ranks number two in TUV Rheinland 2010 Energy Yield Test, demonstrating our superior product quality and the performance.

In addition to continuous efforts mentioned above, incremental manufacturing capacity is vital for us as we continue to gain market share. I am pleased to announce that we just had another 700 megawatts capacity come on line including 600 megawatts in Baoding and 100 megawatts in Hainan. We expect the new capacities to be fully rental through the end of this year.

The skilled [ph] execution of our global field strategy we have continued to expand our team with talent in the regions. On behalf of entire Yingli team, I would like to extend my welcome to Ms. Yin Tong, our newly appointed Financial Controller. Prior to join Yingli, Ms. Yin Tong worked for several multinational corporations and has extensive experience in accounting and the finance. We look forward to utilizing her expertise to accelerate our pursuant solid growth.

Furthermore, we have continued our marketing initiatives and have become official sponsor of 2014 FIFA World Cup in Brazil. Our participation in 2010 FIFA World Cup proved that FIFA World Cup is one of the best marketing platforms. We believe that this continued relationship will help to build our global brand as the supplier of the choice to all PV users around the world.

Thank you. I will now hand the call over to Bryan.

Bryan Li

Thank you, Mr. Miao. I would like to once again welcome everyone to join us today.

Now, please open the presentation slides, and then turn to page four. I will walk you through some highlights from this quarter as well as the guidance for next quarter and the full-year 2011.

In the second quarter of 2011, our PV module shipment volumes increased by 36.6% over the previous quarters, reaching a historical high. We managed to mark a milestone of total net revenue by an increase of 27.4% quarter-over-quarter to $680.6 million and then maintained an overall gross margin of 22.1%. Diluted earning per share was $0.36 in this quarter.

Looking to the next quarter, we expect the shipments to increase by a high 20%-ish over this quarter. Based on current market and operation conditions, I submitted a production capacity and forecasted a customer demand, we reaffirm our PV module shipment target to be in the estimated range of 1.7 gigawatts to 1.75 gigawatts for fiscal year of 2011, which represents an increase of 60.1% to 64.8% compared to fiscal year of 2010.

Let’s turn to slide 10 through slide 13 for a summary of the key operating metrics in this quarter. Total net revenues were RMB4.4 billion, equivalent to $680.6 million in this quarter, an increase of 27.4% from RMB3.5 billion in the previous quarters. The significant increase was primarily attributable to an increase of 36.6% in PV module shipments, resulting from improved market conditions, solid management executions, and our diversified customer portfolio.

The increase of the total net revenue was partially offset by the sharp decline of module price starting from June 2011, which triggers demand recovery that was further accelerated by the arrival of policy certainly in Italy.

Gross profit was RMB970.1 million, equivalent to $150.1 million in this quarter, an increase of 2.8% from RMB943.7 million in the last quarter. Overall gross margin was 22.1% compared to 27.3% in the previous quarters and 33.5% in the second quarter of 2010. The decrease in gross margin quarter-over-quarter was primarily due to the sharp decline of module price. Non-silicon cost in this quarter was approximately $0.72 per watt, a continuous improvement from $0.73 for the last quarter.

Looking to the next quarter, we’re expected to see a mid-to-high teen percentage decrease in ASP. After considering the level of input material costs, we currently estimate our third quarter 2011 gross margin to be mid-to-high teen percentage. Operating expenses were RMB443.7 million, equivalent to $68.7 million in this quarter, compared to RMB375.5 million in previous quarters. Operating expenses as a percentage of total net revenue was 10.1% in this quarter compared to 10.9% in the last quarter.

Other result, operating income in this quarter was RMB526.4 million, equivalent to $81.4 million, compared to RMB568.2 million in the previous quarters. Operating margin was 12% in this quarter compared to 16.5% in the last quarter. Interest expenses was RMB157.8 million equivalent to $24.4 million in this quarter, compared to RMB130.5 million in the previous quarters. As of June 30th, 2011 we had an average of RMB12.1 billion equivalent to $1.9 billion borrowings, medium-term notes, and the convertible notes, increased about 18.5% from RMB10.2 billion as of March 31st of 2011.

Foreign currency exchange gain was RMB35.5 million equivalent to $5.5 million in this quarter, primarily attributable to the appreciation of the Euro against the RMB, compared to RMB61.2 million in the last quarter. Other income was RMB55.2 million, equivalent to $8.5 million in this quarter in which RMB52.2 million equivalent to $8.1 million was attributable to the gain of bargain purchase for a acquisition made in April 2011. The acquired company was a PRC private solar product manufacturer that provided an OEM service to us prior to the acquisition.

Income tax expenses was RMB73.5 million, equivalent to $11.4 million in this quarter, a decrease of 4.2% from RMB76.8 million in the previous quarter. Our effective tax rate for this quarter was 15.8%, slightly up from 15.2% in the last quarter. The applicable income tax rate for our major operating subsidiaries, Tianwei Yingli, Yingli China, Fine Silicon, and Hainan Yingli were 12.5%, 15%, 15%, and 25% respectively. As a result of all factors discussed above, net income was RMB375.6 million, equivalent to $58.1 million in this quarter, compared to RMB368.3 million in the previous quarters.

Before we move on, I would like to discuss with you simply on non-GAAP reconciliations. In this quarter, three non-GAAP items were added back to the GAAP figures, including $2.2 million share-based compensation expenses and the $700,000 in cash interest expenses and $1.9 million amortization of intangible assets arising from the purchase price allocation, offset against the gain on bargain purchase by acquisition of $8.1 million. In aggregate this item positively impacted the diluted EPS by $0.02. As a result, adjusted non-GAAP basis, net income was RMB354 million, equivalent to $54.8 million in this quarter compared to RMB43.6 million in the previous quarter, adjusted in non-GAAP diluted earnings per ordinary share and per ADS were RMB2.21 equivalent to $0.34 in this quarter, compared to RMB2.51 in the last quarter.

Moving onto the balance sheet, as of June 30th, 2011 we had RMB7.1 billion, equivalent to $1.1 billion in cash and restricted cash compared to RMB6 billion as of March 31st of 2011. As of June 30th, 2011 inventory was RMB2.6 billion, equivalent to $395.5 million, decreased by 15.3% for RMB3 billion as of March 31st, 2011 as a result of the increased shipments and an improved inventory management. Our inventory turnover date in this quarter largely decreased to 67 days from 108 days in the previous quarters. As of June 30th, 2011 accounts receivable were RMB3 billion, equivalent to $464 million, increased from RMB2.5 billion as of March 31st of 2011. Day sales outstanding was reduced to 61 days in this quarter from 66 days in the previous quarters.

As of June 30th, 2011 working capital representing current asset less current liabilities was RMB2.2 billion, equivalent to $336.5 million, compared to RMB2.9 billion as of March 31st, 2011. To further support our operational – our expansion projects and business development, Yingli China, our wholly-owned subsidiary has received a five-year loan of RMB1.16 billion from our China Citic Bank, Shijiazhuang Branch and the Bank of China, Baoding Branch.

Hainan Yingli, one of our primary operating subsidiary in China also received a two bank loans from China Development Bank, Hainan Branch. Under the terms of the agreement, the China Development Bank will provide Hainan Yingli subject to certain conditions and 8-year loan of RMB900 million and a $180 million. New addition, China Development Bank will also provide RMB780 million as a working capital to support Hainan Yingli’s operation. We believe these loans will further optimize our debt structure and enhance our financial capability to pursue our long-term growth strategy.

As of today, we have approximately RMB7.7 billion in unutilized short-term lines of credit and RMB942 million committed in long-term facilities that can be drawn down in the near future. Lastly, we are planning to host this year’s Investor Day in the afternoon of October 18th in Dallas, US, during Solar Power International 2011. Please contact our IR team at ir@yinglisolar.com if you wish to attend this event.

Now, I would like to open the call to the questions. Operator.

Question-and-Answer Session

Operator

The question-and-answer session will now begin. (Operator Instructions). And your first question comes from the line of Jesse Pichel with Jefferies. Please proceed.

Min Xu – Jefferies

Hi, this is Min Xu for Jesse. Chairman Miao, Bryan and team, congratulations for superb execution and a strong quarter. Obviously your marketing dollars in soccer is working its magic globally. Your inventory days decreased dramatically, so how did you do this? And what is your utilization in Q2 and Q3? How do you expect your inventory to trend in the second half?

Bryan Li

Thanks for the questions. We control – we reduced the inventory turnover days by – largely by two means. One is to the reason of the increase of shipment volume in the second quarter, so that has helped us and largely reduced the finished goods levels at the end of June 30th, 2011. And secondly, we will also – we also enhanced the management procurement procedures for all the polysilicon and auxiliary materials by prolonging the payable days and also the efficient procurement procedures to the inventory turnover days. So those two reasons helped us to largely reduce the inventory turnover days in the second quarter, and we will continue and extend these efforts to the rest of the year.

Min Xu – Jefferies

Can I expect the utilization to be 100% in Q2 and Q3?

Bryan Li

Yes, you can. We’re running at 100% utilization.

Min Xu – Jefferies

Okay, great. Your R&D expense in the quarter more than doubled. Can you help us understand where you’re investing your R&D dollar and what is your plan for further PANDA capacity expansion versus other potential technology improvements?

Miao Liansheng

[Interpreted]

There is a – large component of the R&D expenses was incurred in connection with the Phase II projects for the PANDA modules and that was – we will expect to launch the PANDA – the Phase II PANDA modules very soon and to help us further increase the sale conversion efficiency rate. And then the other quote is in connection with the testing and trial commercialization of the multicrystalline technology. It’s a new innovative technology and it mainly focus on the improvements of the processing technology and to help us increase the sale conversion efficiency rate for the multicrystalline lines and with smaller additional input costs for the CapEx.

Min Xu – Jefferies

So how should we expect the R&D dollar to trend in the following quarters? And how do you – in your future expansion are you going to equally like 50% PANDA and Quadra [ph] mono?

Bryan Li

I think for the R&D expenses and we trade it internally as an investment project. We’re not focused on the absolute dollar amount of the R&D projects but rather focus on the strategic meaning and the cost saving efforts through the R&D – through each industrial R&D projects. And if we believe a R&D project can help us achieve the cost saving efforts and we will for sure be happy to spend dollars on those type of projects. And for the second quarter and the third quarter are the most critical periods for the trial commercialization of Phase II PANDA lines as well as the new technology of multicrystallines.

Min Xu – Jefferies

Yes, this is great. Congratulations again team. And also welcome abroad Yin Tong.

Bryan Li

Thank you.

Min Xu – Jefferies

Okay, bye.

Operator

Your next question comes from the line of Lu Yeung with UBS. Please proceed.

Lu Yeung – UBS

Hi, congratulations. Can you guide for a shipment guidance for third quarter in case I missed that?

Bryan Li

Yes, we did. And we currently based on the market condition expect a high 20s increase from second quarter to third quarter.

Lu Yeung – UBS

Okay. Also could you share with us your processing costs during second quarter and how is that going to trend in the third quarter, and also your blended quality costs like second quarter and third quarter, please?

Bryan Li

We continuously reduced the non-party processing cost to $0.72 per watt in the third quarter from $0.73 in the second quarter, and it’s on track to further reduce to $0.70 per watt when we exit this year.

Lu Yeung – UBS

Okay, I see. Last question from me before I get back to the queue. What does the Chairman Miao expect the demand from China this year and perhaps some thoughts on 2012?

Miao Qing

[Foreign Language – Chinese]

Miao Liansheng

[Interpreted]

Actually for China, the demand will be a lot like 600 megawatts to 800 megawatts, and I think it does mention a part of those demand from China. But in total we’ll be approximately 1.5 gigawatts. And then for next year, I guess should be about 2 gigawatts at least.

Lu Yeung – UBS

Okay, thank you very much. Congratulations.

Miao Liansheng

Thank you.

Operator

Your next question comes from the line of Cheng Eric with Deutsche Bank. Please proceed.

Cheng Eric – Deutsche Bank

Hi, thanks for taking my question. I just want to have a sense of what’s the party usage for Yingli in the second quarter? And also the – do you have any tolling cost for the second quarter as well?

Qing Miao

Sorry, Eric, we cannot hear you clearly. Can you just quickly repeat your question?

Cheng Eric – Deutsche Bank

Sure. Do you have – just wanted to have a sense of what’s the party usage in terms of gram per watt in second quarter, and also what’s the – do you have any tolling cost for external processing in second quarter?

Bryan Li

Thanks for the questions. In terms of the gram per watt, in the second quarter, we have managed to reduce the gram per watt below 5.8. And our target when exiting this year is somewhere around 5.5. That is the goal.

Cheng Eric – Deutsche Bank

And do you have any tolling cost incurred in the second quarter?

Bryan Li

We did have and it’s not material in the second quarter.

Cheng Eric – Deutsche Bank

Is it similar to first quarter in terms of the tolling cost per watt?

Bryan Li

In terms of the magnitude, it’s lower. It was lower than this quarter, yes.

Cheng Eric – Deutsche Bank

Okay. And also –

Bryan Li

[inaudible] this number.

Cheng Eric – Deutsche Bank

I see, I see. And another question is on the party costs – on average party costs for the second quarter, and what’s the expectation for the third quarter and fourth quarter?

Bryan Li

For the second quarter, it was basically flattish from the first quarter blended at cost level. But we see a big decline. And it still declines when we move to the third quarter by roughly mid-to-high 20% from Q2 to Q3. And we also expect a mid single-digit decline from Q3 to Q4 for the blended polysilicon costs.

Cheng Eric – Deutsche Bank

I see. And last question is on the minority interest. I saw the minority interest is actually declining. That seems, it means that, your Tianwei Yingli operation is actually making less profit. Can you share with us what's the reason of that?

Bryan Li

The main reason is because of the other way around, which is the increase of shipments and the contributions by our wholly-owned subsidiaries of Yingli China.

Cheng Eric – Deutsche Bank

Okay, I see. Thanks for taking my questions.

Bryan Li

Thank you.

Operator

Your next question comes from the line of Dan Ries of Collins Stewart. Please proceed.

Dan Ries – Collins Stewart

Hi, good evening, and thanks for taking the question. Maybe I can just ask it this way. Is it possible that R&D would be up in the third quarter or would you expect it to be flat or down?

Bryan Li

For the third quarter, we are currently expecting flat to down.

Dan Ries – Collins Stewart

Flat to down, okay, great. This – I’m going to get a lot of questions. The bargain purchase that was made during the quarter that resulted in the gain, does that reflect that you bought something below its book value?

Bryan Li

That was – that represents a gain that we got from the acquisition of these private companies. And basically when we bought this company and we went through a round of negotiations with the counterparties and to get a good deal and get an acquisition price below the proportional net asset values of the book.

Dan Ries – Collins Stewart

Okay. And maybe a bigger question – bigger picture question. There is certainly theories that Germany will have a good month of September and maybe good fourth quarter. Are you seeing anything at this point? What are you seeing in Europe at this point in terms of demand trends in recent weeks? And is your expect – do you expect the fourth quarter to be bigger than the third quarter?

Qing Miao

Darren, can you take this question? Thank you.

Darren Thompson

Yes, no problem. Hi Dan. Yes, following the announcement to the GE in early July we saw a quick spring back in terms of demand in terms of residential market in Germany. The project pipelines were little bit slow to move forward given their longer gestation period, but now we’re starting to see these pipelines are starting to build in Germany. Now we have a little bit more clarity on the GE. And obviously we’re seeing lower pricing points that are bringing in the elasticity of the demand.

Dan Ries – Collins Stewart

Okay. And so overall for the company, do you think fourth quarter would be bigger, smaller, or about the same as 3Q?

Darren Thompson

I think we’re going to see a slight increase in demand either flat or increased, because you’re going to see a year-end rush before the fit changes on the first of January. We’ve seen that many years and historically and I think we’ll see the same again this year.

Dan Ries – Collins Stewart

Great, thank you very much.

Qing Miao

Thank you, Dan.

Operator

We will take one question each time from one caller. If you have more than one question, please rejoin the question queue after your question has been addressed. Your next question comes from the line of Satya Kumar with Credit Suisse. Please proceed.

Satya Kumar – Credit Suisse

Yes, hi. Thanks for taking my question. I have a question on your selling and general – SG&A expenses. I’m looking at the last six quarters trend here and the selling cost and G&A cost per watt has dramatically declined to under $0.12 per watt. The average in the last six quarters has been over $0.16 per watt. So I guess that’s pretty good. Just wanted to try and understand what’s driving this improvement in efficiency in the selling cost per watt, and is that sustainable in the back half, or is it some specific programs that you’ll have to be spending in terms of marketing promotions that are winding down? So I’m just trying to get some clarity on that.

Bryan Li

I think the main reason is, as I mentioned, we have a very good operation controls not only for the directed production cost but also for the marketing and selling cost. I think with the total outputs increased we actually control the SG&A not increased proportionally that’s why finally with the scale up, we actually have a more lower diluted SG&A cost per watt basis and we will keep this kind of a trend for the rest of the year.

Satya Kumar – Credit Suisse

So do you have a sense of how we should model the selling and general administration cost on a dollar basis for the second half?

Bryan Li

Yes, sure. For the second half, I think it will continue – as a percentage to revenue it will continue decline from 10.3% in the second quarter to somewhere below 10% in the second half of the year.

Satya Kumar – Credit Suisse

Got it, thank you.

Bryan Li

Thank you.

Operator

Your next question comes from the line of Vishal Shah with Deutsche Bank. Please proceed.

Vishal Shah – Deutsche Bank

Yes, hi, thanks for taking my question. Not sure if you’ve answered this, but can you talk about your pricing expectations for the remaining of this quarter and next quarter? And along those same lines can you also talk about what you think the demand in the US will be? Thank you.

Qing Miao

Firstly, Bryan will talk – Bryan Li will talk about the pricing trend, then Robert please take the market demand situation in the US. Thank you.

Bryan Li

Sure, thanks for the questions. For the ASP trend, in the second quarter, it was only down mid-to-high single digits from the first quarter’s level. In the second half of the year and we currently see the pricings will be trending down in the mid-to-high teen percent from the second quarter to third quarter and another mid single-digit decrease from 3Q to 4Q, and that is before the ASP expectations. And I will let Robert to answer the US market demand expectation.

Robert Petrina

Hi Vishal. We view the US as stable. I mean [inaudible] showing increased activity on distribution side if you’ve seen our numbers for this quarter we’ve diversified well into the utility segments as well as the institutional segments. So we view the US as stable. There is going to be a big pulling effect in Q1 due to the potential exploration of the cash grant program. So generally we view the US as the stable and growing market, so we’re very pleased with that.

Qing Miao

Hi Vishal, are you on line?

Vishal Shah – Deutsche Bank

Yes, that’s it. Thank you.

Qing Miao

Okay, thank you.

Operator

Your next question comes from the line of Zack Xu [ph] with Goldman Sachs. Please proceed.

Zack Xu – Goldman Sachs

Hi, thanks for taking my question. I’m asking the question on behalf of Amy Song. I may have missed the question. What’s your polysilicon blended account going forward in 3Q and the 4Q?

Bryan Li

Yes, I answered this question before. In the second quarters the blended of polysilicon cost was roughly flattish from the first quarter’s level, but we see a steep decline in Q3 and the Q4. And currently we are expecting mid-to-high 20% decline from Q2 to Q3 and mid single-digit decline from Q3 to Q4. Thank you.

Zack Xu – Goldman Sachs

Okay, thank you. Another question follow-up with the China demand, I see Mr. Miao has said China demand this year is 600 megawatt to 700 megawatt, is that right, or 1.5 megawatt, Mr. Miao just said?

Qing Miao

I think Mr. Miao mentioned in part of those demand. I haven’t clarified with him if it’s concession bidding or coding and program. But in total it should be 1.5 gigawatts.

Zack Xu – Goldman Sachs

So your shipment in China is about 200 megawatt. When you see your – you have maintained its market share or keep expanding its market share in China.

Qing Miao

[Foreign Language – Chinese]

Bryan Li

I think there is still some ongoing ground bidding which is based on the 1.15 and 1RMB bidding tariff announced recently. So we expect that we can catch more China market share. And then overall we’re expecting our total sales to China market should be roughly 16% of the annual output.

Zack Xu – Goldman Sachs

Okay, thank you.

Operator

Your next question comes from the line of Philip Shen with Roth Capital Partners. Please proceed.

Philip Shen – Roth Capital Partners

Hi, thanks for taking my question. I’d like to ask about visibility into the back half of the year. Can you give a sense for what percentage of your Q3 and Q4 volumes have you booked and what percent of the volumes are at fixed pricing?

Bryan Li

Thanks. We’re currently expecting a high 20% increase on these shipments from Q2 to Q3. And it will continue to up to increase from Q3 to Q4 sequentially. And then currently, according to our corporate ordering strategy, we have already secured 85% to 90% of the production capacity in the second half of the year.

Philip Shen – Roth Capital Partners

Great, that’s helpful. And one quick follow-up here. What was your cash flow from the operations in Q2?

Bryan Li

Operating activities was positive, it was slightly positive in the second quarter.

Philip Shen – Roth Capital Partners

Okay, thanks very much.

Bryan Li

Thank you.

Operator

Your next question comes from the line of Sanjay Shrestha with Lazard Capital Markets. Please proceed.

Sanjay Shrestha – Lazard Capital Markets

Thank you. I had two questions here. One in terms of China, given that you now have two large contracts, one is Golden Sun and one Huanghe Hydro, how should we think about incremental new wins for Yingli in China say over the first 12 months?

Qing Miao

Sorry, I need the second part of your question.

Sanjay Shrestha – Lazard Capital Markets

Given that Yingli has won two major contracts in China, one with the Golden Sun project and second with Huanghe Hydro, how should we think about new wins for Yingli in China in the domestic market over the next 12 months?

Miao Liansheng

[Interpreted]

I think now given what’s recently announced by the government and also what we understand how the China Government wants to develop solar market in China, we do see a more positive trend than early this year. So I think for both Golden Sun and our ground bidding project, we both see a more positive increase in trends through year-end and through the whole of 2012.

Sanjay Shrestha – Lazard Capital Markets

And a quick follow-up here. How should we think about the capacity expansion targets for the company over the next six to 12 months, and how does that tie into the company’s market share target going into the next year?

Bryan Li

Currently as we announced it before, the company has in total 700 megawatts expansion capacity in this year and which will bring our total design capacity from 1 gigawatts at the end of the last year to 1.7 gigawatts at the end of this year that we are bidding for the expansion projects in this year. And then beyond that we haven’t announced any further expansion projects. So we will keep ourselves flexible and then decide if we are going to further expand a capacity and according to the change of market conditions.

Sanjay Shrestha – Lazard Capital Markets

All right, thank you.

Bryan Li

Thank you.

Operator

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

Paul Clegg – Mizuho

Hi, thanks for taking my question, and congratulations on the strong shipment volumes this quarter. It looks like your volume shipments are going very well and you’re looking at 3Q guidance that’s up pretty strong. Why not raise guidance at this point? Are you expecting 4Q volumes to be flat or down sequentially? I didn’t really follow that.

Qing Miao

[Foreign Language – Chinese]

Bryan Li

Yes that was because of our capacity has been fully booked for the whole year of 2011. And then we believe – based on the orders we have already collected and assigned and we believe Q3 will be up continuously in the high 20s from Q2 level and the Q4 will be sequentially up from Q3 level. So we will. And that has already took into the consideration the 100% of the capacity we’re going to run in the second half of the year. In the – but we will – when we close the third quarter and we will further – we will sort of further determine whether there will be more upside other than the guidance we currently gave for the whole – for the full year of 2011.

Paul Clegg – Mizuho

Okay. So if I understand that correctly, then based on your capacity and your bookings at this point, you could be up a little bit in the fourth quarter, but you will need to see how you’re doing your capacity expansions to see if you can do even better than that on that number.

Bryan Li

Yes, that’s correct. Just the new capacity. Remember, I was talking about the 700 new capacity that’s brought on line. That was – we started up and running from the beginning of July. So we want to make sure the new capacity – the new 700 megawatts capacity will be ramping up and according to our expectation or even faster and better than the expectations we set, and then we will determine if we will have excessive capacity we can allocate it to our customers.

Paul Clegg – Mizuho

Okay. I do have a big picture follow-up here about the Chinese market. You obviously have a lot of tiers 2 and 3 competitors in China that continued to be able to access large amounts of bank capital, and this is despite the fact that some of them right now have a very high debt levels and very low margins, in some cases even negative margins for the quarter. Do you see any sign that Chinese banks may tighten their lending standards for these companies?

Bryan Li

Yes, I think the – overall – the overall banking line of credit evolvement in China was tightening in – for the whole year of 2011. But the Chinese Government also indicated. They were – although the overall credit environment would be tightening, but they will still favor the – favor those industries who fall into the basket of the government supported industry. Obviously the renewable energy and the solar sector is one of the supported industry by the Chinese Government.

So we – so the bank will still be interested in talking with the renewable energy companies and talking with the solar companies and on the commercial lending opportunities. But it’s also – but it won’t be on a – but it won’t be to a wider extent and it will still be on a case-by-case basis. They want to make sure that only – the bank only provide credit lendings to the best position of players in the sector.

Paul Clegg – Mizuho

Okay, thanks very much.

Bryan Li

Thank you.

Operator

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

Adam Krop – Ardour Capital

Hi, thanks for taking my question. I would like to drill down a little bit more on the non-poly cost. Looks like it's been flat or even slightly up over the last couple of quarters. Can you just talk about what are the exact – what are the drivers there, I mean is it really all silver paced or maybe some of the drivers there would be helpful? And then where do you think the non-poly cost can get to say in mid-2012?

Bryan Li

Thank you. The improvement was coming from two folds. One is the continuous improvement of the silicon version efficiency rate for both PANDA lines and the traditional multicrystalline lines. And the second fold is coming from the across the board of cost savings for all the auxiliary materials.

Adam Krop – Ardour Capital

And any idea or any indication of – can you get below that $0.70 number by $0.60 – a little bit below $0.70 in the first part of 2012?

Bryan Li

We currently target close to $0.70 when we exit 2011. In the middle 2012, we believe we are the – the non-polysilicon cost will be lowered than $0.70 or even potentially close to $0.65.

Adam Krop – Ardour Capital

Okay, great. Thanks.

Bryan Li

Thank you.

Operator

Your next question comes from the line of Sam Dubinsky with Wells Fargo. Please proceed.

Sam Dubinsky – Wells Fargo

Can we get update on the poly plant? Has it started production? What are the capital requirements necessarily to finish the plant?

Bryan Li

Thanks. The poly plant is still ramping according to our set milestones and currently it's ramping well, and we expect the plant will be up and running by the end of this year.

Sam Dubinsky – Wells Fargo

Okay. What are the – could you just remind us what are the cost to finish the plant, what are the target cost structure of the plant and how much output do you expect once it ramps, once it’s up to full production?

Bryan Li

Currently during the total production period, the cost is somewhere around $65 per kilos. And the – once we reach the full capacity and – by the end of this year or early next year, then we will be expecting the cost down to $45 per kilos during the first year of the commissioning operation and then move down to $25 to $30 in 2013.

Sam Dubinsky – Wells Fargo

Okay. And on a side note, could you just explain what's contained in other revenues, I know it's little bit larger this quarter?

Bryan Li

Yes. Contained in the other revenues, there is RMB52 million and relating to a bargain gain from a acquisition of a private companies.

Sam Dubinsky – Wells Fargo

That was in the revenue side, this acquisition?

Bryan Li

Yes. Under revenue, it's recorded in the other revenue.

Sam Dubinsky – Wells Fargo

Okay. Then lastly, just I didn't quite understand your explanation of minority interest and why it declined. I see in the bottom of the release, it says there was a series of acquisitions and equity interest in Tianwei Yingli. Can you just explain us how we should model? Could you explain why minority interest declined again and how we should model it going forward?

Bryan Li

Yes that is because the increase of weight of Yingli China's sales in the YGE consolidation. Yingli China is 100% owned by YGE. When the weight of Yingli China get it increased over the time and the minority interest will be squeezed on the consolidation level.

Sam Dubinsky – Wells Fargo

But how should we think about going forward? What percentage? Is it a percentage of operating income, net income?

Bryan Li

Yes, I think and you can't take an X% as your imagine numbers to calculate the minority interest. I will rather suggest you to model the income statements for Tianwei Yingli and Yingli China separately, and then you will get a full picture of what the weighted average minority interest the rate will be on a consolidation level.

Sam Dubinsky – Wells Fargo

Okay, thank you.

Bryan Li

Thank you.

Operator

Your next question comes from the line of Colin Rusch with ThinkEquity. Please proceed.

Colin Rusch – ThinkEquity

Congratulations on a phenomenal quarter. Can you talk a little bit about the PANDA process and if you are going to migrate that to the rest of your lines, and additional equipment suppliers that you see potentially for that process, and what sort of premium you are getting still going forward in the declining price environment?

Bryan Li

Currently given the high efficiency of PANDA and also very competitive trends balanced between cost and efficiency, currently our PANDA can have a roughly price premium close to $0.15 compared to our normal multicrystalline. And we expected this kind of trend can be – hold at least a 10% higher than our normal multicrystalline in the second half of this year.

Colin Rusch – ThinkEquity

And then just on the equipment vendor side; I mean are you looking at bringing in a second equipment vendor and can you pick up additional equipment as you see some of your competition underutilized or going out of business to augment your existing lines?

Bryan Li

On the equipment side, we have – and since the day we started ramping the PANDA line, the first of 300 megawatts PANDA line in second half of last year. We had been searching and talking to the local equipment manufacturers in China and on the possibility of a substitution in the future and for our next round of PANDA expansions. We have identified few of the qualified candidates for our next round of expansion, and we think – the successful substitution can help us largely reduce the CapEx for the PANDA lines.

Colin Rusch – ThinkEquity

Okay. And just one final follow-up; are you at all concerned about the PANDA process being sold to any of your China-based competitors, understand the exclusive lockout period is now over going forward?

Qing Miao

[Foreign Language – Chinese]

Bryan Li

I think the PANDA success for result we achieved to date, it’s not just because from the equipment supply. I think it’s a kind of combination about our internal R&D initiative we invested, but also knowledge we achieved at operating the whole line. So I think on the other side, we have been already developed several steps in the following years to keep increase our sales efficiency, so some of the technology we’re looking at now is even better, or totally different than the PANDA we’re looking now. So we’re actually don't see this kind of concerns as we mentioned.

Colin Rusch – ThinkEquity

Thank you so much.

Operator

Ladies and gentlemen, as a reminder, please limit your questions to one question at a time, and then you maybe able to get back in the queue. Your next question comes from the line of Ahmar Zaman with Piper Jaffray. Please proceed.

Shawn – Piper Jaffray

Hi, good morning. This is Shawn for Ahmar. Wanted to get a sense of what you're percentage of shipments were for PANDA and what kind of premium you're getting right now for those?

Bryan Li

The price premium is roughly about 10%. Roughly equals about $0.15. And in Q3 we expect that the PANDA roughly represents 20% of the total output, and it will be roughly flat in the second half of this year.

Shawn – Piper Jaffray

Okay. And one final one, if you’re not going to – if there is a possibility you're not going to expand your capacity next year and you'll stay at 1.7 gigawatts, that implies that you’ll have a flat shipment year. Is that the case or is there something that we should take into account that will provide some growth there?

Bryan Li

Within the 700 megawatts expanded capacity for this year and there are 300 megawatts capacity out of PANDA capacities. And so the successful ramp up of these part in the second half of this year will load into the – will load into the additional PANDA capacity in next year. And if we decide to further expand the capacities and after we complete the existing 700 megawatts capacity, we will consider more PANDA capacity than the traditional multicrystalline and that will further increase the weight of PANDA modules in our total product portfolio.

Shawn – Piper Jaffray

Okay, thank you.

Bryan Li

Thank you.

Operator

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

Pranab Sarmah – Daiwa

Hi, good afternoon. Thank you for taking my questions. Good quarter. I have questions on the PANDA. What is the processing cost in PANDA now and how you think that their processing cost par what will fall by 2012 for PANDA sales?

Bryan Li

Currently given the relatively smaller capacity of PANDA than the traditional multicrystalline, so PANDA take – and also the 100% virgin polysilicon required to pull the PANDA ingots. And so the costs of both polysilicon costs and the non-polysilicon costs – the non-polysilicon processing cost of PANDA is about 10% higher than the multicrystalline sale – multicrystalline modules. And we are expecting when we continuously expanding the PANDA capacities and to achieve the higher scale of economies and also to overcome the learning hurdles of the operation of PANDA lines and that the gap between the multicrystalline and the PANDA lines and that will get further reduced to like 5% in a year. Thank you.

Pranab Sarmah – Daiwa

Thank you. And my second question is on the polysilicon side. Since, you are targeting only $45 products cost in 2012 and polysilicon price in 2012 could be reaching $45 or below. So does it make any sense for you to keep this polysilicon business, probably this business will never complete a breakeven point?

Bryan Li

That's a good question. Next year, 2012, is expected to the first year of the commercial operation, and as the yield needs to be gradually improved and also the scale will be gradually enlarged. So the cost – the production cost in the first year of 2012 will be as high as $45 per kilo, but we also indicate when we complete the first commercial operation year in 2013 and then we will be expecting the cost down to $25 per kilos in 2013. So it may have a little cost pressures to the group in next year or didn't bring any cost saving efforts for our own internal poly plants in 2012, but it will contribute to cost savings in 2013 and the year onwards.

Pranab Sarmah – Daiwa

Okay, thank you.

Operator

Your next question comes from the line of Mahesh Sanganeria with RBC Capital Markets. Please proceed.

Mahesh Sanganeria – RBC Capital Markets

Thank you. Thank you for taking the question. I have a question on your strategy in the near-term with the poly. How much of the poly is on long-term contract versus spot? How are you buying? And the guidance you gave for poly cost, does that assume poly price remaining flat from here? Thank you.

Bryan Li

I think, currently, roughly close to 70% of the poly is locked through the existing ongoing contracts. Now, we are also looking at how to adjust to these kind of strategies with when we have more demand for the poly and then we'll negotiate with the poly. But I think, overall, we still want to be say at least holder of over 60% of long-term poly contracts of total what we need, because for the permanent strategy purpose, we cannot leave too much to the spot supply channels.

Mahesh Sanganeria – RBC Capital Markets

So that Q4 numbers for poly cost you're giving, does that assume that all of your poly price will be at current poly price?

Bryan Li

The expectation our polysilicon we gave for Q4 is already consider the declining spot market price of polysilicon and trending to the end of this year.

Mahesh Sanganeria – RBC Capital Markets

Okay, all right. Thank you.

Bryan Li

Thank you.

Operator

I would now like to turn the call back to Ms. Miao Qing for closing remarks.

Qing Miao

Thank you. Thanks for everyone’s participation today. And if any follow-up questions, please contact us at email to ir@yinglisolar.com. And I’d also like draw your attention that Yingli Solar will host our Investor Day on October 18, 2011 in Dallas, during Solar Power Conference. Welcome your participation. Thank you.

Operator

That does conclude today's presentation. Thank you for your participation. You may now disconnect and have a great day.

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