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LDK Solar Co., Ltd. (LDK)

Q3 2011 Earnings Call

November 22, 2011 08:00 AM ET

Executives

Xiaofeng Peng - Chairman and Chief Executive Officer

Ellen Davis - The Blueshirt Group, Investor Relations

Jack Lai - Executive Vice President, Chief Financial Officer

Xingxue Tong - President, Chief Operating Officer

Yuepeng Wan - Senior Vice President, Chief Technology Officer

Analysts

Shawn Lockman – Piper Jaffray

Sanjay Shrestha – Lazard Capital Markets

Dan Ries – Collins Stewart

Joe Osha – Bank of America Merrill Lynch

Paul Leming – Ticonderoga Securities

Edwin Mok – Needham & Company

Colin Rusch – ThinkEquity

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to LDK Solar Company Third Quarter 2011 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions).This conference is being recorded today, Tuesday, November 22, 2011.

At this time, I'd like to turn the conference over to Ellen Davis with the Blueshirt Group. Please go ahead, ma'am.

Ellen Davis

Good morning and thank you for joining us on today's conference call to discuss LDK Solar's third quarter 2011 financial results. This call is being broadcast live over the web and can be accessed on the Investor Relations section of LDK Solar's website at www.ldksolar.com for 90 days.

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

Earlier this morning, LDK Solar issued a press release discussing the results for its third quarter of 2011. We also filed the press release on Form 6-K with the U.S. Securities and Exchange Commission. The press release is accessible online at the Company's website as well as the SEC's website.

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

Although LDK Solar believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

We refer you to the documents that LDK Solar files from time-to-time with the SEC, specifically the Company's most recent Form 20-F and any Form 6-Ks. These documents identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

And now, I'd like to turn the call over to Mr. Jack Lai, Executive Vice President and CFO to go over LDK Solar's third quarter 2011 financial results. Jack?

Jack Lai

Thank you, Ellen. Good morning and thank you for joining us to discuss the results of LDK Solar for the third quarter of 2011.

Net sales for the third quarter were $471.9 million, down 5.5% from $499.4 million in the second quarter.

Wafer sales decreased to $145.6 million from $281.7 million. Module sales increased to $280.7 million from $101.8 million. Polysilicon sales decreased to $75.7 million from $76.1 million. OEM sales for wafers decreased to $0.05 million from $0.06 million. OEM sales for module increased to $9.1 million from $6.0 million.

During the third quarter, LDK Solar had an inventory write-down of $47.3 million due to the rapidly declining market price for wafers and modules during the third quarter. As a result, gross margin and operating results were negatively impacted. By geography, net sales in the third quarter were 35.2% generated from China, 16.6% from Asia Pacific excluding China, 42.9% from Europe and 5.3% from North America. Our top 10 accounts in the third quarter accounted for 36.9% of total revenues, with the top three accounts combined accounting for 17.6%. Wafer shipments, including our processing business, decreased to 292.5 megawatts from 429.2 megawatts in the second quarter of 2011. Wafer shipments, which exclude the OEM business decreased to 292.4 megawatts from 427.8 megawatts in the second quarter of 2011.

The average selling price for wafers was $0.50 per watt in the third quarter of 2011. Sales returns reserved in the third quarter of 2011 was $3.6 million. OEM shipments for wafers decreased to 0.04 megawatts from 1.4 megawatts in the second quarter of 2011.

Module shipments, including our processing business, were 192.1 megawatts in the third quarter of 2011, up from 79.4 megawatts in the second quarter of 2011. The average selling price for modules was $1.24 per watt in the third quarter of 2011. Module shipment significantly increased during the third quarter, reflecting some seasonal uptick in demand.

Gross margin in the third quarter was negative 3.6% compared to positive 2.2% in the second quarter. Our gross margin for our wafer business in the third quarter was a negative 26.5%, which decreased from positive 5.3% in the second quarter of 2011. Gross margin for our polysilicon business increased in the third quarter to 40.3% from 34.0% in the second quarter of 2011. Gross margin for our module business increased to negative 3.7% in the third quarter from negative 31.7% in the second quarter of 2011. Overall, the significant sequential decline in our gross margin in the third quarter was due to the severe price erosion, which was significantly steeper than anticipated and the inventory write-down taken during the third quarter.

Our wafer conversion cost was $0.21 per watt and the average cost of polysilicon we consumed was $55.3 per kilogram in the third quarter of 2011. Operating expenses were $60.1 million in the third quarter of 2011, up from $58.9 million in the second quarter of 2011. Our share-based compensation expenses were approximately $2.4 million in the third quarter of 2011.

Operating margin in the third quarter was negative 16.3%, down from negative 9.6% in the second quarter. Interest expenses and amortization of senior notes issuance costs and the debt discount increased to $50.7 million in the third quarter of 2011 from $38.6 million in the second quarter of 2011 due to additional borrowings obtained during the quarter and increase in charges from discount of bank acceptance notes. The weighted average interest rate as of the end of the quarter was about 6.2%.

Net loss attributable to our shareholders for the third quarter was $114.5 million, and loss per diluted ADS was $0.87. Approximately 131 million shares were used in computing the fully diluted EPS.

Depreciation and amortization was $75.2 million for the third quarter. Capital expenditures were $152.5 million in the third quarter, which includes $31.1 million for wafers, $44.4 million for cells and modules, and $73.6 million for polysilicon.

Our wafer manufacturing capacity reached 3.8 gigawatts in September, and we achieved total installed polysilicon production capacity of 17,000 metric tons, which is in full production.

While we will continue our integrated business model of polysilicon wafer cells and modules, we will ramp up manufacturing capacity to meet demands from our customers. We are not planning on any capacity expansion for the time being, until there are clear growth opportunities in the solar market. Consequently, we will minimize our capital expenditure as much as possible.

Company headcount was 27,801 at the end of the third quarter, a decrease of 91 from second quarter. We will continue tightly manage staffing in the current environment.

Now let's turn to the balance sheet. We ended the third quarter with $262.6 million in cash and cash equivalent and $605.6 million in short-term pledge bank deposits.

We experienced an operating cash outflow of approximately $291.8 million during the third quarter, mainly attributable to increase in our inventory level. Inventories increased to $918.4 million, which includes $120 million in PV project assets. The increase in inventories was due to our prolonged and efficient process for downstream module business and increase in inventory in the PV projects. Our turnover days of our accounts receivable increased to 111 days, while our payables increased to 117 days. We do expect several PV projects in the final stages of completion to be sold in the next couple of quarters.

Our polysilicon inventory at the end of the third quarter was approximately 1,995 metric tons at an average cost of approximately $38.5 per kilogram.

Total borrowings were approximately $3.6 billion at the end of the third quarter, which includes $2.35 billion of short-term bank borrowings and $1.26 billion of long-term interest-bearing borrowings.

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

Xiaofeng Peng

Thank you, Jack. Hello and thank you for joining us today. The third quarter continued to be a very challenging period for the entire solar industry. The European debt crisis reduced solar subsidies and a sluggish global economic limited growth of the solar industry. The resulting weak market demand and industry oversupply continue to affect our billings during the quarter.

Lower pricing across global supply chain led to ASP erosion, which was much steeper than anticipated. Together with the provision of inventory write-down reduced our revenue for the third quarter and adversely impact our margins, while we believe that the lower pricing level for module have made the IRR more attractive than that we have. We have had some market recover over time. In the near term, we expect solar industry will continue to confront more challenges as Europe countries continue to reduce subsidies. While our European market remain difficult, we have been exploring emerging new markets in Eastern Europe, North America, Central America, Australia, India, Africa and Asia. The China market continued to be strong in part due to the recent feed-in-tariff program and we believe at this size we will be double in for the next few years. We expect that in approximately three years China will become one of the world's largest solar markets. Despite the many industrial challenges, we have seen business opportunities for building solar project pipeline in Europe, USA, China and other emerging regions. Our vertical integration strategy to enter the solar project installation have been rewarding direction.

And (inaudible) project platform in U.S., Europe and China to explore more utility scale project and opportunities. We believe like two most critical issues for all solar industry participants, our continued cost reduction and managing a strong balance sheet. LDK has been focused on cost reduction programs to address the market price erosion, including optimizing the polysilicon manufacturing process by modifying the fuel from diesel to natural gas and using that of hydrochlorination, isolation, polysilicon deposition and the fuel gas recovery to improve silicon purity as well as lower manufacturing costs.

Continuous change in the wafer structure and reduce in-production days, we are looking better cell designs and process to improve conversion efficiency, lowering manufacturing cost of solar modules. Once our Hefei cell factory achieves full production, we will be able to deploy a full vertical integrated business model.

For Q3, we have achieved $0.89 per watt solar motor cost under our fully integrated module. We will continue our efforts to challenge $0.80 per watt through reducing our outsourcing of polysilicon and the solar cell in the near future.

We are continuing to manage our cash position and balance sheet by maintaining constructive relations with our bank to resume long-term support, continue to work on polysilicon spin-off IPO to raise more equity, seeking strategic investors changing our capital structure, working on mid-term debt financing to replace short-term debt, and extend our debt maturity profile, minimize the capital expenditure and reduce our inventory and our trade receivables, and also, we're trying to offsetting all the pending PV project in the next few quarters.

In summary, while we expect challenging conditions in the global solar markets to continue in the fourth quarter and into 2012, we believe that the significant opportunity to meet global energy needs with solar power will drive long-term marketing growth. We are confident that our continuous focus on improving our cost structure, reducing our debt, and building market share will position us well to capitalize the long-term growth opportunities. In the near term, we will focus on resource, location and enable us to fund important growth initiatives while improving our financial position.

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

Xingxue Tong

Thank you, Chairman Peng. I will provide updates on our wafer, module, cell, and the polysilicon operations. Our wafer processing cost in the third quarter was $0.21 per watt. We are targeting towards our new goal of reducing the wafer converting cost to as low as $0.18 per watt over the next few quarters.

Instead of going on strictly lower cost, we are focusing on delivering high quality wafers to our customers. In this highly competitive marketplace, our focus on quality will influence to retain our long-term loyal customer base.

As mentioned earlier on the call, we reached 3.8 gigawatt of annualized wafer capacity at the end of the third quarter, and we maintained our targeted wafer capacity of 4 gigawatts at end of year end. Given the current market trend, we will closely manage our wafer expansion plan with a focus on adding capacity for higher efficiency wafers. As our efforts, we have started producing high efficiency (DBL) wafers by modifying our current furnaces with minimal capital expenditures.

We have continued to scale our module operations drastically to anticipated higher shipments in the second half of 2011. While remaining focused on enhancing our cost structure, we're also concentrating on the emerging markets ex-Australia, Israel, USA, India, South Africa etcetera. We have achieved a record high module shipment of 122 megawatts during the third quarter of 2011.

Our module processing cost in the third quarter was $0.30 per watt. We have targeted to work on new goal reducing the module conversion cost to as low as $0.26 per watt over the next few quarters.

The installation of cell manufacturing line is finished as planned. In addition to providing a steady supply of cells for our modules, we expect that our integration of our R&D efforts for polysilicon, wafers, cells and modules will continue to drive down the total cost of modules in the next several quarters. We reached a manufacturing capacity of 1.5 gigawatts at the end of the third quarter and we produced 296 megawatts of solar cells at a processing cost of $0.17 per watt during the third quarter of 2011. We are targeted towards our new goal of reducing the solar cells processing costs to as low as $0.15 per watt over the next few quarters.

Total polysilicon production was on track at expected levels during the third quarter and approximately 2,883 metric tons of polysilicon was produced. Our polysilicon production cost in the third quarter was at low 38 per kilo. As a result of running out of our third production line Ma Hong plant and adoption of improved production technologies, we have moved closer towards our targeted goal of reducing the polysilicon production costs to as low as mid-20s per kilo over the next few quarters.

In our Shenzhen plant, we produced approximately 348 metric tons of polysilicon, and in our Ma Hong plant, we produced approximately 2,535 metric tons of polysilicon during the third quarter. Combining production from both plants, we expect to produce between 2,200 metric tons and 2,800 metric tons of polysilicon in the fourth quarter of 2011, and achieved 25,000 metric tons of production capacity by the middle of 2012.

Now, let me turn the call over to Dr. Yuepeng Wan, our Chief Technology Officer to provide you with our R&D updates. Dr. Wan, please?

Yuepeng Wan

Thank you, Sam. I would like to provide an update on our research and development programs. While still focusing on overall cost reduction on the polysilicon production, we developed several effective pieces of equipment for increasing the productivity and improving the quality of the polysilicon products. Examples are polysilicon rods, harvesters and slim rods cutting machines. We have been promoting the production of mono-like wafers and capacity reached more than 400 megawatts. By using LDK mono-like wafers, we are able to reach the highest cell efficiency of 18.5%. We are actively developing diamond wire wafering technology. Our R&D results show improved wafer quality through diamond wire technology and acceptable wafering costs.

We have carried out several projects aiming at reducing the module production cost, many through the new design of modules and alternative module materials to cut the costs and to improve the margin quality. For example, we had our own frameless module design and such frameless modules are used in one of our domestic PV systems, which achieved lower cost while maintaining same electricity generation output.

During this quarter, we were granted two new patents and 16 additional patent applications were submitted. To date, a total of 98 patent applications have been submitted and 22 of them have been granted patent rights.

I will now turn the call back over to Jack.

Jack Lai

Thank you Dr. Wan. Based upon current business conditions, for the first quarter of 2011, LDK Solar estimates its revenue to be in the range of $440 million to $520 million, with gross margin to be in the range of 2% to 7%. We anticipate wafer shipment of between 200 megawatt and 270 megawatt, module shipments between 180 megawatts and 270 megawatts, in-house polysilicon production between 2,200 and 2,800 metric tons, and in-house cell production between 220 megawatts and 250 megawatts.

For fiscal year 2011, LDK Solar estimates its revenue to be in the range of $2.2 billion to $2.25 billion, with gross margins between 9% and 12%. We anticipate wafer shipment between 1.55 gigawatss and 1.65 gigawatts, module shipments between 550 and 650 megawatts, in-house polysilicon production between 10,000 and 11,000 metric tons, and in-house cell production between 600 megawatts and 700 megawatts.

Now, we would like to open the lines for questions. Operator?

Question-and-Answer Session

Operator

Thank you sir. (Operator instructions). And our first question comes from the line of Edwin Mok with Needham & Company. Please go ahead. Edwin, your line is open. (Operator instructions). Edwin, we are unable to hear you at this time. We will move on to our next question. Next question is from the line of Ahmar Zaman with Piper Jaffray. Please go ahead.

Shawn Lockman – Piper Jaffray

Hi, good evening everyone. This is Shawn for Ahmar. I was wondering if you could give us an update on how you're looking at how much poly you’ll target to sell in the open market going forward. I know that's fluctuated from quarter-to-quarter, but if you could give us an update of how you're looking at that?

Jack Lai

Our poly business – our business model in the long run is still about 50% for ingot for the processing and 50% to the shipped to our long-term customers.

Shawn Lockman – Piper Jaffray

Okay, great. And if you could give us a sense of what you're seeing in terms of with pricing that has continued to fall for all across the solar value chain. If you can give us a sense of when do you think this is going to bottom? Will it be 1Q before we see some kind of stabilization or you are re-seeing it and just give us your perspective on what you're seeing in terms of pricing in the market?

Xiaofeng Peng

Yes. We see the price across the value chain have reduced a lot in the last few months and we see the price seems to slightly bottom out for the value chain, for silicon, for wafers there and module because the room to further reduce is very, very limited. So we see in the current few weeks both silicon wafer, cells, and module starting to stabilize.

Shawn Lockman – Piper Jaffray

Great. And if you could give us just a quick sense of what you're targeting again for your module processing costs and how we might think about that just in terms of margins going forward? It's been I know sort of slightly negative the last – or at least this quarter, I think it was negative 3% you said, but if you could give us sense of where your module processing costs are and where you're going to – your non-silicon costs that is, and where you think you could get those in 2012?

Jack Lai

Okay, Shawn. I think for our module processing costs that combined from wafer to cell to module, we are running at about $0.70 and the processed silicon I think we can achieve in-house full costs at about $0.80, $0.90 at the present time. For the time being, the Company is challenging the module costs to be about $0.80. Hence that we believe that with the current price expectation if we achieve the $0.80 cost level, we should be able to generate a reasonable gross margin in the future.

Shawn Lockman – Piper Jaffray

Thank you very much. That’s it for me gentlemen.

Operator

Thank you. And the next question comes from the line of Sanjay Shrestha with Lazard Capital Partners. Please go ahead.

Sanjay Shrestha – Lazard Capital Markets

Great. Thank you. A couple of questions guys. First off, have you folks seen some 3,000 metric tons poly capacity being mothballed or shutdown in China given what's happening to the price of poly here in spot market and if so, how much of that capacity do you think might or how it will be coming out of the market?

Jack Lai

Well, definite that we are still proceed with our ramping up project. I think that right now our third train of additional 5,000 train now is ramping up. We believe with our current operational efficiency, I think we achieved a little bit over $30 in September. We are very confident that based on our ramping up programs that we will reach the target manufacturing costs of about mid-20s probably midyear 2012. We believe that with this competitive cost points we can achieve a reasonable position in the poly industry.

Sanjay Shrestha – Lazard Capital Markets

That's not I was referring to though, Jack. I was referring to there was a lot of chatter in the market about how a lot of the poly and a lot of the excess capacity in China is in the process of being shutdown. My question was how do they seeing those smaller scale poly plant being shutdown and if so, how much that might have taken all the poly capacity out of the market?

Xiaofeng Peng

We see a lot of uncompetitive capacity more or less both sides of poly plant start to shutdown in the last few months and because the cost is not competitive and the cost is already higher than the market price. So, but for a competitive player for the polysilicon producer in China still in full production and we believe the cost of the current market for polysilicon price have – we see already stable in the last two weeks, and we see the price already probably bottom or near the bottom. So because of the cost, current market price already below many manufacturer production costs already, especially smaller players.

Sanjay Shrestha – Lazard Capital Markets

Okay. So what is that current market price, Chairman Peng, that you think is starting to stabilize here?

Xiaofeng Peng

It depends on the quality of the material. The price is I think more or less low-30 or if you have high-quality, maybe you can sell in at some premium. If you have low quality, maybe sell in a little lower. So I think the current market price is about low-30s, something like that.

Sanjay Shrestha – Lazard Capital Markets

Okay, got it. A few more follow-ups if I may. So in terms of the original plan that you guys had to sort to spin off your poly business maybe by the end of this year, but given the dramatic change in the market, that is probably not going to be likely now as you kind of alluded to in your prepared remarks. So, now does that trigger any change in your relationship with CDB? Or does that put you in a potential risk of short-term debt being transferred into long-term debt as we go through this transitional phase in the solar industry? Is there anything we need to worry about that?

Xiaofeng Peng

I think we have strong relations with all the local bank in China and for the polysilicon price – most of our customer for polysilicon is based in China and they based in China have some advantage. First, even the international market price is low, but if you sell in China, because normally like customer can saving 2% import tax, 17% of VAT and also you can saving about more than one months of transport tax or saving the final cost, especially in the current period, and most important also you are savings some transport costs, logistics costs from overseas from Europe or from U.S. to China or from Korea to China. So normally in China, the high quality polysilicon, you can sell in some premium than international markets for less import tax, import VAT and all financial costs and the transport tax, transport costs. So normally you can have some premium. So this is why the polysilicon – our customers will be liking to buy because they can get the silicon delivered next date – orders that can get delivered next day. And secondly, we always sign several long time customer, already prepaid contracts. So they have to take some portion of quoted contract both for the – especially silicon, also, of course for wafer, so they're beginning to take some volume of quoting contracts, especially for the prepaid, already prepaid.

Sanjay Shrestha – Lazard Capital Markets

What about the balance sheet and short-term debt, do you feel comfortable about continuous to being able to roll it over into the long-term debt?

Xiaofeng Peng

Yeah, you see we have already succeed to routing all the short-term debt to long-term debt and most of our debt are based in China and our overseas debt is only one bank is due in 2014. So most of our debt are paid in China since most of our debt certainly can't be rolling over and we are successfully doing that in last few years and most of our banks will support it.

Sanjay Shrestha – Lazard Capital Markets

Okay, that’s all I had. Thank you so much guys.

Operator

Thank you. And our next question comes from the line of Dan Ries with Collins Stewart. Please go ahead.

Dan Ries – Collins Stewart

Hi. There was a news article that went around a few weeks ago about a new polysilicon plant at LDK up in Inner Mongolia. Can you clarify is that the plan of the Company, will there be CapEx for such a plant in 2012 and what is the status of the poly plant IPO?

Xiaofeng Peng

This is new planning plant and it's still in planning, and it's still in the pre-design period. So, there will be no too much CapEx on 2012 or – because this is only designed in for– probably 2013. So this is still in the phase of planning and also in designing periods. So, there'll be not too much CapEx involved this year and next year. And so if any information we can release for IPO in future, definitely, we will let you know.

Dan Ries – Collins Stewart

Just one quick question, the $605 million of pledged bank balance. In the past that was often associated with equipment, but with your CapEx at this level, I'm wondering, is that $605 million now related to the purchase of raw materials where you'll put up a Letter of Credit or something like that?

Xiaofeng Peng

Yes. This is normally to open LCE for raw material equipment and et cetera, like that.

Dan Ries – Collins Stewart

Thank you.

Operator

Thank you. And our next question comes from the line of Joe Osha with Bank of America Merrill Lynch. Please go ahead.

Joe Osha – Bank of America Merrill Lynch

My question was just asked and answered. It related to the poly plant. So I’m okay. Thank you.

Operator

Thank you. And our next question comes from the line of Paul Leming with Ticonderoga Securities. Please go ahead.

Paul Leming – Ticonderoga Securities

Good evening and thanks for taking my question. I guess I’ve got two. Can you tell us what your cash balances are today, exclusive of the pledged bank deposits, just what your real usable cash balances are at the present time? And then my second question is, could you break down your inventory balance at the end of the quarter between polysilicon and modules? Thank you.

Jack Lai

Our cash balance as of today is very close to the end of the third quarter, which is about $230 million and I think that's very small change from the end of last quarter. Your second question was related to inventory?

Paul Leming – Ticonderoga Securities

Yes. Can you break inventory – your inventory balance down between how much is polysilicon and how much is modules?

Jack Lai

The raw material is about $81 million and the work in progress is about $220 million. Other supply $143 million and the finished goods is about $353 million and solar module – solar projects total about $120 million.

Paul Leming – Ticonderoga Securities

Thank you very much.

Operator

Thank you. (Operator instructions). And our next question comes from the line of Edwin Mok with Needham & Company. Please go ahead.

Edwin Mok – Needham & Company

Hi. Thanks for taking my questions. Sorry about what happened. So, I have a question regarding poly production, Jack. Given your guidance, your production may come down in the quarter. Can I ask you why?

Jack Lai

I think we may need to perform some year-end maintenance for our facility and that's a routine, and that may slightly reduce some of the equipment that being used in the system.

Edwin Mok – Needham & Company

I see. Will that drive up the poly cost…

Jack Lai

This year production will be about the same as our guidance.

Edwin Mok – Needham & Company

Will that increase your poly cost then in the coming quarter?

Jack Lai

Well, we still expect our costs are going to be reduced gradually. I think in Q4 we don't expect too much change from the cost point of view.

Edwin Mok – Needham & Company

I see. And then, I have a question regarding your margin production. So, it sounds like, based on Sam's comment regarding your module conversion cost as well as your cell conversion cost. You guys have some ramp-up cost, pretty significant ramp-up cost, right? That's why your module is still somewhat breakeven in terms of your gross margin. And I was wondering, how long do we expect those ramp-up costs will continue to persist? Is it just going to be the fourth quarter, or should we expect more ramp-up cost to come in 2012?

Jack Lai

I think the cost issue is probably we have something balancing, the in-house production. The module was relatively new and now I think it stabilized. I think we can achieve probably $0.30 for the cells that we are very, very new and before this quarter we had to purchase from external sources. Right now we only achieved a $0.17 per watt for solar cells. Hence that, our integrated cost right now I think is really low at about $0.70 per watt. Combined with silicon, I think we can achieve about $0.89 in September, and we believe that $0.89 that we can achieve probably about $0.80 in the next few quarters. So, I think, that our cost from this point will be very, very competitive as our vertically integrated strategy is almost balanced at this moment. So we don' need to rely on too much external silicon or too much external sales. Hence that our total module cost will be very, very competitive from this point.

Edwin Mok – Needham & Company

I see, great. And then one last question, regarding the PV project that you guys have in your balance sheet that mentioned. Can you give us some color related to that? Is that all China-based PV project and any timeframe in terms of when you think you can monopolize those projects?

Jack Lai

The project actually, some of them actually come from North America and some of them come from China and of course a few of them also in Europe. Most of them, they are like 4 to 8 megawatt type of systems that probably cost somewhere like $10 million to $20 million and we have currently about $120 million, which is holding for sale and normally that take about six months or so to steer it off. So, we expect lots of project will be turning into cash in about six months.

Edwin Mok – Needham & Company

Great. That’s all I have. Thank you.

Operator

Thank you. And our last question does come from the line of Colin Rusch with ThinkEquity. Please go ahead.

Colin Rusch – ThinkEquity

Hey guys. So, we are looking at the trade case and there are some reports in the New York Times and a couple of other sources looking at Chinese manufacturers retaliating a bit, potentially moving production to other geographies, also potentially looking at TerraSun on for polysilicon. Can you talk about what your expectations are for policy changes within China and any plans to shift productions to other geographies?

Jack Lai

Well first of all, that we are always trying to improve our efficiency and in the time take care our quality. We also try to reduce our costs. In normal practice we believe that we always have the best player practice for our business operations and of course for the distribution purposes that LDK always try to manage our global business with logistics that will be the best for our customers. Hence that if the business condition allows that we will be thinking about North America, even Africa and European assembly if customers would suggest that kind of a demand, we'll be supporting our operations that then we may go ahead and do so. And right now I think that we also have some pending agreement in California. If those agreement that will be realized that we'll be setting up operations in California to support those PV project that we may get from California sources.

Colin Rusch – ThinkEquity

Excellent. And as we look into the fourth quarter and thinking about your guidance, how much of that revenue is coming from the systems business with SPI and how should we think about systems as a percentage of your total manufacturing output rolling through the P&L?

Jack Lai

SPI, this is growing at a speed that is fairly satisfactory by the management and their pipeline is fairly healthy. They have a very good customer actually in East Coast which will generate somewhere about $700 million to $800 million in the next couple of years. We believe that their revenue will be able to at least double for next year and we are very also encouraged by the projects from China and also elsewhere, that's including Central America that we have some pending cases and also Europe we still have some good pipeline. We believe that our project businesses will be at least operating for 2012.

Colin Rusch – ThinkEquity

Great. And then on your last quarterly call you talked a little bit about engaging with the China Development Bank and renegotiating the convertible debt. Have you made any progress on that? Are you still in discussions? How should we think about what the possible outcomes are there?

Jack Lai

Well, I think the Company is always exploring different alternatives to enhance our financial position and for the time being that CDB has been our shareholder and also a big supporter for our business operations by providing about $9 billion worth of project financing which is a very big help for LDK and SPI to pursue their project business globally. We believe with this kind of relations we can continue to grow our downstream business by additional relations.

Colin Rusch – ThinkEquity

Perfect. Thanks a lot, guys.

Operator

Thank you. And at this time I would like to turn back over to management for any closing comments.

Xiaofeng Peng

Thank you for participating in today's quarterly earnings call. We appreciate your continued support to LDK Solar. Wish you all have a nice day.

Operator

Thank you. Ladies and gentleman, if you'd like to listen to a replay of today's call, please dial 303-590-3030 or 1-800-406-7325, enter the pass code 4487352. That does conclude today's LDK Solar Company third quarter 2011 earnings conference call. Thank you for your participation. You may now disconnect.

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