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Executives

Martin Reidy - IR, Brunswick Group

Peng Fang - CEO

Min Cao - CFO

Ming Yang - VP

Analysts

Min Xu - Jefferies & Company

Ahmar Zaman - Piper Jaffray

Kelly Dougherty - Macquarie Research

Satya Kumar - Credit Suisse - North America

Brian Gamble - Simmons & Company International

Pranab Sarmah - Daiwa Capital Markets

Mahesh Sanganeria - RBC Capital Markets

JA Solar Holdings Co., Ltd. (JASO) Q3 2011 Earnings Conference Call November 22, 2011 8:00 AM ET

Operator

Hello and thank you for standing by for JA Solar Third Quarter 2011 Earnings Conference Call. At this time all participants are in a listen-only mode. After the managements prepared remarks there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I’d now like to turn the meeting over to your host for today’s conference, Mr. Martin Reidy of Brunswick Group.

Martin Reidy

Thank you. Welcome to JA Solar’s third quarter 2011 earnings conference call. Joining us from the company are Dr. Peng Fang, CEO; Mr. Min Cao, CFO; and Mr. Ming Yang, VP of Business Development and Corporate Communications.

As stated in the press release, the oversimplified transition of CNY into U.S. dollars, which is set at RMB 6.378 to the $1 is meant solely for the convenience of the audience. References to dollars are the lawful currency of the U.S.A. The press release published today provides detailed financial tables for the conversion from CNY to USD.

On this call, Dr. Fang will begin with an overview of our Q3 2011 results covering business and market developments and outlook. Following that, Min will provide details of the company’s financial performance. After prepared remarks we will open up for questions for the remainder of the call. And we expect the entire call to last approximately one hour.

Before we begin the formal remarks, I’d like to remind you that certain statements on today’s call, including statements regarding expected future financial and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Factors that could cause actual results to differ include general, business and economic conditions in the solar industry, government support for the development of solar power, future shortage or availability of the supply of high purity silicon, demand for end-user products by consumers and inventory levels of such products in the supply chain, changes in demand from significant customers, changes in demand for our major markets, changes in product mix, capacity utilization, level of competition, pricing pressures and declines in average selling prices, delays in the introduction of new product lines, continued success in technological innovation, shortage in supply of raw materials, availability of financing, exchange rate fluctuations, litigation and other risks as described in the company’s SEC filings, including its Annual Report on Form 20-F filed with the SEC.

Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results. You should not place undue reliance on these forward-looking statements. All information provided on today’s conference call speaks as of today’s date, unless otherwise stated, and the company undertakes no duty to update such information, except as required under applicable law.

I will now turn the call over to Dr. Peng Fang, CEO of JA Solar.

Peng Fang

Thanks, Martin. Hello everyone and welcome to today’s call. We appreciated your interest in JA Solar. This continues to be a challenging period of the Solar industry, but we [are happy] that JA Solar has been able to retain customers and to maintain strong margin share.

In the third quarter, macro concerns and the industry volatility results in overall market demand below the level which has ended the period. The European debt crisis, for example, has made it more difficult for project of developers to secure financing delaying the developments of PV project. As a result, we did not see the expected rebound in demand from major European markets. With price falling quickly customers have more choices of suppliers and the products than before. So, I’m thinking our ability to maintain our market share is the strong testament to the strength of JA Solar’s products and the customer base.

There are two key reasons why customers are choosing our products. Firstly, we have seen that market demand is clearly shifting towards higher powered products that offer a better return on investment and we are well positioned here with our range of cells and modules, powered by our high efficiency (inaudible) technology, which are among the most cost effective high power solutions available to-date, as well as our industry leading conventional sales technology. This obviously competitive advantage is reflected in our module shipments for the third quarter, which rose by approximately 45%, sequentially.

Secondly, (inaudible) become increasingly risk averse in the current financial environment. So, our customers want to work with suppliers who can offer bankability, demonstrated product quality, a strong cash position and the healthy balance sheet. Again JA Solar is very well placed here, and the customers and the target the financial banks recognize that our financial position is amongst the strongest in the industry. While our shipments for the third quarter were healthy, gross margin was negatively affected by inventory provision of approximately US$22 million to reflect the decline in selling price. Excluding the effect of this write-down, gross margin for the quarter would have been positive.

On the operating expense line, we also recorded a provision of approximately $6.6 million related to prepayment to a wafer supplier. As Min will discuss in more detail, we are focused on achieving greater efficiency in our manufacture process and has already taken a number of steps to reduce our cost. We are now producing to order and have also made important improvements in our production process to achieve cost saving for all steps of our production process.

Let me spend a few minutes to update you on what we are seeing across these geographies. The profits from the China end markets are positive. The NDRC has already approved a number of projects under the recently announced national feed-in tariff program and we expected installation activity to pick up strongly in 2012 to reach 2 to 3 gigawatts annually up from 1 to 1.5 gigawatts this year. With the additional benefits of [low cost] feed-in tariff programs available at various provinces and regions.

The IRR for management of PV project can be quite attractive and this is generating significant interest from the owned and the private independent power producers to develop own and operate this project.

Shipments through the Chinese domestic end market which including both solar cell and solar module shipments to Chinese domestic entities and their affiliates, totaling approximately 8% of JA Solar’s total shipments in the third quarter. This including 20 megawatt of product shipped to Huanghe Hydropower a subsidiary of China Power Investment, which is a leading state owned entity that is active in their development of PV projects in China.

JA Solar continues to forecast on the domestic Chinese end markets and is actively working with leading entities to grow the Chinese end market. According to comments made by officers from China’s National Energy Commission, the government has planned to raise this current installation target of 10 gigawatt PV by 2015 by 50% to 15 gigawatt. Based on current cumulative installation of approximately 2 to 3 gigawatts as of end of 2011, this would represent an additional market opportunity of 12 to 13 gigawatts by 2015.

In Japan too, we will see some promising signs with the government having approved an Fit program for PV projects. Installations for 2012 should exceed 2 gigawatts. We are working with a number of solar companies to deliver products, specifically designed for the Japanese end market.

So, we believe that the U.S. market will be a strong engine for growth next year. Our customer’s in U.S. has a strong pipeline of projects. At current prices, the IRR is effective and we are seeing a lot of projects moving forward. In fact, we are seeing stronger order activities from our customers for the U.S. market for delivery by year-end and into next year. However, the recent anti-dumping, countervailing investigation by the U.S. Department of Commerce has created uncertainties in this market.

JA Solar is currently working with customers and suppliers and solutions compliant with the new sales requirements and we expected to find end solution that will specify our customers’ requirements. We plan to work with our customer to overcome this short-term challenge in the U.S. market. It is interesting to note that, JA Solar has thus far, (inaudible) with the United States importing more products, materials and equipments that we are exporting to U.S., thus the U.S. anti-dumping investigating is not only hurting JA Solar but also hurting our U.S. based suppliers and the customers.

We believe the European end market will continue to face challenges. The European debt crisis and the resulting macro economy uncertainty are limiting financing availability for this modern European markets. The major markets such as Germany and France should perform relatively well. We expect Germany to continue to be a major market for PV next year and this is a country where JA Solar has particularly strong relationship with its customer base. We are also growing our shipments and customers based in France and our orders from Italy continue to perform well. But overall, we expected the installations in Europe to be flat or decline slightly over 2012.

Turning now to technology, where we continue to make significant progress. Our multi-crystalline solar cell efficiency reached a product in record of average 17% recently, up from an average of 16.8% previously. In particularly, through additional process improvements we made a new technology breakthrough with our high efficiency Maple solar cell technology, where average efficiency now stands at 17.9% and the peak efficiency in the 18%. With this new technology breakthrough we will be able to provide a module product in the 245 watts to 250 watt range. In the better than (inaudible) format in large volume, which is substantially higher than currently midstream product, which offer power output of around 235 watts. And with additional optimization, we are expected to produce modules to the 260 watt and 255 watt power range by Q2 next year in volume, which will deliver substantially more power than what is available in the market today.

In R&D, we are also developing new technologies, and have put a roadmap and a new process in place to reach 30% of solar cell efficiency utilizing a p-type wafer through innovative process and the device structure research. The resulting margins are expected to having a power output exceeding 270 watts.

Looking to our guidance, for the fourth quarter we expect that the current marketing uncertainty will continue in the short-term. Also, it’s important to point out that the one-time outage are traditionally a load driven for solar installations giving the current and macroeconomic environment and the industry uncertainty, near-term business benefit is limited and will remain so at least for coming months.

In light of the current market condition, we expect Q4 shipments to be approximately 310 to 330 megawatts. Based on that our current expectation for shipment for the full-year is approximately 1.6 gigawatts. This compares our previously announced guidance of 1.8 gigawatts.

Now, let me turn the call over to Min, who will give you an update on our operations and our financials.

Min Cao

Thank you, Dr. Fang, and thanks to everyone for joining today’s call. While we are pleased to have maintained market share despite the current industry volatility, in light of the current environment, we are focused on achieving cost savings and improving our technology in the coming quarters. We are monitoring our inventory level carefully and currently producing to order. We think it is important to be flexible and prudent due to the macroeconomic and market uncertainty. These efforts are already having an effect.

As of the end of Q3 we had reduced our inventory levels by approximately 25%. We have also made some important improvements in the manufacturing process to achieve cost reductions. Manufacturing costs for wafers and modules decreased significantly. We believe now we can achieve further reduction in the fourth quarter. It is also an important focus.

As Dr. Fang mentioned, customers today are increasingly choosing higher power products and this is the segment where we have clear advantages with our SECIUM and Maple technologies, with Maple technology hitting a new record of 17.9% cell efficiency and 251 module power output in lowest volume commercial production. We now have a very attractive range of high efficiency products in production in large volume and demand for these products is growing quickly. So, our current focus is now further reducing our cost structure for these products, which we believe will put us in a very strong competitive position.

Moving on to our financial results for the quarter. Total shipments in the third quarter of 2011 were 445 megawatt, which is at the low end of our guidance of 450 megawatt. This compares to shipments of 401 megawatt in the second quarter of 2011, representing a sequential increase of 11%. Compared with the same period last year shipments grew 6.5% from 418 megawatts. Our Q2 shipment mix was approximately 67% solar cells, 6% solar cell tolling, and 27% module shipments. The geographic breakdown of our third quarter revenue was approximately 57% China and 43% international.

Revenue in the third quarter of 2011 was $388 million, a decrease of 7.3% compared to $418.5 million in the second quarter of 2011 and a decrease of 31.6% from $567.4 million reported in the third quarter of 2010.

Gross loss in the third quarter of 2011 was $16.6 million compared with gross loss of $11.3 million in the second quarter of 2011 and gross profit of $127.9 million in the third quarter of 2010. Gross margin was negative 4.3% in the third quarter compared with negative 2.7% in the second quarter and 22.5% in the third quarter of 2010.

Included in the cost of sales was an inventory provision of $21.7 million recorded in the third quarter. The provision was recorded to write-down inventory costs in order to reflect the decline in the average selling price. The provision had a negative impact on gross margin of 5.6%. Excluding the impact of the inventory provision, gross margin would have been positive.

Total operating expenses in the third quarter of 2011were $26.7 million, compared with $20.4 million in the second quarter of 2011 and $23 million in the third quarter of 2010. Total operating expenses represented 6.9% of net revenue in the third quarter, compared with 4.9% in the second quarter and 4.1% in the third quarter of 2010. Included in the operating expenses was a non-cash provision for advance to third party wafer suppliers of $6.6 million. Excluding this adjustment, our total operating expenses for Q3 would have been $20.1 million or approximately 5.2% of net revenue.

Operating loss in the third quarter of 2011 was $43.3 million compared with operating loss of $31.7 million in the second quarter of 2011 and operating income of $104.9 million in the third quarter of 2010. Interest expense in Q3 totaled $18.1 million compared with interest expense in Q2 of $12.1 million. Interest expense in Q3 and Q2 included a non-cash interest expense of $3.2 million and $3.5 million, respectively representing accretion of discount to convertible bonds.

GAAP loss per diluted ADS in the third quarter was $0.36, compared with loss per diluted ADS of $0.22 in the second quarter of 2011, and earnings per diluted ADS of $0.49 in the third quarter of 2010. So, non-cash inventory progression recorded in Q3 had a native impact of $0.13 per diluted ADS. The total diluted weighted average number of shares outstanding was 164.7 million shares in Q3.

On the balance sheet side, our total receivables at the end of Q3 were $238.6 million, which is $77 million more than the Q2 balance of $161.6 million. Our days sales outstanding for Q3 were 55 days.

Total inventories at the end of Q3 were $190.6 million, $63.7 million lower than the balance at Q2 2011. Average inventory turns in Q3 stood at 42 days. Total prepayments to suppliers were $363 million, slightly down from $390.5 million at the end of Q2. We expect to utilize $71.2 million of prepayments or approximately 20% of total prepayments over the next 12 months. We maintained a strong balance sheet this quarter with cash and cash equivalent of $506.5 million as of September 30th, 2011.

Total working capital was $734.9 million. Total long-term and short-term loans outstanding was $703.9 million, a slight increase of $11.4 million from the end of Q2. The face value of both outstanding convertible bonds due 2013 was $228.2 million at the end of Q3. This concludes our prepared remarks.

I will now open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jesse Pichel [Jefferies & Company].

Min Xu - Jefferies & Company

This is Min Xu for Jesse Pichel. Thanks for taking my question. You mentioned you have a solution together on the dumping investigation, can you give us some more details on that. Are you talking about possibly setting up sale capacity outside Mainland China including Taiwan and Southeast Asia or U.S.?

Peng Fang

See, we have the short-term and a long-term solution alternatively. The short-term maybe we will work through the partnership and outside of China maybe some of this in the, as we mentioned the region and also partner in North America. In longer term, we are also evaluating the possibility to set up operations in the region close to the customer.

Min Cao

So, let me just clarify it really quickly. So, because the tariff level has not been determined for both anti-dumping and also for [accountability]. So, it’s difficult to say what the current impact is. But to be prudent, I think we need to have a work around solution for that. So, we have a number of strategic partners who can provide products that we’ve worked with in the past, so I think that’s (inaudible).

Min Xu - Jefferies & Company

Thanks a lot. That makes a lot of sense. Also can you give us a sense of where ASPs are in Q3 and Q4?

Min Cao

We can’t give you an exact level, so let me just tell you approximate change in trends in ASPs. So, for solar cells, Q3 versus Q2 ASP was down approximately 16% q-over-q, and there for modules was down a little bit more, module ASP was down approximately 21% Q3 versus Q2.

Min Xu - Jefferies & Company

So, what about the trend in Q4 what you are seeing right now?

Min Cao

Okay. For Q4 right now because of seasonality I think we are seeing a little bit higher percentage for cell ASP decline. So, right now approximately 20 to 25% in the level versus the average for Q3.

Min Xu - Jefferies & Company

How about for module?

Min Cao

Approximately 20% decline q-over-q. So, this on average basis, but if you look at it on a monthly basis it came down for at least to level of Q3.

Peng Fang

Q4 for the wafer is also wafer cost down significantly. it's maybe around 50%.

Min Xu - Jefferies & Company

You mean 60%?

Peng Fang

50.

Min Xu - Jefferies & Company

50.

Peng Fang

Q4 wafer pricing is approximately 50% lower than what we have procured in Q3.

Min Xu - Jefferies & Company

Can you give us a absolute number 30, $0.35?

Peng Fang

I think you are in the right ballpark at the low end of that number.

Operator

Your next question comes from Ahmar Zaman [Piper Jaffray].

Ahmar Zaman - Piper Jaffray

Can you just talk to me about you mentioned that there is increasing demand for higher efficiency product across the street. And we’re hearing that as well, given your higher efficiency what sort of premium are you getting for your modules and also your cells over sort of average industry prices?

Min Cao

Okay. So, if you look at on the high efficiency modules for (inaudible) particularly our products where we’re providing 250 watt product in the market. I think these products can carry ASP premiums of as high as 10% or more versus conventional products. And at the same time we can’t supply enough with these products in the market today. So, I think, the demand level exceeds the amount of supplies in the market and then the premium is significant.

Ahmar Zaman - Piper Jaffray

That’s great. And what percentage of your sales are high efficiency versus regular efficiency?

Min Cao

I think in terms of higher efficiency right now we are limited by the availability of materials we need. So, I think right now approximately 20% or so of our overall shipment is high efficiency products.

Ahmar Zaman - Piper Jaffray

And just finally, what percentage of your shipments were for this quarter? Did you use internal wafers versus external?

Min Cao

Internal wafers, approximately 18% were internal wafers.

Ahmar Zaman - Piper Jaffray

How should we think about it going forward?

Min Cao

That level will actually come down I think.

Ahmar Zaman - Piper Jaffray

Okay. So, you have been purchasing most of your wafers externally? And is that going to be mostly spot purchases or have you signed a long-term contract?

Min Cao

Almost all of our procurement are (inaudible) under our long-term volume contract, but (inaudible).

Operator

Your next question comes from Kelly Dougherty [Macquarie Research].

Kelly Dougherty - Macquarie Research

I’m just wondering if you can give us some more detail behind your 4Q shipment expectations. How much of regulatory cells versus modules, and then maybe an idea where you expected the bigger decline to come from on the cell versus module side?

Peng Fang

In Q4, our module shipment are probably where we are slightly more than 35% and rest of business is in cells.

Kelly Dougherty - Macquarie Research

I’m sorry, you said modules will be about 75% of the shipments?

Peng Fang

No, 35.

Kelly Dougherty - Macquarie Research

Is that a level, we should think about as we move into 2012 as a good indication of where you think modules will be as a part of the overall mix?

Peng Fang

It will be more than 50%.

Kelly Dougherty - Macquarie Research

More than 50. Okay. And then typical seasonality in the first quarter would suggest that that quarter is weaker than the fourth quarter. Is there anything else going on the market right now that you think would change that or should we assume you have another sequential decline in the first quarter from the shipment perspective?

Min Cao

I think certainly to the extent that we can have a good solution that is attractively priced for the U.S. markets, because I think around the end of the year we are seeing very significant order volume coming out of the U.S. So, I think that could really change the picture.

Kelly Dougherty - Macquarie Research

So, that mean you would expect the first quarter to be higher than the fourth quarter because of strength in the U.S. or?

Peng Fang

If we’re positive, anti-dumping thing. Right now the demand I think is high. You know the winter quarter basically is in Germany. And we see in Southern Europe and especially in U.S., demand is actually very high, that really depend on how we solve this issue timely.

Kelly Dougherty - Macquarie Research

Okay, great. And then you guys obviously, have done a great job getting high efficiency cells and modules into production. Can you give us a sense from the processing cost perspective how much more it cost to make those modules and cells versus the standard cells and then maybe what happens to the processing cost as they become a bigger part of the overall mix?

Min Cao

You mean for high efficiency products, right?

Kelly Dougherty - Macquarie Research

Yes. I mean, is there a higher production costs associated with making the higher efficiency products?

Min Cao

Yes, there is. I think, in general it’s about few pennies higher which is more than compensated by the higher ASP pricing premium.

Kelly Dougherty - Macquarie Research

So, as (inaudible) bigger part of the mix do you have a target from maybe where processing cost can go in the fourth quarter or in 2012?

Peng Fang

For the fourth quarter the high efficiency cells will continuously decrease in the price, in the cost. So, probably we will be like 5% decrease. However, the volume right now for the high efficiency is very small. So, the major part of next year where we are ramping up the high efficiency product. In the mean time, we will reduce the cost significantly. So, eventually, we're mostly high-efficiency product that has the similar cost the commission sales.

Kelly Dougherty - Macquarie Research

Okay. So, when you factor that all into the mix, the high efficiency plus the standard products. Do you have an expectation of what happens to processing costs either in actual dollar amount or percentage decline in the fourth quarter and then may be a target you have to get for 2012?

Min Cao

So, I’ll tell you what it mean. So, the thing you just look at our total module production cost, I think, we expect that to decline between 25 to 30% versus our total module production cost in Q3. So, I think we do expect to see a significant decline.

Kelly Dougherty - Macquarie Research

Okay. That’s for 2012, right?

Min Cao

No, in Q4 actually, just in Q4 versus Q3.

Kelly Dougherty - Macquarie Research

Okay. And then do you have a target for 2012 and where you think so in wafer processing cost can go next year as well?

Min Cao

I think for 2012, we expect total module cost to go down another maybe 5 to 8% from our Q4 levels. And then cell processing cost, we think can go down between 10 to 20% versus our current level. The through additional process optimization efforts and new cell designs. And then modules we think also were down around approximately 10 to 15% by mid next year.

Operator

Your next question is from Satya Kumar [Credit Suisse - North America].

Satya Kumar - Credit Suisse - North America

Just wanted to follow-up on the questions from the phone. Did you say what your module production cost will be down 25 to 30% from Q3 to Q4. I think it will be really useful if you give some ballpark range as to what the production cost might be, so we’re all roughly on the same page?

Min Cao

I think for standard products by mid-Q4 we expect to be well below $0.85 for our standard module products for a while.

Satya Kumar - Credit Suisse - North America

Well below $0.80 you said?

Min Cao

Between $0.80 to $0.85.

Satya Kumar - Credit Suisse - North America

$0.80 to $0.85 and that is down 25 to 30% from Q3 is that right?

Min Cao

Q3 level just.

Satya Kumar - Credit Suisse - North America

Okay. You mentioned that you have written down some inventory at the end of Q3. Can you give us a sense as to what level of cost have you written this inventory down to. And at the current cell price, how should we think about the gross margin in Q4?

Min Cao

Give us a minute, okay. So, Satya, I think to answer your question we have written down our inventory to pricing that’s similar to current levels. So, I guess end of October or early November they have been pretty much fully written down, okay. What was the second question I’m sorry?

Satya Kumar - Credit Suisse - North America

So, the inventory has been written down to close to this $0.30 per watt wafer price level, I’m assuming right?

Min Cao

Not necessarily to procurement cost, but it’s the way GAAP accounting works is left to write-down inventories relatively to current selling prices.

Satya Kumar - Credit Suisse - North America

So, I guess my question is what is the assumption on the selling price to which you’ve written it down to?

Min Cao

I mean it’s at end of October early November level, which is very similar to current today’s level.

Satya Kumar - Credit Suisse - North America

Can you give a perhaps a range as to what that level might be?

Min Cao

You can call it $0.55 to $0.60 ballpark.

Satya Kumar - Credit Suisse - North America

Okay. And then lastly on your CapEx, I’m assuming that you are not looking to expand your gross capacity but looking to invest in maybe adding higher efficiency lines. So, I was wondering if you can tell us what the CapEx was in Q3, what will it be in Q4 and right now what do you expect for 2012?

Min Cao

So, CapEx for Q3 was approximately around US$91 million and that’s primarily to finish off the existing capacity expansion that we’ve undertaken since the beginning of the year. And those would account for the higher efficiency products.

Peng Fang

Also in coming quarters like in Q4 our CapEx spending will be reduced significantly and basically right now we control the capital investment very tightly.

Satya Kumar - Credit Suisse - North America

And right now, we have an outlook for 2012 CapEx?

Min Cao

We’re still undergoing capacity planning and CapEx budgeting. So, I think the current plan is we will not add additional cell or wafer capacity, only for upgrades and also for maintenance CapEx and some related capacity additions for modules to support our customers and for our growth. So, I think CapEx will be much lower than this year’s level.

Operator

Your next question comes from Brian Gamble [Simmons & Company International].

Brian Gamble - Simmons & Company International

Just wonder if you could talk a little bit in general about the Chinese market. How do you see it developing in 2012 may be absolute basis. I mean given what you think will be installed and then maybe talk about how potential growth in China in ’12, I’m assuming you’re going to say it’s going be up on a total basis, how that affects any particular consolidation within the Chinese manufacturers?

Peng Fang

So, for consolidating, well we don’t have specifically news to say, but I think in the industry generally thinking the consolidation should come in next year, especially for the marketing for those financially not strong companies and for the frac market as there will be some consolidation will happen. So, we don’t have a specific news to say it right now.

Brian Gamble - Simmons & Company International

(inaudible) idea what you believe as far as market size for the Chinese market for next year or the global market for that matter even one (inaudible)?

Peng Fang

Okay. Here you said the cost of the Chinese market, but so basically I think the major development to this year is China’s [NDRC] announce the long waiting the feed-in tariff policy. So, we hear at all this half year by end of December they issued more than 3 gigawatt basically the projects already. And amounting about 1.5 or even up to 2 gigawatt are being installed to this year. And the next year we don’t have clearly a number, however, we hear all different type of information and could be go up to 3 to 5 gigawatts in China.

Brian Gamble - Simmons & Company International

And maybe on the CapEx, obviously coming down next year, try to maintain little capital requirement as you can. What does that mean for ultimate cash flow position for 2012? Do you expect to be cash flow positive next year?

Peng Fang

We should maintain cash positive for next year. The next year we are, that meant just to expand, we are not going to adding more cell capacity and also wafer capacities. And we are getting very competitive wafer price right now. And we are adding some of the margin capacity next year to meeting the increasing demand. However, as you know, the wafer module cash flow expenses is relatively minimal compared to the solar cell and the wafers. So, we were expected next year capital expenditure in terms of capacity will be significantly reduced then this year.

Operator

(Operator Instructions) And your next question comes from [Robert Sandu].

Unidentified Analyst

You had mentioned that your higher efficiency products were limited by materials, can you talk about the issues there and how that is all going forward is it related to polysilicon, is it related to something else?

Ming Yang

So, it’s primarily related to the wafers that we need to part to manufacture these cells, that’s one of them, and the other is because these new solar cells requires additional tools or new equipment to process. So, it’s limited by our manufacturing capacity as well. So, both are constrains.

Peng Fang

Yes, also for the any new technology when they are installed in the manufacture, there is a ramp up phase. And in the beginning normally their distribution is lager and after product volume ramp up and also after the technology mature and the distribution work has been very well controlled. And the yield of this technology work is higher and also the efficiency that will move to the higher end. So, all of this will improve the cost, the total effective cost.

Unidentified Analyst

Okay. So, it sounds like you need a better wafer in order to do this and you’re having trouble getting hold of that better wafer. Is that fair way of explaining that in addition to the equipment?

Peng Fang

Wafer is one factor. Its overall any new technologies they are varying curve when you ramp up. But what you see right now (inaudible) available.

Unidentified Analyst

And then, can you comment on your arrangement with MEMC especially in light of recent announcement that there might be a counter ban on western products or non-Chinese products that come into China such as polysilicon. How will that affect your arrangement with MEMC going forward? Thanks.

Ming Yang

So, I think our relationship with MEMC and (inaudible) continues to be very strong. I think they are one of our largest customers, and then we have a very long-term partnership with them. So, as of today, we’re unsure of the impact of any potential government action likely on the imports either wafer or polysilicon from the U.S. so as of today, that hasn't had any impact to our relationship.

Peng Fang

I think we don’t expect any significant impact. We are collaborating with MEMC in multiple fronts. We have wafer and also have module network and the system network collaboration, and also a significant approaching of MEMC signings projects in the Europe which has not affected by whatever U.S. policy right now.

Operator

Your next question comes from Pranab Sarmah [Daiwa Capital Markets].

Pranab Sarmah - Daiwa Capital Markets

This is Pranab from Daiwa Capital Markets. Couple of questions from my side. First of all on 4Q, could you give out of 320 megawatt what megawatt you are going to ship on the SECIUM type of cell and how many percentage would be your Maple out there?

Min Cao

It will take us a minute to get those numbers. Approximately, 20% of our shipments are expected to be there SECIUM or Maple products in Q4.

Pranab Sarmah - Daiwa Capital Markets

Approximately 20%. Could you give some split between Maple and SECIUM?

Min Cao

SECIUM is currently more than 50% of that. So, majority is SECIUM today and Maple is growing.

Pranab Sarmah - Daiwa Capital Markets

Majority of SECIUM, got it. And all the Maples are in Quasi-mono now?

Min Cao

Yes, it’s a Quasi-mono based technology.

Pranab Sarmah - Daiwa Capital Markets

Okay. Then second one is on, do you see any asset impairment charges for your fixed asset given some of your assets are little bit of lower lowly utilized now?

Min Cao

We don’t expect to, no.

Pranab Sarmah - Daiwa Capital Markets

You do not expect in 4Q anything, right?

Min Cao

Yes.

Pranab Sarmah - Daiwa Capital Markets

Then on your processing cost wise, your wafer to module processing cost looks like now about $0.50 as you indicated like $0.82 would be roughly your total module cost and low 30s will be your wafer procurement cost. So, it will be about $0.50 in 4Q? That’s correct number?

Min Cao

Yes, you’re in the right ballpark. Yes.

Pranab Sarmah - Daiwa Capital Markets

And how much room you have to cut down that number over next four quarters?

Min Cao

I think we have plans to reduce by at least another 10% or more, (inaudible) our cost reduction roadmap.

Pranab Sarmah - Daiwa Capital Markets

So, $0.45 by 4Q, 2012, roughly?

Min Cao

Yes, roughly.

Pranab Sarmah - Daiwa Capital Markets

And my last question is what is your visibility on Q1 2012 now. You have indicated like you might see upturn on the Q1 shipping wise, right? So, how firm your in-depth number is?

Peng Fang

We don’t format a number right now, but we see lot of demand or activity from U.S. markets. However, there is some uncertainty right now because the anti-dumping and also way to work out the solutions in next few weeks with our customers.

Min Cao

Also if you look at the European market, the seasonality really starts to recover around March. So, around the end of Q1, but we have more visibility to orders, but these orders haven’t been placed, so we’re bit relative to what the number of megawatts our customers are expecting to order, but we won’t have exact details until say early in Q1 early January.

Pranab Sarmah - Daiwa Capital Markets

Or it might be getting only after Chinese New Year Holiday that is in February?

Peng Fang

It could be.

Min Cao

Potentially, yes.

Operator

Your next question comes from [Napon Shamar].

Unidentified Analyst

I just wanted to clarify on the previous question about your wafer procurement costs, you mentioned they will be down 50% q-on-q. I was wondering if you could kindly give me a little bit more detail on this?

Peng Fang

What would you like to know?

Unidentified Analyst

I mean actually was this as a result of just the inventory write-down or was it as a result of renegotiation of some contracts and so on or just, and how much of this is a result of spot market declines?

Peng Fang

I think it mainly is due to the market decline, as you know early this year share module and the share price decreased very rapidly in the Q2 time. And then the wafer price is all time is the high, however, in the Q3 time it reduced significantly. So, basically what Min stated from Q2 to Q3 the wafer price probably decreased about 50%.

Unidentified Analyst

Okay. And in terms of your module shipment growth, I was wondering if you could give me some color on the customer profile and the geographic breakdown. Is it very different from your cell customer profile?

Min Cao

Yes, it’s very different. So, you look at our module customer profile, I think for this quarter approximately 75% were overseas and 25% or so was to the Chinese end market. But if you look at cells where I think more than 60% are probably China and the remaining are overseas.

Unidentified Analyst

All right. And what type of gross margins are you seeing for the module business?

Min Cao

Right now it’s much higher than our cell business.

Unidentified Analyst

Okay. But approximately, if you could just give me like a range, I know you can’t give the exact number?

Min Cao

I think between high single digits to 10% for the market.

Operator

Your next question is from Ahmar Zaman [Piper Jaffray].

Ahmar Zaman - Piper Jaffray

Min, I just wanted to clarify and I think you may have done that in the last question. In the third quarter you mentioned that your wafer prices declined significantly from Q2 and Q3, I’m getting about $0.63 for your wafer price in the third quarter, is that in the right ballpark?

Min Cao

Yes, you are approximately right. Yes.

Ahmar Zaman - Piper Jaffray

Okay. So, in the fourth quarter do you expect to be profitable then?

Min Cao

Based on current market conditions we expect to be profitable. But I think the market is very volatile with higher uncertainties, so it’s still difficult to tell.

Ahmar Zaman - Piper Jaffray

Okay. And then finally for 2012 and I think you have given this in the past and maybe you don’t have the enough feasibility to provide this information now and that’s fine, but based on what you see today for 2012, how should we think about in terms of orders or customers indications in terms of megawatts, what do you have already in the bag?

Peng Fang

For the whole year of 2012, I think our forecast right now is, we should increase for the total volume and also our module sales will be more than 50% of total shipments. Higher productivity overall the markets across let’s say few quarters is still very dynamic and also very competitive.

Ahmar Zaman - Piper Jaffray

So, just to make sure I have this right. Overall shipments for next year should be up from let’s say year-over-year, so above 1.6 gigawatt at least and module should make up over 50% of that number?

Peng Fang

Right.

Ahmar Zaman - Piper Jaffray

Based on what you have indication that you have from your customers today?

Peng Fang

Right. That’s what we see now.

Operator

Your next question comes from Mahesh Sanganeria [RBC Capital Markets].

Mahesh Sanganeria - RBC Capital Markets

Can you talk about how much of this quarter's shipment will be from inventory?

Min Cao

From what?

Mahesh Sanganeria - RBC Capital Markets

From inventory, written down inventory how much will be the new production shipment for this Q4?

Min Cao

So, we’re approximately producing to order. So, I think, shipment and production will be roughly similar. It’s difficult to tell, but I think you should model similar.

Mahesh Sanganeria - RBC Capital Markets

Similar, so you are not seeing the inventory will remain same.

Min Cao

I think inventory will come down in terms of megawatts and also dollar level, but it won’t be that significant.

Mahesh Sanganeria - RBC Capital Markets

And where do you see the wafer price right now and in Q1?

Min Cao

I mean in terms of trend we are seeing first of all, average Q4 wafer cost should be roughly 50% below our Q3 levels. So, we think Q1 where there is opportunity to go down maybe another 10, 15% but we don’t expect it to go down much more.

Mahesh Sanganeria - RBC Capital Markets

So, you said Q3 came down 50% and Q4 will come down another 50% and then Q1 another 10, 15%?

Peng Fang

No, Q4 is coming down 50% than Q3.

Min Cao

Versus Q3.

Peng Fang

Versus Q3, yes, and in the next quarter it will be slight (inaudible). The wafer pricing market is stabilizing.

Min Cao

Yes, we expect wafer price to stabilize from now to Q4. I mean, you won’t see the high percentage reduction anymore, we don’t expect that.

Operator

We are now approaching the end of the conference call. I will now turn the call over to Ming Yang, Vice President of JA Solar for closing remarks.

Ming Yang

Thank you, everyone for joining us today. We appreciate your interest and support of JA Solar. If you like to arrange a meeting with us or if you have any questions, please contact or e-mail our IR firm, Brunswick Group and they will be happy to help you. Their contact information is on today’s press release. Thank you again for your continued support and we look forward to talking with you in the coming months.

Operator

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

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