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Executives

Leah Gibson – Director, IR

Stephen Rhoades – President and CEO

Aaron Gomolak – CFO

Analysts

Dale Pfau – Cantor Fitzgerald

Pavel Molchanov – Raymond James

Jeff Osborne – Stifel Nicolaus

Carter Driscoll – Capstone Investments

Presentation

SatCon Technology Corporation (SATC) Q4 2011 Earnings Conference Call March 1, 2012 5:00 PM ET

Operator

Good afternoon and welcome, everyone, to SatCon’s Fourth Quarter and Full Year 2011 Conference Call. Today’s call is being recorded. You may listen to the webcast on SatCon’s website located at www.SatCon.com. In addition, today’s news release is posted on the site for those of you who did not receive it by email.

With us today are SatCon’s President and Chief Executive Officer, Steve Rhoades; Executive Vice President and Chief Financial Officer, Aaron Gomolak; and Director of Investor Relations, Leah Gibson.

At this time for opening remarks, I would like to turn the call over to Ms. Gibson. Please go ahead.

Leah Gibson

Thanks, Robin, and welcome to the call, everyone. Before we begin, please note that the comments made on this conference call today may include forward-looking statements that involve a number of risks and uncertainties. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements and may include the words believes, anticipates, plans, expects, intends, and similar expressions which are intended to identify forward-looking statements.

Important factors that could cause actual results to differ materially from those inferred by such forward-looking statements are set forth under the caption Risk Factors in SatCon’s Form 10-Q for the quarter ended December 31, 2011. These factors are included there for reference. Once filed with the SEC, copies of the 10-K will be available from SatCon upon request and will be posted to the company’s Investor Relations website at SatCon.com.

In addition, today’s call is being recorded, and a webcast replay will be available on the Investor Relations website. This conference call and associated recordings belong to SatCon and are prepared for the benefit of our investors.

Finally I’d like to remind everyone that SatCon CFO, Aaron Gomolak is presenting at the Raymond James 33rd Annual Institutional Investor Conference in Orlando on Wednesday March 7th at 7:30 AM. A live webcast will be available on our investor website and an archive recording will be available as well.

With that, I’ll turn the call over to our President and CEO, Steve Rhoades. Steve?

Stephen Rhoades

Thanks Leah and good afternoon everyone. Let me begin by providing an overview of our performance and then Aaron, will take you through the financials before we turn the call over to the operator for your questions.

Recapping our top line results, 2011 was growth year for SatCon, with revenues up 9% over our results in 2010. Revenue for the fourth quarter of 2011 was $36 million, which is in line with the revised assumptions we made on our business update call in early January. Shipments for 2011 grew over 16% to 800 megawatts shipped with the 250 kilowatt and above segment representing 87% or nearly 700 megawatts of those shipments.

Over the past four years SatCon have been executing a three point strategy composed of domestic and international commercial expansion, strategic solution portfolio development and the implementation of a series of supply chain and operational best practices in order to achieve sustainable profitability alongside growth. Despite the challenges of last year, the fourth quarter of 2011 saw a series of significant milestones in attaining each of these objectives. We are now in a much stronger position as a result.

Today we will walk you through the measures we’ve taking to transform our worldwide organization to enable us to successfully and properly capitalize on the significant opportunities ahead. Those of you who joining the call today are aware, in 2011 the solar industry transformed from the hyper growth market of 2010 to a hyper competitive market.

Our North America and Asia experienced the significant growth for us. The utility-scale ground-mounted European market flattened under government policy changes and uncertainty. This caused significant price pressure in what had been of highly profitable market for SatCon just a year before and continues to be challenging in the first half of 2012. The dynamics of these market changes have forced the industry including SatCon to adjust.

As we have previously announced, over the past nine months, we have implemented a series of significant measures across our organization and adjusted our go-to-market strategies to better position our commercial efforts in each of our core markets. And most importantly, we’re executing our transition to a managed third-party manufacturing model that enables a more flexible and lean global operation through a variable cost structure that can easily ramp relative to immediate market conditions.

These changes along with our industry leading solutions for the utility solar segment and world class sales, engineering and services organizations position us to take advantage of the opportunities ahead, while maintaining a size and cost position that allows us to achieve profitability.

North America continued to be our strongest performing market in 2011 with shipments nearly doubling over 2010, representing 81% of megawatt shipped during the year. As European ground mount solar declined, we saw a number Europe based inverter manufacturers entered the US market. Despite this, SatCon continues to maintain its leadership position, shipping 645 megawatts into North America in the year.

US domestic market was expected to grow over 50% in 2011 and this is evident in our pipeline activity or in the past three months alone, we have added 2.5 gigawatts to our pipeline for medium voltage solutions for projects expected to begin construction in the next 12 months. We continue to invest in our leading solution portfolio for the North American solar market and we’ll be introducing several new products and services over the coming months as we see a significant long-term opportunity to build on our leadership in North America.

The Asia solar market also represented sizable growth for SatCon in 2011 and we see a significant opportunity to expand our presence in these markets in 2012. The China market where SatCon was the second largest inverter supplier in 2010 is expected to triple in size from over 1.5 gigawatts in 2011 to over 5 gigawatts in 2015. To take advantage of this growth SatCon has entered into a strategic sales distribution and manufacturing partnership which we announced earlier this year. I’ll go into more detail about that in a few minutes.

Favorable government policies have also created growth opportunities in other parts of Asia including Thailand, Taiwan and India. SatCon delivered 36 megawatts of its industry-leading 500 kilowatt PowerGate Plus inverters to India last year in a market that had an estimated size of 200 megawatts in 2011 and is expected to grow to 3.5 gigawatts by 2015. In addition, SatCon delivered 25 megawatts into Taiwan in the same year and this market is expected to grow considerably over the next few years.

In Europe the changing government policies and uncertainty coupled with extremely high price pressure challenged the markets throughout 2011. The market outlook for 2012 continues to be highly unpredictable. In order to lower our exposure to heavy swings in this geography we have positioned our sales strategy for Europe around partnerships combined with an intensified focus on developing business there through our global accounts based in the US, Western Europe and Asia.

This strategy will position us to take advantage of the emerging markets there and in the Middle East and South Africa while still maintaining an off payroll presence in the Europe market should regain some consistency in the coming year.

Operating the solar market can be challenging is our expectation and certainly our pipeline supports this notion that the global utility and commercial solar market will grow rapidly in the next several years. In anticipation of this we have assembled a best in class value chain team both commercially and operationally that will enable us to reach our goals of profitability in cash generation rapidly to the creation of a lean and variable cost structure, where the cost of operation is now directly tied to the volumes and revenue generated in each category.

These measures have allowed us to reduce our direct work force by 50% while simultaneously enabling us to expand both our manufacturing and sales capabilities worldwide to a strong and capable partners. As a result we have reduced expenses such that our EBITDA breakeven is lowered by one third relative to a year ago. For Q2 2012 earning breakeven level is between $35 million and $40 million which is less than our average revenue run rate in 2011.

Operationally these measures enable us to both streamline manufacturing and supply chain costs while at the same time giving the ability to rapidly adjust the fluctuating demand in both directions. Last month we announced our expanded partnership with CEC, Great Wall one of 53 China state owned entities, a global fortune 500 company and one of the world’s largest electronics contract manufactures. Under the new agreement CEC, Great Wall will closely support joint efforts by SatCon in aggressive cost reduction driven by design and supply chain improvements including leverage from a much larger collective purchasing power base. Under the terms of the agreement immediate cost reductions are provided in addition to medium and long-term targeted cost reductions.

Today we are successfully tracking on multiple cost reduction initiatives with CEC, Great Wall across our highest volume solutions that will drive improvements to our margin structure beginning in the first quarter of this year.

In addition to the operational aspects of our partnership, SatCon has entered into a non-exclusive sales and marketing agreement with CEC, Great Wall for the distribution of SatCon solar inverters for China. The partnership will position SatCon to capitalize on the estimated 14 gigawatts of utility-scale projects under development there. Of the 14 gigawatts of identified non-residential solar projects in development in China today, nearly two thirds are expected to be developed by China state-owned entities and our partnership with CC Great Wall greatly strengthens our competitive position for this China SOEs.

In addition, Great Wall is committed to an initial purchase of approximately 16 megawatts of SatCon’s PowerGate Plus solutions which are expected to be delivered by April and utilized for their projects. We also recently entered into a letter of agreement with Sanmina-SCI Corporation as a contract manufacturing partner in Canada. Sanmina’s local manufacturing presence will allow us to continue to support our customers in the Ontario feed-in tariff market, while minimizing the amount of fixed cost we carry in that region.

Inside our solution portfolio, we continue to extend our product offerings. Our Prism Platform solutions continue to demonstrate significant demand with over 160 megawatts shipped to-date and a robust pipeline of over 2.5 gigawatts recorded opportunities in North America alone. Prism Platform is the building block for utility-scale solar delivering the highest levels of performance, while at the same time greatly simplifying installation through a factory outplays plug and play design approach.

Prism is the industry leading 98% weighted CEC efficiency is combined with turnkey solution value and moving costly system integration traditionally done in the field and putting it in the factory. This allows for a significant reduction in time and expense of system construction while in showing the highest levels of system performance through factory optimized design.

Just this morning we announced our entrance into the light commercial solar inverter market segment with the launch of Equinox LC. The light commercial inverter segment is one of the highest growth sectors in the worldwide market and is expected to grow to over 1.5 billion in revenue by 2015 according to IMS Research. Equinox LC will include four UL certified power ratings of 12, 16, 20 and 24 kilowatts and five certified power ratings for CE of 8, 10, 13, 17 and 20 kilowatts.

These new solutions launch us into this high growth market segment with best in class efficiency. This combined with a light weight and contact footprint designed for ease of installation and maintenance will allowance to expand or establish partnerships with world’s largest solar developers to significantly broaden SatCon deployment globally.

Over the past eight months, SatCon has implemented a series of difficult and far reaching measures across our organization. Our go-to-market strategy and our cost structure that will ensure that we capitalize on the significant growth opportunities ahead of us. Learning from the lessons of past and building on our industry leading solution portfolio, world-class marketing, sales and engineering organizations, our leadership positions in North America and China and our brand equity as one of the most widely deployed and most innovated utility scale inverter solution provider, we believe that the operational and cost reduction activities that are underway will right size our organization to current market conditions.

With that I’ll now turn the call over to our CFO, Aaron Gomolak who will review our financial results. Aaron?

Aaron Gomolak

Thanks, Steve and good afternoon everybody. Revenue for the fourth quarter of 2011 was $36 million compared with the third quarter of 2011 at $45 million. Total sales for the year were $188.6 million, a 9% increase over total sales of $173.3 million in 2010.

During the quarter, we sold 147 megawatts of our inverter solution as compared to 181 megawatts in Q3 of this year. Our overall revenue per watt for Q4, 2011 was $0.25 and in line with our Q3 revenue per watt. Our ability to hold ASPs reflects the industry’s adoption of our new integrated medium-voltage Prism Platform solutions. While the industry continues to experience pricing pressure, we believe we can maintain our competitive position in the large and utility-scale inverter market through the introduction of this high efficiency and high performance solutions coupled with the continued progress we make on reducing the cost of these products.

Gross bookings for the fourth quarter of 2011 were $24.6 million including $2.8 million in service and extended warranty. Bookings for Q4 came mainly from North America. We de-booked a $5.1 million order in China due to the recently announced partnership with CEC and Great Wall. This order and the associated inventory will now be part of the initial 60 megawatt purchased by Great Wall plan for completion by Q2, 2012.

Our backlog, which consists of fixed purchase orders from our customers, was $23.1 million as of December 31, 2011. Gross margin for the fourth quarter of 2011 was negative 64% compared with 12% in Q3 of 2011. During the quarter the company recorded $27 million in inventory related charges associated with our strategic plan to reduce cost by focusing on product development, marketing and sales on solutions for our fastest growing markets in North America and Asia. Excluding these inventory charges, gross margin for the quarter was 11%.

Operating expenses for the quarter were 20 million compared to operating expenses of 17.1 million in the third quarter of 2011. This includes a legal accrual and bad debt provisions of $1.6 million and restructuring charges of $1.8 million associated with the companywide reorganization that we announced on January 4th. The majority of these restructuring charges during Q4 were associated with employee termination costs. The remaining of restructuring charges of approximately $1.1 million will occur in Q1 of 2012. During the fourth quarter of 2011, the company recorded an operating loss of $42.9 million compared with an operating loss of $11.8 million in Q3 of 2011.

As we indicated earlier in the quarter, management has made a steadfast commitment to achieving profitable growth. To recap these primary actions include; a comprehensive corporate reorganization, focusing our design team and commercial sales and marketing team on our best performing markets in North America and Asia. Next and as a direct results of this product and market focus, we are accelerating our cost reduction programs on our central inverters and our medium voltage Prism Platforms.

As we optimize the design on our Prism Platforms for higher power levels and source more subassemblies from Asia we’ll decrease the cost of these solutions by approximately 10% per quarter for the next three quarters.

And finally, we’re strengthening our organization by moving additional manufacturing and a majority of our international sales and marketing to strong and capable partners such as CEC, Great Wall, Survey Digital and Samina. These organization enhance the capabilities and scale of SatCon while also moving us to more variable cost structure capable of handling large ships in the top line.

These actions reset the expense structure of the company going forward. When completed our EBITDA breakeven will be reduced to between $35 million and $40 million by Q2 of 2012. Our second corporate initiative that we set out in early 2011 was to manage and reduce the amount of working capital tied up in our balance sheet. With the target to reduce inventory and accounts receivable to below Q1 2011 ending levels by the end of last year. I am pleased to report that we were successful in achieving both of our working capital targets at year end prior to the 27 million in charges we mentioned earlier.

Accounts receivable at the end of the fourth quarter were approximately $46.1 million down from $55.8 million in Q3. Inventory at year end was $49.9 million down from $81.3 million in Q3 of this year, of last year. The $27 million in inventory charges for Q4 are comprised of $17.2 million of inventory reserves and $9.8 million of accruals and other items primarily relating to non cancelable purchase orders open as of yearend. More than half of these charges relate to our Solstice product line.

Looking forward to 2012 we are on track to reach our goal of four inventory turns and DSO is of less than 80 days by the second half of the year. Assuming constant revenue and mix these two actions alone would generate $25 million of cash through working capital reduction. In addition principal amounts owed on both our subordinated debt and convertible note are decreasing and will continue to decrease in each quarter throughout 2012. The first quarter of 2012 will be subject to normal seasonality. For Q1, we expect revenue to be between $22 million and $28 million. With the actions just discussed, we expect to be EBITDA breakeven at $35 million to $40 million in Q2 of 2012 and operating income positive at the same revenue levels as we look into the second half of 2012.

With that, I will turn it back to Steve for his closing remarks. Steve?

Stephen Rhoades

Thanks Aaron. While 2011 was a difficult year for SatCon and for the entire solar industry I’m extremely excited about our prospects going forward. We are tacking the fastest growing markets in new ways, partnering with new and powerful companies, introducing new products for both alike commercial and utility-scale markets, completely resetting our expense structure and continuing the successful work done to-date to reduce both our working capital and the debt we carry on our balance sheet. We will reach our goals of profitability and cash generation by the second half of 2012.

With that, I’d conclude our prepared remarks for today and ask the operator to open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Joe Maxa with Dougherty & Company. Please proceed with your question.

Unidentified Analyst

Yeah, hi guys. This is (inaudible) for Joe Maxa. Thank you for taking the question.

Stephen Rhoades

Hi.

Unidentified Analyst

Hi, Aaron, I wanted to ask you about this 1Q sales guidance, how much of that revenue of $22 million to $28 million is from this partnership with Great Wall and did you account that as product sale like that you did use the ASP as $0.20 or did you use the royalty number?

Aaron Gomolak

Yeah. So, for the, actually first half of 2011, we have no revenue modeled in for the GCL and Great Wall partners or the, I’m sorry the CEC, Great Wall partnership. We do have as part of the agreement and I just want to, let me be clear with everybody that we do have, there is a 60 megawatt initial purchase that is in the agreement. We’re going to treat that from an accounting perspective as an offset to cost of goods sold and we’ll recognize revenue when CEC, Great Wall actually sell that project through to the end user.

So, it will certainly be a working capital pick up in Q1 and Q2 because we’ll be able to reduce inventory by 50 megawatts and get cash flow with those units. But the company will not be recording any revenue until we get that product placed at the final job site. And then as far as the royalty goes going forward, the straight royalty going forward, we’re not modeling any revenue for the first half of the year there, although there are some near-term opportunities.

Unidentified Analyst

So, what are you looking for full year, fiscal year ‘12 growth compared to fiscal year ‘11? I mean your first quarter guidance calls for, it’s a decline of 31% or 30% sequential decline. But going forward, can you give us some color on what are you looking for the next nine months after the first quarter?

Aaron Gomolak

So we’re not giving revenue guidance for the full year. Historically, we have always seen a drop from Q4 to Q1.

Unidentified Analyst

All right.

Aaron Gomolak

And so we’re going to see that same thing this year. We certainly expect this to be growing in revenue as we look out over the next three quarters but we never provided more than one quarter guidance and that’s all I can provide right now.

Unidentified Analyst

Sure and just one...

Aaron Gomolak

We’ll say that we’re concentrating on the market that we think are going to grow quickly. I think that the US has been a very good market for this year and place where we expect significant growth. We did in put into our notes today that we quoted a very large amount of utilities scale opportunities for our medium voltage solutions. The quoting activity over the last few months has been intense and I think is an indication of where the US utility market is going and we continue to win a sizable fraction of those deals.

So I think the outlook for 2012 was looking quite positive. We are going to see and we would expect to see some drop in revenue from Q4 to Q1 but we’re generally very encouraged by the level of coding activity we see, what we see looking out for the balance of the year.

Unidentified Analyst

Sure. What you’re saying is if I get it correctly at least for till the conference call date you’re looking at order guidance than last quarter?

Aaron Gomolak

Again we’re not providing backlog on because we’ve decided to just give our backlog at the end of each quarter. We made a practice for the past few quarters but we’ll be giving indication that quoting activity is high and that’s where we’re providing.

Stephen Rhoades

I think if I could add one more comment too actually, it’s important to also note that these sales distribution of CEC, Great Wall is a non exclusive agreement. So we’re maintaining a direct business development presence in China and throughout Asia. So I don’t want you think our opportunities in Asia are limited to just the CEC, Great Wall agreement

Unidentified Analyst

Sure, and Aaron just one housekeeping question for you. What are your thoughts on gross margin for first quarter and second quarter?

Aaron Gomolak

You know, I think when – the first quarter, obviously, the focus is on cash generation and getting continuing to make great progress on working capital reduction. So we’re not giving the official guidance but I think it will be somewhere in the range it’s been last couple of quarters without the special items. You know as you look forward to Q2 and you think about a 35% to 40% million EBITDA breakeven model. The assumption, we have about 9% price erosion model throughout the year and gross margins around 20% for Q2 would be part of that model.

Unidentified Analyst

Okay, great, thank you.

Aaron Gomolak

Yep thank you.

Operator

Our next question comes in line of Jesse Pichel with Jefferies & Company. Please proceed with your question.

Unidentified Analyst

Hi, Steven and Aaron this is (inaudible) for Jesse. Thanks for…

Stephen Rhoades

Hi, Jesse.

Unidentified Analyst

Thanks for taking my question. For your light commercial product launch, can you give us some color on how big is the target market this year, and how much revenue your targeting in 2012. And how will be the margin, compared with the corporate average?

Aaron Gomolak

Yeah, the market’s a big market. We have the IMS numbers there for this year for a number, Aaron.

Stephen Rhoades

Yeah, we’re pulling up right now. So you ahead and talk to Steven, we’ll jump on.

Aaron Gomolak

Yeah, so the, so this is a very fast growing market with several $100 million this year projected at 1.5 billion by 2015. I think that as we’ve seen cost come down then the value, competitiveness of solar power for commercial buildings and against retail electricity rate is actually very, very favorable here in the US. So we think this is an exciting market for us to get in.

It’s still a three phase business for us. So all of the nine power orders we announced are for three phase power supplies, which is where we’ve build a sizable presence over the past three years. It’s going to take a while for us to deal this but we’ve got over 2,000 dealers and distributors selling SatCon products just in the US and these products are made for that channel.

So, I think it’s a business that we can grow well through this year. It’s a new space for SatCon in for our dealers and distributors, our customers but I think the SatCon brand and the terms that they’ve had with us over the year is going to help us to push these pretty rapidly into this market. And in terms of margins they will be comparable to the margins that we have on our utility-scale equipment for this year. I believe to vary little below the line cost, so I think it’s going to be a good profitable segment for us to get into.

Unidentified Analyst

(Inaudible).

Stephen Rhoades

Yeah, and then as far as market sizing what we get from IMS has the 2012 market at about 2.4 gigawatts in terms of total addressable market growing to about 3.6 gigawatts by 2015.

Unidentified Analyst

Okay, yeah. Okay, great. So, what kind of gross do you expect from China this year both in terms of shipment and also revenue?

Stephen Rhoades

Yeah, I think we’ve got a fantastic new partner and CEC, Great Wall, they are well tight into other state owned entities inside of China. They are investing heavily in sales and market, now they’re going to give us good broad presents across China.

For the total market there, I just took a trip over there, I think we’re going to see a total markets that’s north of 3 gigawatts but I don’t know that it will reach some of the larger projections that have been put out there for that market but at this point plenty of opportunity there but I think it, what we’ve seen over the last few years is it, it helps to have good strong local partners and for that builds in that business in that region.

Unidentified Analyst

Great. I appreciate it. Thanks.

Stephen Rhoades

Thank you.

Operator

Our next question comes from the line of Dale Pfau with Cantor Fitzgerald. Please proceed with your question.

Dale Pfau – Cantor Fitzgerald

Good afternoon, all.

Aaron Gomolak

Hi, Dale.

Dale Pfau – Cantor Fitzgerald

Let’s talk just a little bit about the 60 megawatts make sure I understand this correctly. You’re going to record this kind of as a distribution agreement. They’re going to take the inventory. You’ll get the cash. It will decrease your inventory and then you record the revenues when it’s sold due to their final customer, correct?

Aaron Gomolak

That’s absolutely correct, Dale, yeah.

Dale Pfau – Cantor Fitzgerald

And the when is the off take of the inventory, is it going to be this first quarter and second quarter?

Aaron Gomolak

It’s going to be split between Q1 and Q2, correct, with the agreement stating that all inventory will be taken by April 30th.

Dale Pfau – Cantor Fitzgerald

So, about how much cash you’re going to get, Aaron?

Aaron Gomolak

We’re modeling around $6 million Dale.

Dale Pfau – Cantor Fitzgerald

$6 million total.

Aaron Gomolak

Yeah, yeah.

Dale Pfau – Cantor Fitzgerald

And where do you think your cash burning and 1Q and 2Q are going to be?

Aaron Gomolak

Well, I think especially looking at Q2, I think we based on what we said, what Steve and I decided on the script, we feel we will be EBITDA break-even. So, from a operations perspective, our intention in Q2 is to burn no cash. I think as we look at Q1 obviously, it’s the transitional quarter.

The restructuring announcement that we put out in January 4 is phased in throughout Q1. So, we have a lot of cost that we’re incurring right now, shutting our factory in Canada, people are gradually leading. So I think from a cash burn perspective whatever we lose from an operating income perspective, we will make up through the balance sheet in terms of working capital reduction.

Dale Pfau – Cantor Fitzgerald

Okay. My quick question about your new light commercial product, Steve is, this is something your customer have been asking for, did you feel there was a hole in the market out there, what lead you to introduce this family of products at this time?

Stephen Rhoades

I would say that there is three things. We’ve been all the way down in terms of size of our products now at 30 kilowatts as you know and we still get a fair amount of demand for our 30, 50, and 75 kilowatt products. Many of our customer including several of our largest customers have been pushing us hard to enter into the space for smaller three phase products and so we’ve been thinking about it for a quite a while.

As costs have come down for panels and as we see that the solar is a much more competitive solution and because of that its gaining a lot of traction for commercial rooftop particularly here in the US it’s a fast growing segment. So, I think it’s a market that’s going to grow fast mostly because of how fast overall system costs have come down over the last year, year and a half.

And we have an opportunity to get into the market with a great set of products, a good deal for us and one where we I think we can take advantage of the brand that we’ve built over the last few years. The extensive dealer network, we have nine distributors and over 2000 dealers here in the US that will carry the products. So we think that’s something we can push pretty rapidly to our customer base so I am very excited about our prospects (inaudible).

Dale Pfau – Cantor Fitzgerald

Those products would be made in China also?

Stephen Rhoades

They will not. They will mostly be, it’s here in the United States.

Dale Pfau – Cantor Fitzgerald

Okay. And just your comments about the RFQ activity you mentioned your RFQ activity has been heating up and with primarily I would assume for some other utility scale projects here in the US that people are expecting to install this year and next year is that correct?

Stephen Rhoades

That’s correct. We’ve seen over 2.5 gigawatt product quoted just in the US. We’re seeing similar amounts actually in China but I am less optimistic about the timing of that. But it we actually seen a very high level of quote activity in China as well. But when we look at US market, we see very robust quoting activity and detail RFQs that we’re participating in it gives me good encouragement over the next couple of years for utility-scale segment here in North American market.

Dale Pfau – Cantor Fitzgerald

And from that standpoint the people who actually are seeking those RFQs how is your relationship with those customer?

Stephen Rhoades

Quite good I am not sure, we’d be involved in such detailed RFQs I mean I think that we’ve made short list for some from some big and important projects with some very strong (inaudible) here in the US

Dale Pfau – Cantor Fitzgerald

Great well. Good luck and we’ll be watching, thanks.

Stephen Rhoades

Okay, thanks.

Operator

Next question comes from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Pavel Molchanov – Raymond James

Hi, guys thanks for taking my question. First on light commercial product, with competitive dynamic I guess that you’re facing there is a little bit different you will be computing against much larger players like PowerOne and SMA Solar and I am just curious how comfortable you are with going against those larger players?

Aaron Gomolak

Those are the players we compete with everyday in our utility segment Pavel and I think that we’ve got the technical capabilities, the connections to our customer base. Particularly here in the US I feel quite good about our ability to compete in that market. We have a very wide net that we cast with our distributors and dealers here in the US. The SatCon brand is trusted. We don’t just sell in the utility-scale segment.

We sell 30, 50, 75, 100 and 135 kilowatt inverters today for commercial rooftops and we do quite robust business in that space. This is going to extend our reach down to 10 kilowatt and I think it’s a segment that’s going to grow quickly and we’re going to use our brand and our distribution network and our, the technical brows that we have to drive that solution here in, in the US and in the North America market.

Pavel Molchanov – Raymond James

Okay. And then just a quick follow up about your partnership, obviously GCL Solar, we have a lot of hopes for it, I didn’t pan out in the past, what gives you the confidence that Great Wall will have a fundamentally different outcome?

Stephen Rhoades

One of the things that it is a large difference between this partnership and the previously work we’ve done with China it that CEC is one of the large state owned entities in China. A lot of their pipeline, a lot of their internal excitement about the business is how closely they are working with the other state owned entities in China on their work in solar. So, though the other state owned entities and clearly five transmission operators and the two generation operator so forth the Chinese utilities, other big players with lots of rooftop and ground opportunities in China.

So, I think that connection is quite different from the partner that we had previously. The other thing that I think is different is this is a group that we had a connection with for many years. We started working with our contract manufacturing partner in Shenzhen more than three years ago. CEC owns that company. We’re – we’ve been working with the parent corporation for a number of years. We trust them. I think it’s, it makes for a strong partnership opportunity as we look out over the next few years. So, it is different. I think it’s a much bigger organization than GCL very connected inside of China, very connected to other Chinese state-owned entities and I think it’s a great opportunity for us.

Pavel Molchanov – Raymond James

Okay.

Stephen Rhoades

I think, if I could add to that too Pavel. I think the economics of this deal make a lot more sense, right. When we set up the deal with our previous customer, pricing was a lot higher than it is today. It was a buy sell relationship. There was margin stacking going on. And I think if you look at the pure royalty deal, this is just, the economics make a lot more sense to CEC Great Wall, they’re going to make a lot more sense to SatCon and it’s going to put them at a very, very price competitive advantage as we look into the market.

Pavel Molchanov – Raymond James

All right. Just one last quick one, what do you think the Chinese CD market will total in 2012?

Stephen Rhoades

Yeah. As I said earlier, when Dale asked that question, I was just over there. I talked to a number of people. The consensus that I got talking with folks was a number 3 to 4 gigawatts. And I think that that’s a more realistic estimate than some of the much larger estimates that we see out there.

Pavel Molchanov – Raymond James

I appreciate it guys. I appreciate the color.

Stephen Rhoades

Thanks Pavel.

Aaron Gomolak

Thank you.

Operator

Our next question comes from the line of Jeff Osborne with, Stifel, Nicolaus. Please proceed with your question.

Jeff Osborne – Stifel Nicolaus

Great, good evening. Steve in your last call you mentioned some pulling of orders are interest on the 1603 program and that expiring last year, I was just wondering if you can update us on what you’re seeing with that particular program here in the U.S?

Stephen Rhoades

We did see orders before at the end of December for the 1603. I think we got some of that but we also got an indication that a lot of that was secured through panel purchases or balances system purchases and there are about 12, 15 months left to run on that program. So what we got some of the benefit directly at the end of December for that program but we also look for benefit in the overall US market as those part have to be built over the next 12 months. We’re seeing some activity in Puerto Rico for ourselves in that some here in California. So it was good, it didn’t drive a giant amount of business but it drove a good portion at the end of December for us on orders.

Jeff Osborne – Stifel Nicolaus

Got you and just two other ones, Aaron can you just touch on with all the moving pieces with what you expect the operating expense run rate to be in Q1 and Q2?

Aaron Gomolak

Yeah. I think Jeff it’s easier probably for me to predict Q2, I think we’ll be below $10 million probably $9.5 million to $10 million in that range. I think if you look at Q1, it certainly going to be a transitional quarter as we shutdown the manufacturing facility in Canada and we execute on the restructuring plan but I would think somewhere in the $12 million, $13 million ranges as what I would model for OpEx for Q1.

Jeff Osborne – Stifel Nicolaus

Got it. And then the last one I may have missed it in the release this morning but on the light commercial side, can you just talk about when those will be in the general availability, is that something for enter solar middle of the year, later in the year or now.

Aaron Gomolak

They’re ready now.

Jeff Osborne – Stifel Nicolaus

Okay.

Stephen Rhoades

So, all of those product levels are ready to be delivered today and we’ll be hitting the market with them hard over the next weeks or months.

Jeff Osborne – Stifel Nicolaus

Perfect, thanks so much for the update.

Operator

(Operator Instructions) Our next question comes from the line of Carter Driscoll with Capstone Investments. Please proceeds with your question.

Carter Driscoll – Capstone Investments

Good afternoon. My first question is maybe you could detail or contrast India and Taiwan and what are you selling in the air and kind of your expectations for the balance of 2012? There seem to be two markets that really starting to ramp, maybe you could talk specifically about those two and then I’ll have couple of follow-ups?

Stephen Rhoades

We did a pretty good business in Taiwan last year. If I’m not mistaken, Aaron it’s about 12 megawatt, is that right?

Aaron Gomolak

25 megawatt in Taiwan, Steve and 36 in India.

Stephen Rhoades

Yeah, it was bigger than I thought. So, 25 megawatts in Taiwan which had to be a sizable fraction of that market. I think it’s looking to be a market of similar size as we look out over 2012. We’ve got a fantastic partner in India with whom we been working with for a lot of our shipments. We previously announced that we shifted a sizable fraction of our product to Wipro. Wipro is a strong EPC in India.

That market is still developing, it’s still a little bit slow here in 2012 and I think that we continue to be modest growth for India in 2012 but looks very good as we look out into 2013 to 2015. We got folks on the ground there. We’re getting a sizable fraction of the business there and we remain very interested in the growth that we’re going to see in that market. Here the market, I think that we’re doing well and although not much in terms of shipments right now but a lot of pipeline activity is in Thailand. I don’t know I think it’s going to be a good market in 2012 and we’ve got good partnerships developing in that region as well.

Carter Driscoll – Capstone Investments

And can you just clarify, which products are seeing the most success maybe contrast and talk?

Stephen Rhoades

Yeah we’re only selling our utilities scale product there right now primarily the 250 kilowatt 500 kilowatt PowerGate products.

Carter Driscoll – Capstone Investments

And then couple of just clarification if I could Aaron, the number that you’ve mentioned in terms of what you’re expect if everything goes according to plan in terms of potentially change in turn over working cap, I think you said $25 million for 2012, if that’s correct and....

Stephen Rhoades

That is correct, yeah.

Carter Driscoll – Capstone Investments

Would that include the $6 million for Great Wall or is that exclude?

Aaron Gomolak

Yeah that would include the $6 million for Great Wall, Carter. So the $25 million number just to reiterate would be the reduction in both inventory and accounts receivable at constant revenue mix.

Carter Driscoll – Capstone Investments

And after the charge that you took this quarter in the inventory, you feel fairly confident that the inventory position right now is fairly clean?

Aaron Gomolak

Yeah I did obviously we spent tremendous amount of efforts months probably looking at every part and every warehouse around the world and I feel very comfortable in the balance that’s left.

Carter Driscoll – Capstone Investments

Okay, that’s all I had. Thanks very much.

Aaron Gomolak

Thank you Carter.

Operator

There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Leah Gibson

Well, thank you, everyone. This concludes today’s call, and we look forward to speaking with you on our first quarter 2012 conference call in early May. Thanks a lot.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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