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JA Solar Holdings Co. Ltd. (NASDAQ:JASO)

Q3 2007 Earnings Call

November 9, 2007, 8:00 AM ET

Executives

David Pasquale - The Ruth Group

Huaijin Yang - CEO

Hexu Zhao - CFO

Kang Sun - President and COO

Analysts

Jesse Pichel - Piper Jaffray

Vishal Shah - Lehman Brothers

Pavel Molchanov - Raymond James

Angello Chan - Credit Suisse

Dan Ries - Collins Stewart

Pierre Maccagno - Needham & Company

Adam Hinckley - CIBC World Markets

Cheryl Tang - Goldman Sachs

Max Lee - Morgan Stanley

Stuart Bush - RBC Capital Markets

Presentation

Operator

Greetings ladies and gentlemen, and welcome to the JA Solar Holdings Company Limited Third Quarter 2007 Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow a formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. David Pasquale of The Ruth Group. Thank you. You may begin.

David Pasquale - The Ruth Group

Thank you, Operator. Welcome everyone to JA Solar's third quarter 2007 results call. Joining us today from the company are, Mr. Huaijin Yang, CEO; Dr. Kang Sun, President and COO; and Mr. Hexu Zhao, CFO. We will have time for your questions after Mr. Yang provides the business review and outlook and Mr. Zhao will review select financial details. References on today's call, to dollars are the lawful currency of United States of America. The press release provides detailed financial tables for the conversion from RMB to U.S. dollars. If you have not received a copy of today's earnings release please call The Ruth Group at 646-536-7023 or you can get a copy of the release off of JA Solar's website.

Before we begin the formal remarks, the company's attorney has advised that certain statements on today's call including statements regarding expected future financial and industry growth are forward-looking statements and involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. In some cases you can identify forward-looking statements by such terms as believes, expects, anticipates, intend, estimate, or the negative of these terms or other comparable terminology. Actual results could differ materially from those projected in the forward-looking statements.

Factors that could cause actual results to differ with general business and economic conditions and the state of the solar industry, governmental support for the deployment of solar power, future shortage or availability of the supply of high purity silicon, demand for end use products by consumers and inventory levels of such products in the supply chain, changes in demand from significant customers, changes in demand from major markets such as China and Germany, changes in customer order patterns, changes in product mix, capacity utilization, level of competition, pricing pressure and declines in average selling price, delays in the introduction of new product... production lines, continued success in technological innovations, shortage in supply of materials or capacity requirements, availability of financing, exchange rate fluctuation, litigation, and other risks as described in the company's SEC filings including its Annual Report on Form 20-F as filed with the SEC.

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Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, they cannot guarantee future results, level of activities, performance, or achievements. You should not place undue reliance on its forward-looking statements. All information provided on today's conference call is as of today's date unless otherwise stated and the Company undertakes no duty to update such information except as required under applicable law. At this time, I would like to now turn the call over to Mr. Yang. Please go ahead, sir.

Huaijin Yang - Chief Executive Officer

Thanks David. Thank you everyone for joining us on today's call. Before I discuss our results for the third quarter year 2007, I would like to welcome our recently appointed President and Chief Operating Officer, Dr. Kang Sun. The addition of Dr. Sun to our already strong management further enables us to support our expected continue grooves [ph]. Dr. Sun's participation is another milestone in our corporate development. His experience at the set up and large enterprises makes him a mature feet and a value executive. We will continue to add our synergies and technical talent to our management team as we move forward in support of our business and prospectus.

In the third quarter, JA Solar demonstrated impressive sales growth and profitability while excluding on our equity capacity expansions. Total revenue grew to $113.40 million while $33.1 million in a year ago quarter, and $61 million in the second quarter year 2007. Megawatt produced and shipped in the quarter were 44.6 megawatt and 43.8 megawatts respectively, compared to 9.7 megawatt produced and 9.2 megawatt shipped in the year ago quarter and a 22.6 megawatt produced and 24 megawatt shipped in the prior quarter. We attribute our strong performance in the quarter to the healthy market demand for our products and the operational excellence of our management team. The successful management of our supply chain resulted in key wafer supply agreements with new and existing suppliers.

This contract further strengthens our long-term wafer supply and will enable us to meet our growth objectives as we work to satisfy ever demanding market needs for our products. As market demand for our cell continued to increase we are focused on remaining competitive in the rapidly developing solar energy market. Our challenging and accruing R&D team is dedicated to achieving our desire to fill efficiency targets as well as to receiving feasible technologies. We also recently added several proven executives to our operation, business development, sales, and our marketing teams to support our immediate business growth and long-term objectives. We are nicely with our capacity expansion and remain on target to reach 425 megawatts of annual nameplate [ph] capacity by year end 2008.

Outlook, we remain optimistic in our outlook for the full year 2007 based on our current market conditions and a customer forecast we are rating our production outlook for year 2007 to 120 megawatts from prior guidance of 110 megawatts. This would result in the revenue for the full year 2007 in the range of approximately $320 million to $370 million with growth margin expected to be approximately 20%. This is compared to our prior guidance for revenue for the full year 2007 in the range of $300 million to $310 million with gross margin of approximately 19.5%.

As stated previously our capacity expansion target for year-end 2008 remained on track for 425 megawatts of annual name plate production capacities compared to our current production capacity of 175 megawatts. I would like to turn it over to our CFO for a review of our Q3 performance.

Hexu Zhao - Chief Financial Officer

Thank you, Huaijin. Good morning everyone, now let me report to you some of our Q3 key financials details. Further revenues in the third quarter '07 were $113.4 million compared to $33.1 million in the third quarter '06 and $61 million in the prior quarter. The third quarter '07 included Solar sales processing revenue of a $5.6 million compared to 0 in the third quarter '06 and a $3.5 million in the second quarter '07. Total gross profit for the third quarter '07 was $26.6 million including the solar sales, process and services profit of $4.1 million. Total gross margin was 23.45% in the third quarter '07 compared to 24.1% in the second quarter '07.

Net income available to ordinary shareholders for the third quarter '07 was $22.1 million compared to net income of $0.55 million in the third quarter '06 and net income of $10.1 million in the second quarter '07. Basic and diluted earnings for ADS for the third quarter was $0.48 and $0.47 respectively. This compares to basic and the diluted earnings for ADS of $0.02 in the prior year quarter. Each ADS represents three of our ordinary shares. Share based compensation expense was $2 million for the third quarter '07 or $0.04 per diluted ADS. ASP's remained relatively stable in the third quarter. ASP's for the third quarter was $3 per watt compared to $2.96 per watt in the second quarter '07 using the third quarter ending exchange rate for same comparison basis. The ASP's are especially to remain stable for the remainder of '07.

Expense... R&D expense was $148,000 in the third quarter '07 compared to $52,500 in the third quarter '06 and the $94,700 in the second quarter of '07. SG&A was $3.7 million including $1.9 million share based compensation expense for the quarter compared to $3.3 million in the prior year quarter and the $3.4 million in the second quarter of '07. Cost per watt for the quarter was $2.37. At the end of the third quarter '07, JA Solar had a cash and a cash equivalent of $106 million U.S.

In order to support our aggressive growth plan to reach 425 megawatt of capacity in 2008 we recently completed a successful follow-on offering with net proceeds up 198 million. The additional proceeds had threatened our [indiscernible] as it is leveraged it is negotiating with capacity and as it comes in, in executing our expansion plan. Operator, that concludes our remarks, you can take questions now.

Question And Answer

Operator: Ladies and gentlemen. [Operator Instructions]. Our first question comes from Jesse Pichel with Piper Jaffray, please state your question.

Jesse Pichel - Piper Jaffray

Hi, good evening. Congratulations on your quarter.

Huaijin Yang - Chief Executive Officer

Thank you Jesse

Jesse Pichel - Piper Jaffray

Can you help us for clarification of that guidance 320 to 330 megawatts, does that include total tolling, sub processing?

Huaijin Yang - Chief Executive Officer

Yes.

Jesse Pichel - Piper Jaffray

Okay, And it looks like you doing about $2.6 million cells per quarter now, per line. Is that correct?

Huaijin Yang - Chief Executive Officer

For the seven lines each line averaged about 6 million pieces as per demand.

Jesse Pichel - Piper Jaffray

So you did about 18 million pieces in the quarter, is that about right?

Huaijin Yang - Chief Executive Officer

For this quarter, that is about right, yes, 17.9 to be... actually 18.2 to be exact.

Jesse Pichel - Piper Jaffray

18.2 and then that's 2.4 watts per cell

Huaijin Yang - Chief Executive Officer

2.44 average.

Jesse Pichel - Piper Jaffray

So I mean you getting pretty good throughput on your lines, do you think you can increase that further or are we at a maximum now for your output per quarter?

Huaijin Yang - Chief Executive Officer

I think Q3;s output is excellent in our execution.

Jesse Pichel - Piper Jaffray

Yes.

Huaijin Yang - Chief Executive Officer

So we were adding lines, I would say that's probably the very good results.

Jesse Pichel - Piper Jaffray

What are you thinking about cell ASPs for the first half of '08, how are they trending based upon your customer interest?

Huaijin Yang - Chief Executive Officer

At this moment we have not in fact to provide guidance for '08 but so far we seen ASP trend will continue at least for the first half of '08.

Jesse Pichel - Piper Jaffray

Okay, great. I will let someone else ask the question. Thank you.

Huaijin Yang - Chief Executive Officer

Thank you, Jesse.

Operator

Our next question comes from Vishal Shah with Lehman Brothers. Please state your question.

Vishal Shah - Lehman Brothers

Yes, hi, congratulation. Thanks for taking my question. Can you just clarify what your output was for the tolling business in terms of megawatts?

Huaijin Yang - Chief Executive Officer

For third quarter the tooling is about at 8.2 megawatts.

Vishal Shah - Lehman Brothers

Okay and it looks like your guidance for the fourth quarter assumes your internal production would decline from third quarter. Can you just explain why that could be... I am looking at your wafer supply in the fourth quarter and looks like its improving compared to third quarter, so can you just talk about some of the dynamics there? Thank you.

Huaijin Yang - Chief Executive Officer

For the Q4's output, you are talking about that.

Vishal Shah - Lehman Brothers

Yes.

Huaijin Yang - Chief Executive Officer

Well we want to say Q4 as I just explained, in Q3 we had an excellent production throughput. So we would expect at the best Q4 will be there at same level.

Vishal Shah - Lehman Brothers

Okay...

Huaijin Yang - Chief Executive Officer

Better in output. Yes.

Vishal Shah - Lehman Brothers

For 120 megawatts of production would assume that your Q4 production is declining to 35, 36 megawatts. Is that dried or...

Huaijin Yang - Chief Executive Officer

Well we kind of increased the guidance to 120 but it is not exactly what we had planned to do for Q4.

Vishal Shah - Lehman Brothers

Okay, great and then can you just talk about your margins in tolling business and how you think they could look at, look like as more cell capacity comes on line in 2008?

Huaijin Yang - Chief Executive Officer

Module is not however, focused as we are in the... so probably we will see... I mean, for the tooling part we will see a decline in 2008, so it won't impact our margin at all. That's not our focus area for our... in the business.

Vishal Shah - Lehman Brothers

Thank you.

Operator

Our next question comes from Pavel Molchanov with Raymond James. Please state your question.

Pavel Molchanov - Raymond James

Hi, good evening, great quarter. Question about your 2008 capacity additions, can you give a sense of what the pace of those additions will be to reach 425 at year-end?

Kang Sun - President and Chief Operating Officer

Yes, this is Kang Sun for JA Solar. Our first new line will commission some times in mid of June and two lines per month will follow that.

Pavel Molchanov - Raymond James

I am sorry, you said in the middle of June will be the first?

Kang Sun - President and Chief Operating Officer

2008, we will be the first in new lines with commission.

Pavel Molchanov - Raymond James

Got it. Okay, thank you. And then second, on second quarter call you mentioned that in October you would get or would potentially get a lower tax rate as a high tech enterprise from the Provisional [ph] government, can you give us an update on that?

Huaijin Yang - Chief Executive Officer

Yes, this is Huaijin Yang. We are still in the process of applying a high-tech enterprise certificate. After receiving the certificate whether we can enjoy the tax benefit it really depends on the data of the provision of the new tax laws which we expect to announce soon. So the Chinese Tax Authority has not announced a detailed tax provision yet.

Pavel Molchanov - Raymond James

Got it. And when would you expect to get that certificate?

Huaijin Yang - Chief Executive Officer

The certificate we expect to get that in short period of time. I mean it could be anytime from now on.

Pavel Molchanov - Raymond James

Okay, great. Thanks very much.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Our next question comes from Angello Chan with Credit Suisse Group. Please state your question.

Angello Chan - Credit Suisse

Okay, good evening. Hexu, Huaijin, and Dr. Sun, my question is can you give us some guidance on the what was the actual third quarter wafer cost, let's say per wafer per watt and how does that actually compare to second quarter? And yes, let us begin with that.

Huaijin Yang - Chief Executive Officer

Okay, our cost structure for third quarter, total cost as I mentioned of $2.37. So out of this total cost, 92.14% is wafer cost, 2.7% is the depreciation and amortization cost, and direct labor was about 0.45%, the remaining part of 4.71% which including packaging, utility, rent expense and other material need to be used to produce solar cells.

Angello Chan - Credit Suisse

Great and just to clarify what was just... the first new lines in '08 would start in June and how many lines per month did you say JA Solar

Huaijin Yang - Chief Executive Officer

Yes, we are planning... we anticipate two lines per month.

Angello Chan - Credit Suisse

Two lines per month starting in June '08?

Huaijin Yang - Chief Executive Officer

Yes.

Angello Chan - Credit Suisse

Is that right?

Huaijin Yang - Chief Executive Officer

Correct.

Angello Chan - Credit Suisse

Wonderful and Herman is all the share-based compensations still booked just in the G&A item, line item?

Hexu Zhao - Chief Financial Officer

Majority of stock-based compensation goes to SG&A, very low goes to a manufacturing overhead. For example, for the third quarter only about $100,000 went to manufacturing overhead, the other $1.9 million went to SG&A.

Angello Chan - Credit Suisse

Thank you very much. That's it.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Our next question comes from Dan Ries with Collins Stewart. Please state your question.

Dan Ries - Collins Stewart

: Hi, thank you very much, great quarter guys. Can you provide some sense for the time between when a facility produces its first cell to when it would reach full volume is it two months, three months, any sense for that?

Huaijin Yang - Chief Executive Officer

Two months, this is Huaijin.

Dan Ries - Collins Stewart

: Two months okay, great. And I think one of the earlier questions was that tax rate, do you have an estimate of the tax rate that we should use for 2008 and 2009?

Huaijin Yang - Chief Executive Officer

I would say to be conservative we better use 15%, as I mentioned even though we feel comfortable we can get our hi-tech certificate it does not necessarily mean we can enjoy the tax benefit. It really depends on the detailed provision of the new tax law.

Dan Ries - Collins Stewart

Okay. Thank you very much.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Our next question comes from Pierre Maccagno with Needham & Company. Please state your question.

Pierre Maccagno - Needham & Company

Congratulations on the quarter Herman and Samuel. Could you update on the price of silicon contracts going forward, is it somewhat flat or increasing, decreasing or what is your view on that?

Hexu Zhao - Chief Financial Officer

Yes, Pierre, this Herman again. We have a price, we will negotiate the price with majority of our vendors sometime soon because what... we plan on doing the road show. The four major Jinglong, Shunda, M.SETEK and ReneSola. So far we only have the price for next year from ReneSola which we disclosed in our S1. The price for next year is compared to this year's price about 6% discount for ReneSola, M.SETEK currently the price we are paying $5 per piece and as I mentioned we are giving really negotiable price for next year anytime soon but since we are based on the contract we paid big deposit to them. We do see in return we should get a good price for next year. Jinglong is the same situation. We made a little pre-payment to them, we do expect to get a good price and Shunda, we are the only customer so far made pre-payment to support their expansion. In return, we do expect to get a good price, that's how much I can color on.

Pierre Maccagno - Needham & Company

Fantastic and for next year how much for the silicon contract will you say you will have? What type of --

Hexu Zhao - Chief Financial Officer

Again we see that... yes, during the road show we shared with everybody, we have 325 megawatt secured for next year.

Pierre Maccagno - Needham & Company

Okay, great. Thank you very much and congratulations again.

Hexu Zhao - Chief Financial Officer

Thank you.

Operator

Our next question comes from James Bash [ph] with Dialytic [ph]. Please state your question.

Unidentified Analyst

Hi, how are you guys doing?

Huaijin Yang - Chief Executive Officer

Good, thank you.

Unidentified Analyst

A question about Q4 guidance. I just wanted to clarify something to make sure I am running the numbers okay. The guidance implies that the mid point of 320 to 330, I guess around $109 million in revenues. I think the Street is higher around $115 million. I know that's coming from a production, looks like a slowdown in the production shipment versus Q3. I know you addressed that a little bit earlier, but I want to get a sense of what's causing that and then also... and I might be off of my math but the gross margins of 20% for the full year implies I think around 14% to 15% gross margins in Q4, and I must be doing something wrong, maybe its 17% or 18% but if you could clarify that for me?

Huaijin Yang - Chief Executive Officer

First, we do not provide any quarterly guidance but things we are getting there what we essentially see is that we are using conservative approach. If the deliver [ph] price still stay the same they actually still the same for the remaining of the year. We do see some room for the improvement on the margin.

Unidentified Analyst

Thank you.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Our next question comes from Adam Hinckley with CIBC World Markets. Please state your question.

Adam Hinckley - CIBC World Markets

Hey, guys congratulations on a great quarter. So, I guess my first question relates to the Shunda wafer deal starting from next year, are you getting the majority of the wafer requirements coming from Shunda and I know that they are planning on ramping their own poly silicon capacity. So of the give or take 160 megawatts of wafers that they are going to be supplying to you can you comment on what they have internally secured from outside suppliers and what is expected to be produced internally from their own poly plant?

Huaijin Yang - Chief Executive Officer

Yes Shunda is one of the major suppliers to us. They have their own poly silicon source, we purchased the wafer from them. We just came back from Shunda couple of days ago, I think they have just come back today, just a few hours ago. We look at their construction and progress there. They anticipated they have first poly silicon produced sometime in June of 2008.

Adam Hinckley - CIBC World Markets

So first poly silicon is June of 2008?

Huaijin Yang - Chief Executive Officer

Correct.

Adam Hinckley - CIBC World Markets

So of the wafers that they are supposed to ship to you do they have all of the poly secured from external sources already?

Huaijin Yang - Chief Executive Officer

From now, we have contracted with them.

Adam Hinckley - CIBC World Markets

Okay.

Huaijin Yang - Chief Executive Officer

I think the part of the contract require their own poly silicon capability and part of the contract require their outsourcing capability for poly silicons comes from other suppliers.

Adam Hinckley - CIBC World Markets

Okay, so could you share with us what percentage is going to be of their own internal poly silicon production?

Huaijin Yang - Chief Executive Officer

We have not thought about this... we didn't have the contract with them in this in the category. We have just one bucket of contract by the... at this moment we feel quite comfortable that the contract will be executed on time.

Adam Hinckley - CIBC World Markets

Okay and then could you remind us about Jinglong's capacity expansion from the road show, it seems like that there is going to be a monthly decline in wafer shipments starting in 2008 from about 4.3 million wafers come up in the 4Q of this year to about 3 million wafers per month, I am just wondering why this is occurring especially given the fact that they are probably ramping their capacity as well.

Huaijin Yang - Chief Executive Officer

Actually, Jinglong is ramping up their production capacity, they also verified, and you also know that Jinglong has the MOU 1, 2, 3 with time locks [ph] so each year the suppliers take the material from [indiscernible] is also increasing and Jinglong has... before our IPO or at the moment of our IPO Jinglong is one of 10 supplier for our wafers.

Adam Hinckley - CIBC World Markets

Right.

Huaijin Yang - Chief Executive Officer

But since then we are diversifying our source. So now we have 5... we have four contracts before major suppliers still going to come. One of the suppliers...

Adam Hinckley - CIBC World Markets

No I understand that...

Huaijin Yang - Chief Executive Officer

From next year we would continue to... probably they will become our minor supplier, that's our strategy.

Adam Hinckley - CIBC World Markets

You want them to become a minor supplier, I am sorry, is that what you said?

Huaijin Yang - Chief Executive Officer

I think in terms of percentage, yes.

Adam Hinckley - CIBC World Markets

Okay but so my question is why the actual number of wafers declining in 2008 relative to 2007, is that just conservatism because you have a contract given in place?

Huaijin Yang - Chief Executive Officer

According to contract we have the... we can buy... they have the obligation to supply 100% of the wafers to JA Solar.

Adam Hinckley - CIBC World Markets

Okay.

Huaijin Yang - Chief Executive Officer

At JA Solar it is not necessary to buy one and spend it from them [ph]

Adam Hinckley - CIBC World Markets

Okay and then I guess just a last question and I will jump back in queue after this. So it seems like you are operating slightly above nameplate capacity based on the production numbers from this quarter. Now, you are adding ten lines next year should we assume that you operate at the same level for those ten lines as you are on these existing seven lines?

Huaijin Yang - Chief Executive Officer

No we can not exactly to next year, this year we do improve our productivity substantially and stood on the efforts and include the manufacturing technology. So that's the year to line and two lines on the ground is where we will be before...

Adam Hinckley - CIBC World Markets

Okay, thanks guys

Huaijin Yang - Chief Executive Officer

Thank you

Operator

Our next question comes from Cheryl Tang with Goldman Sachs. Please state your question.

Cheryl Tang - Goldman Sachs

My question is that to first, can we have some sense on the client base, how much is from China, how much is from overseas? And second we thought it was a huge increase derived from third party customers in Q3 and how should we expect it in Q4 next year?

Hexu Zhao - Chief Financial Officer

Hi Cheryl, this is Herman. To answer your first question for Q3 we have about 17.6% shipment to overseas customer and 82.4% to domestic customers, so that's the big change from Q2. In Q2 if everybody remembers we had 91.6% for domestic customers and 80.4% for overseas. So that's a big improvement. For the... you asked for the advanced payment from customer?

Cheryl Tang - Goldman Sachs

Yes.

Hexu Zhao - Chief Financial Officer

Well I can see... I can answer your question indirectly. So, for example our comp receivables for this quarter really only represents about a 18% of our Q3 sales. Both our Q2 accounts receivable represents 33% total sales. So we see... we will try to manage our net return to a limited customer. So we still prefer to ask customer to do upfront payment if we can. Of course we try to keep ourselves in a competitive situation.

Cheryl Tang - Goldman Sachs

Okay, my last question is on the foreign exchange loss of 18 million RMB in Q3. Can you share with us?

Huaijin Yang - Chief Executive Officer

You are talking about...

Cheryl Tang - Goldman Sachs

Foreign exchange loss.

Huaijin Yang - Chief Executive Officer

Foreign exchange loss?

Cheryl Tang - Goldman Sachs

Yes.

Huaijin Yang - Chief Executive Officer

That's due to, we have a big chunk of cash overseas which will take a longer time to bring to China. I think we did talk about our several models how to minimize the exchange loss. We will make a final decision somehow soon. We have several models how to diversify and minimize the risk.

Cheryl Tang - Goldman Sachs

Okay, thank you.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Our next question comes from Max Lee with Morgan Stanley please state your question.

Max Lee - Morgan Stanley

Yes good evening Samuel and Herman. Congratulations on a very good quarterly results. Just two quick questions here for you. Can you please tell us the silicon cost and the manufacturing cost on the per watt basis in the third quarter?

Huaijin Yang - Chief Executive Officer

Okay let me... I think total cost is $2.37, okay 237 times 92.14% so the per watt cost for wafer is $2.18, the remaining is part of manufacturing overhead cost.

Max Lee - Morgan Stanley

: Okay. Great.

Huaijin Yang - Chief Executive Officer

Thank you

Max Lee - Morgan Stanley

My second question is that what is your average conversion efficiency currently? What would you expected it to be, let say by end of this year and also end of '08 and how would you achieve that?

Huaijin Yang - Chief Executive Officer

Our current average efficiency is 16.5% to 16.75%. Our target is something like 15.5% to 17% about the end of this year or early next year.

Max Lee - Morgan Stanley

And what about the target for next year?

Huaijin Yang - Chief Executive Officer

Well next year target is 17.5%.

Max Lee - Morgan Stanley

And what are the R&D initiatives that you... that make you achieve the target?

Kang Sun - President and Chief Operating Officer

Max, this is Kang Sun of JA Solar. We have several R&D initiatives through many tools, different platforms. One, has put us on the new cell design, another one is new manufacturing protocol, and this is together, we are quite a confident to kind of achieve 17.5 in 2008.

Max Lee - Morgan Stanley

Okay, can we have some more colors on the likely process that you are going to adopt?

Kang Sun - President and Chief Operating Officer

We basically use... I can't disclose too much detail at this time. We use the commencement of platform and basically we have now the government effecting protocol substantially. Then we will modify our cell processing... cell design slightly and the processing catalogue slightly. I can't, I really can not get into this in-depth

Max Lee - Morgan Stanley

Okay, I understand. Thank you very much.

Kang Sun - President and Chief Operating Officer

Thank you Max.

Operator

Our next question comes from Stuart Bush with RBC Capital Markets. Please state your question.

Stuart Bush - RBC Capital Markets

Yes, good evening guys, congratulations. This new expansion that you are doing, can you clarify what locations it will be in and if the CapEx per line has changed from previously and connected to that what is the lead time for new equipment that you are seeing these days?

Huaijin Yang - Chief Executive Officer

We decided to have this as a 10 new lines in our current manufacturing facility next to our current manufacturing facility in Ningjin, Hebei Province [ph]. The CapEx for the machines range from $5 million to $6 million per line. The lead time in our estimation depends on the different equipment coming at different times about four hours of [indiscernible] sometime from the March to the time we can commission it.

Stuart Bush - RBC Capital Markets

Is there a certain piece of the equipment that's acting as a bottleneck at this point?

Huaijin Yang - Chief Executive Officer

We have anticipated that problem we are already working on that. We... at this time we are very confident that in June we can commission our first new line.

Stuart Bush - RBC Capital Markets

And just to clarify the previous question about increasing the efficiency on the lines is that going to require any retro fit CapEx for your existing lines?

Huaijin Yang - Chief Executive Officer

No. For the first generation with the current platform we are not planning to change our manufacturing protocol.

Stuart Bush - RBC Capital Markets

Okay, great. Thanks.

Operator

Our next question comes from Jesse Pichel with Piper Jaffray. Please state your question.

Jesse Pichel - Piper Jaffray

Hi, thanks for the follow-up question. I would like to confirm some thing, your guidance there for 20% margin does that exclude tooling?

Huaijin Yang - Chief Executive Officer

Actually, no, that includes tooling.

Jesse Pichel - Piper Jaffray

So what is the total company gross margin in Q4 to get to your growth... full year gross margin, is it about 18%?

Huaijin Yang - Chief Executive Officer

Good question, I think everybody can do a simple calculation but as I said if the River price remain the same for the remainder of the year and if that has to still remain the same I think we have some room for the margin improvement.

Jesse Pichel - Piper Jaffray

So maybe I should ask you this, what are you assuming based on this guidance. What type of wafer price increase are you assuming and what kind of ASP decline are you assuming.

Huaijin Yang - Chief Executive Officer

Well basically at this moment we are kind of conservative, we don't anticipate a sky high for wafer, we don't see a big drop for the ASP. So I think the message is very clear, we just be kind of conservative, I guess.

Jesse Pichel - Piper Jaffray

It sounds like you are being overly conservative and your stock looks like its going to be effected here by the conservatism. But let me ask you on the revenue side, the top of your guidance 330 would suggest a flat quarter-on-quarter revenue number and I'm just wondering what are the factors that you see that could effect upside to that or coming in at the bottom of that guidance of 320 for year, is it ASP is the primary driver or is it the expansion of your lying on 9 and 10.

Huaijin Yang - Chief Executive Officer

Are you talking about '08 or Q4.

Jesse Pichel - Piper Jaffray

Q4 specifically.

Huaijin Yang - Chief Executive Officer

Yeah as I mentioned, in the Q3 I think we had an excellent execution for production offshore. So if we can achieve the same level for Q4 again, there is some room to improve the Q4 revenues.

Jesse Pichel - Piper Jaffray

But you have two lines that are ramping in Q4 is that right. Line --

Huaijin Yang - Chief Executive Officer

You mean the bottom net part?

Jesse Pichel - Piper Jaffray

Yes.

Huaijin Yang - Chief Executive Officer

Actually we have not executed that part yet, so that's why we have not set a data in Q4. We do not anticipate that the bottom net will happen soon so that's why, probably that's how we can factor in early net sales of revenue. Not this year and Q4.

Jesse Pichel - Piper Jaffray

Okay, can you confirm your cell processing cost, just the cell processing is $0.19, is that correct?

Huaijin Yang - Chief Executive Officer

That is right Jesse.

Jesse Pichel - Piper Jaffray

And that's down from $0.22 last quarter?

Huaijin Yang - Chief Executive Officer

Yes, that really depends on yes, we had high throughput, excellent Q3 throughput. So, the more product you can produce the less we are adequate to each sales so, that's why it's a little bit lower for this quarter.

Jesse Pichel - Piper Jaffray

How low do you think you could go over the next four quarters?

Huaijin Yang - Chief Executive Officer

I don't think there are too much room there because you know we are ready to keep our base rate very low and we have basically maximized our throughput already.

Jesse Pichel - Piper Jaffray

Sam, I mean that $0.19 seems markedly lower cost than even some of the Chinese companies, could you talk about, without giving away too many secrets how are you able to do this?

Huaijin Yang - Chief Executive Officer

Just the technology. That's why we put a technology team together as you are probably aware we just had the CTO from... we bring the semi-conductor practice into our fab operations for those who have just entered on the call.

Hexu Zhao - Chief Financial Officer

Jesse, to answer your question, I think the main job is the throughput. For example each 25 megawatt line we can produce like around 30,000 pieces per day. That's a big driver.

Jesse Pichel - Piper Jaffray

Which is what on an annualized megawatt number, how many megawatts a year do you think you can get out of 25 megawatt line?

Huaijin Yang - Chief Executive Officer

Well we can say at least for the nameplate 25 megawatt we think we can achieve that.

Jesse Pichel - Piper Jaffray

Fine, thank you very much.

Huaijin Yang - Chief Executive Officer

Thank you Jesse.

Operator

[Operator Instructions]. Our next question comes from Dan Ries with Collins Stewart, please state your question.

Dan Ries - Collins Stewart

Okay, actually my question was kind of a last question but do you have any, I know you don't publish a backlog number but do you have any, can you share anything about how far in advance your customers forecast to you go at this point.

Huaijin Yang - Chief Executive Officer

We are just had 2008 planning. So, I think... we don't have over the concept nearby, although we are very comfortable and our customer base will satisfy our capacity for next year

Dan Ries - Collins Stewart

And how far in advance do you negotiate price at this point is it still...

Huaijin Yang - Chief Executive Officer

It is customer dependent. We have most... most of them are one year contracts.

Dan Ries - Collins Stewart

And do they renew just staggered as to whenever they resigned or is there a big group of them that renew in January for example?

Huaijin Yang - Chief Executive Officer

As to more than half of them were renewed on the calendar year.

Dan Ries - Collins Stewart

Okay. Well, thank you very much.

Huaijin Yang - Chief Executive Officer

Thank you.

Operator

Thank you. At this time I will turn the conference back over to management for closing comments.

Huaijin Yang - Chief Executive Officer

Thank you again everyone for joining us today. Our track record on Phase II demonstrated... added the confidence that we will continue to grow our business efficiently and profitably. We look forward for providing you with further updates on our progress. If you have any questions please contact our Investor Relations team. Thank you.

Operator

Thank you. This concludes today's conference. Thank you all for your participation. All parties may disconnect now.

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