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Executives

Paul Combs – Vice President, Investor Relations

Ki-Joon Hong – Chairman & CEO

Jung Pyo Seo – Chief Financial Officer

Hee Cheul Kim – President

D.K. Kim – Chief Strategy Officer

Analysts

Philip Shen - Roth Capital

Min Xu – Jeffries & Co

Marina Shvartsman - Macquarie

Caleb Dorfman, Siemens & Co

Kelly Dougherty – Macquarie

Hanwha SolarOne Co Ltd. (HSOL) Q1 2012 Earnings Conference Call May 30, 2012 8:00 AM ET

Operator

Good morning. My name is Lushey, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I will now turn the call over to Mr. Paul Combs. Sir, you may begin your conference.

Paul Combs

Okay. Thank you and good morning everyone, welcome to our call. Joining me today from my IR team is Myung Shim. Our speakers will be our Chairman and CEO, Ki-Joon Hong; our President, Charles Kim; our CFO, Jay Seo; and D.K. Kim, our Chief Strategy Officer.

Chairman Hong will open with some brief comments on our recent progress and industry conditions. Jay will follow with some highlights from the first quarter. Charles will then take a few minutes to discuss the few critical initiatives for the company, followed by D.K., who will conclude with a few comments on our strategy and technology. We will then be happy to answer any questions you may have.

I need to remind you of our Safe Harbor policy, which is included in the earnings release and posted in its entirety on slide two of the slide package. I need to state that our comments today will contain forward-looking statements that are subject to risks and uncertainties. Please review our filings with the SEC for a complete rundown of these risks.

Now, it is my pleasure to turn the call over to Chairman Hong.

Ki-Joon Hong

Thank you Paul and good morning everyone. (technical difficulty) follow with more specific details on our business performance and trends going forward. But I want to highlight a few key pointers, achievements for Hanwha SolarOne. First, we had lower retroactive tariffs in the United States by consistently reducing our shipments to that market late last year. This decision has a negative impact on our Q1 shipments volume, but we believe it was in the best interest of the shareholders.

As you may have noticed from other companies, this provision can be quite large, and according to one analyst estimate, it may approach $100 billion for our industry during the first quarter.

Secondly, we have started to make meaningful progress on cost reduction, both in tight control of operating expenses and in reduction in processing costs. We have ambitious plan for further processing cost reduction for the remainder of the year, which we expect to bring us to a level comparable with industry leaders today.

Third and subsequent to the end of the first quarter, we were able to secure additional capital through our $180 million term loan. This demonstrates our ability to source capital beyond the boundary of Mainland China at very competitive rates and for the first time, with a former backing of our large shareholder. This is a clear signal of the strong commitment of Hanwha Group and their continued support over the long term.

The solar industry will face several challenges, including price competition, reduced (inaudible) key markets, tariffs in U.S. and potentially in Europe to match capacity and through consolidation. In spite of all of these, we are gaining to see some optimistic key signs for our company, beginning with the increase in demand during the second quarter, return to grow profitability and further cost improvement. Our balance sheet and the strong support from our largest shareholders provide us with training power during this industry downturn.

We remain confident in our future in our ability to create shareholder value overtime. Now, Jay Seo, our CFO will talk some financial highlights for the first quarter.

Jung Pyo Seo

Thank you Chairman and good morning everyone. My comments are summarized on slide 3 through 7. I would like to remind you that certain quarter-over-quarter comparisons are impacted by the $94.8 million in non-cash charges that we took in Q4 of 2011 as a result of inventory write-downs, provisions for advanced payment associated with long-term supply contracts, and goodwill impairments.

Now, for some further details about the quarter. PV module shipments, including module processing services, were 160.7 megawatts, down 15% from 189.1 megawatts in Q4 2011. While our ASP declined to $0.84 from $1.00 in the second quarter, as Chairman Hong just noted, our decision to avoid retroactive tariffs in the United States penalized our shipments volumes in the near term.

For Q1, the U.S. accounted for only 5% of total shipments versus 33% of the total in the previous quarter. We also reduced ODM volumes during Q1, as we shipped our focus to branded sales, and also due to the financial condition of one of our historically large OEM customers. Our geographic mix reflected the pull-in demand in Germany ahead of incentive reductions, with Germany accounting for 43% of total shipments. We fully improved some 5% of total for the same regions as well as our shift towards the commercial and residential segments there.

Other notable trends were further gains in India, representing 13% of shipments and traction in newer European markets such as Bulgaria. China, an important growth market going forward, shipped to only 1% as we found pricing there quite competitive. The development of the market will be heavily weighted to the second half of the year. The full breakout of shipments by region is illustrated on slide 5. Charles will touch more specifically on our plans for China, the U.S. and Japan in his comments.

Lower volumes and lower prices combined to reduce revenues 18% from the previous quarter to $128 million. Our gross loss of $11.9 million was substantially reduced from the prior period. And as you just heard, we will return to gross profit stability in the current quarter. On a non-GAAP basis, gross margins in Q1 reached negative 9.4% and improved from the negative 20.1% in Q4.

We aggressively reduced operating expenses to $23 million from $40 million last quarter, excluding the charge for goodwill impairments. As a percent of revenues, operating expenses at 18% still appear high, but this is a reflection of lower shipments and revenues. This ratio should improve to a more normalized range of 10% to 12% overtime.

On a GAAP basis, we recorded a net loss of $48.2 million or $0.57 per basic ADS. On a non-GAAP basis, we recorded a net loss of $42.9 million or $0.51 per basic ADS. This figure was also affected by a gain due to the change in fair value of our convertible bonds, which is largely influenced by the movement of our stock price. This is an item over which we have no control.

We have made significant progress in reducing our processing cost during Q1 and this downward trend has continued into Q2. As shown on slide 6, our blended cost of goods sold fell 21% to $0.92 per watt. So, $1.16 per watt figure we compare to in Q4 excludes non-cash provisions falling $0.45 per watt. Our internal cost also dropped materially from $1.03 per watt to $0.78 per watt. The primary factors here were the decrease in the price of polysilicon and continued progress on a number of cost reduction initiatives.

We have improved capacity utilization in our cell and module line, which will further help costs going forward. Our average polysilicon cost for the recent quarter was $27 per kilogram, falling from an average of $32 per kilogram in Q4 2011. We expect the price of polysilicon to decline further in the second quarter of 2012 to $25 or below.

Now, let’s take a quick look at the balance sheet as shown on slide 7. As of March 31st, 2012, our cash and cash equivalents balance remained relatively stable at $303 million. Net working capital declined $137 million to $7.4 million. This is primarily due to changes in short-term debt. Total short-term bank borrowings increased 36% to $433 million, primarily to cover working capital needs.

Our outstanding long-term debt, which includes the non-current portion of long-term bank borrowings in our convertible bonds declined 21% to $231.6 million, primarily as a result of company’s repurchase of approximately $50 million of its outstanding convertible bonds.

Clearly, credit conditions in China are tightening, but we continue to have access to necessary funding. We have unused credit lines approaching $600 million, and we remain confident that we have the capacity to manage the industry downturn still underway. Prior to the closing of the first quarter, we obtained a $180 million three-year working capital loan, led by Korea Development Bank at an attractive interest rate. This demonstrates not only our ability to access capital in other areas of Asia, but also the benefits of our largest shareholders backing.

Accounts receivable increased about $10 million to $95.9 million. Days sales outstanding decreased significantly from 82 days in Q4 2011 to 64 days in Q1 2012, reflecting tight credit control. Inventories remained relatively constant at $105 million. Days inventory outstanding increased from 53 days in the prior quarter to 69 days in the first quarter. Capital expenditures in the first quarter were $56.4 million. We finished the year with capacity of 800 megawatts for ingots and wafers, 1.3 gigawatts for cells and 1.5 gigawatts for module. We have no specific plans to add capacity in the near term and will continue to evaluate our needs as the operating environment evolves.

We anticipate spending around $150 million in capital in 2012. Charles will now elaborate more on our cost reduction plan and provide some color on several key markets.

Hee Cheul Kim

Thank you Jay and good morning everyone. As Chairman Hong noted earlier, we are reaching progress in several key areas. Today, I would like to focus on just a few important topics. First, processing cost reduction, and second, our plans to address the U.S. market in view of the recent trade announcement and how we see our evolvement in the two largest developing Asian markets, China and Japan.

First, to be a successful industry player long term, there is probably nothing more important than reducing our cost structure. I am happy to say we have begun to see tangible results and quick momentum in this regard. In fact, we are confident enough in our progress to formally commit to year-end non-poly processing cost of less than $0.50 per watt.

As Jay noted, we made some significant progress in reducing our cost structure during the first quarter and this improvement has continued throughout April and May. Recently, we have increased utility stations for our cell and module lines and continue to enjoy the benefit of purchasing poly as stock prices.

There has been some considerable progress in reducing our own ingots and wafer costs to be competitive sourced options and expect to ramp utilization in the third quarter.

Currently, we are achieving non-poly processing cost for multi of $0.64 per watt. These costs include charges for idle capacity. If this were to be excluded, we would have processing cost equal to the industry leader. Our specific year-end target for processing costs are $0.10 per watt for ingots and wafers, $0.14 per watt for cells and $0.24 per watt for module, totaling less than $0.50 per watt.

Slide 8 shows our roadmap for cost reduction in 2012. There are manufacturers involved in driving down costs. A key of the key initiatives include increased automation, higher yields and cell efficiencies, material substitution and the reduction and more effective supply chain management. Improving qualities and other key ingredients, and of course, running our facility at high utilization rate reduces processing cost.

As you heard, we were not active in shipping to the U.S. during the first quarter, in order to avoid the retroactive tariffs, but we did ship our modules manufactured on ODM basis in Korea. We have continued this option to some extent during the second quarter, but we will shift our strategy soon to purchase Taiwanese-made cells and modules manufactured in Mainland China. Our goal is to ship about 15% of our annual volume to the U.S. for about 150 megawatts. Prices have become more competitive, reaching the mid-$0.80 range for Tier 1 players. The tariff this season will slow developments over the market near term, with the utility segments impacted at the most.

We will continue to improve our penetration over the residential and commercial markets, broaden our distribution channels and leverage downstream opportunities within Hanwha. Our team has been strengthened in the U.S. with a new leadership. A new President of North America is now in place and brings good senior level experience and relationship from SunPower. China is both intriguing and challenging market. There is locations, the market will be large. The question remains how to attack effectively and profitably. Current pricing for tender business is $0.70 or below and competition is intense.

Market estimates for 4 to 5 gigawatts [ph] may prove to be conservative. Our goal is to reach similar shipments level as to U.S. of approximately 16% of order shipments, which will be a minimum of 150 megawatts. Relationships are critical in China and we had secured a new leadership in this market as well and the recent hire of a senior executive from Suntech. It appears that the China market will move along in the second half and we expect to see better penetration beginning in Q3.

Japan will begin to gain traction in Q3 as well through the new incentive plan kicking in on July 1st. The market size this year could have been 1.5 gigawatts and reach 3.5 gigawatts within the next three years. The market has totally been dominated by domestic suppliers, but we believe as volumes shipped from residential to utilities co-installation, (inaudible) manufacturers with a low-cost structures will increase penetration. Our potential this year approach is 100 megawatts. We are off to a good start with our recent 5.6 megawatts contract announcement with SB Energy, a solar energy subsidiary of SoftBank Group. Beyond the three largest development markets, we see potential in areas such as India, South Africa, the Middle East. We are actually expanding our global sales footprint, with our presence in all of these markets. Now, D.K. will make some brief comments on our downstream initiatives as well as our technology growth.

Kim

Thanks Charles and good morning. My comments are summarized on slide 9 and 10. Near term, we are still focused on strengthening our operational capabilities, including establishing of global brands, improving supply chain execution, improving technologies, and showing improvements in both quality and processing costs. This is a necessary first step to qualify for legitimate opportunities as a large project supplier. Longer term, we believe it is necessary to accelerate our downstream business in order to capture better profitability.

While most cell and module manufacturers are experiencing little to no profitability, downstream players are capturing more profits than before. This is driven by the increased influence of large developers in tandem with dramatically lower module prices. Since the investment in Hanwha SolarOne almost a year-and-a-half ago, we have invested heavily in technology. We have tech centers in Korea, China and our new state-of-the-art facility in Santa Clara, California. We consider this a critical ingredient to achieving industry leadership overtime.

Frankly, the platform we inherited was narrow in scope and somewhat behind our peers. Today, our standard multi-crystalline cells rival those of our major competitors in China, with cell efficiencies of 16.9% for multi and 18.3% for mono. By year’s end, we expect to improve mono to at least 18.5% and 17.25% for traditional multi-cells. When producing a mono-like multi-cell, including (inaudible), we can improve efficiencies to 17.4%.

Improved cell efficiencies are critical to meet our customers’ needs for high-performance products and contribute to our costs and cost reduction. Each 3% improvement in cell efficiency will drive a $0.01 per watt reduction in processing costs.

Our key areas of focus currently include high quality silicon materials, for example, mono-like multi, high performance cell designs including advanced emitters, and high value module products with compact high durability designs.

Now, Jay will conclude with some brief comments on our outlook for the second quarter as well as the full year.

Jung Pyo Seo

Thank you, D.K. We have historically been less confident in making certain projects due to the highly volatile business environment in which we operate. We have made enough progress as a company and in certain areas to offer some more specific clarity on shipments, cost and gross profitability as shown on slide 11.

For the second quarter, we expect to see the following. Shipments volumes improving quarter-to-quarter, reaching a range of 230 megawatts to 240 megawatts, a return to positive gross margins. For the full year 2012, we remain confident in our previous forecast of shipments volumes of 1 gigawatt. Capital expenditures for the full year will approximate $150 million. Non-poly processing cost should fall below $0.50 by year end. We are now happy to answer any questions you may have. Joining us for the Q&A session are three additional senior officers, Tai Seng PNG, our COO; Justin Lee, our CCO; and Tony Zhao, owner of our Senior Technology Executive.

Operator, please open the call for the questions.

Question-and-Answer Session

Operator

(Operator Instructions) your first question comes from Philip Shen from Roth Capital.

Philip Shen - Roth Capital

This response to include anti-dumping in subsidy tariffs on not only U.S, but also South Korean producers, how does the possible inclusion of South Korean producers impact Hanwha Chemicals' plans to pursue you know, its poly facility?

Paul Combs

Phil, you broke up there at the beginning and we did not hear the beginning part of the question. Based on the last part, I assume what you are asking was the potential for Chinese duties on poly silicon from the U.S. and may be South Korea. And then the second part of your question was how that may impact Hanwha Chemicals decision to build the poly plant in Korea. Was that the nature of your question?

Philip Shen - Roth Capital

That’s right. The inclusion of South Korean producers in China’s response is interesting and I’d love to get your perspective on how that impacts your plans and Hanwha Chemicals plans in particular, to produce and manufacture poly in South Korea, thank you.

Paul Combs

I mean, I think for us, doesn’t really impact us at all, at least in the short term because we’re not buying any poly from South Korea or from the U.S. And I think for Hanwha Chemicals, it’s not really for us to state here but it’s our understanding is Hanwha Chemical is continuing on with the construction of the poly plant in South Korea.

Philip Shen - Roth Capital

Okay, so can you give us a quick status update on what is happening with the poly facility?

Paul Combs

I mean, Hanwha chemical is a different legal entity from us and I don’t think we are really in that liberty to really discuss, what exactly the status is. And I think to be honest, it is continuing as planned.

Philip Shen - Roth Capital

Great, that’s it from me. I’ll turn back to queue. Thanks.

Operator

Your next question comes from Min Xu, Jeffries.

Min Xu – Jeffries & Co

I’m wondering, what is your utilization assumption for your $0.50 processing cost target and what is your utilization in Q1 and Q2?

Ki-Joon Hong

Utilization for second half of the year are not in 90%. And sorry I missed your second question.

Min Xu – Jeffries & Co

So, you know I’m wondering what is the utilization in Q1 and Q2 and also what is your utilization assumption for your $0.50 processing cost -- are you assume 100% utilization for that level?

Ki-Joon Hong

Although, our utilization rate in Q1 was around the 40%, the Q2, we are expecting 50%-65%, range and the non-poly processing cost is based on the 80% utilization rate.

Min Xu – Jeffries & Co

I’ve got it. Quick follow up. What kind of ASP trend are you seeing in Q2 and Q3?

Ki-Joon Hong

Well Q2 (inaudible) Americas and in 70’s to early 80’s and then in Q3 it will be a little bit deteriorating, so especially after the [ph]FIT in Germany, in order to meet their project [ph]ILR that their customers and we are kept in a lower pricing.

Min Xu – Jeffries & Co

I didn’t catch your Q2 number, can you repeat that again?

Ki-Joon Hong

Q2 number will be in a mid $0.70 to stand early $0.80 cents.

Jung Pyo Seo

Yeah, high 70’s to low 80’s I meant for Q2.

Min Xu – Jeffries & Co

Oh, got it, got it. Thank you very much.

Jung Pyo Seo

(inaudible) number, obviously it varies by markets.

Min Xu – Jeffries & Co

Oh, got it, got it. Thank you.

Operator

Your next question comes from Kelly Dougherty from Macquarie.

Marina Shvartsman - Macquarie

Yes, hi this is Marina Shvartsman on behalf of Kelly Dougherty. Can you tell us what the U.S. tariff announcements, can you tell us how our conversations has been going with the cell manufacturing outside of China, do you have a sense of what’s the pricing from Taiwan may look like over the next few quarters, or given their Hanwha connection, are you buying a significant portion of yourself from Korean suppliers?

Jung Pyo Seo

We so far, I think we’re focusing more on the Taiwanese cells, and I think although there have been rumors about price increase due to tariff, we really haven’t seen that much and I think. So, we will have to see how much the actual Taiwanese cell prices will increase, but as far as we understand, so far there had been some speculation, but we haven’t really seen in high spike in terms of Taiwanese cells. And in terms of Korean cells, we’ve been talking to several Korean cell producers but we haven’t had any tangible deals in terms of sourcing cells from Korea.

Marina Shvartsman - Macquarie

But, can you tell us a sense about pricing, like what kind of cell pricing do you see from Taiwan?

Jung Pyo Seo

From Taiwan, I think it’s about $0.50.

Marina Shvartsman - Macquarie

About $0.50 and also how much do you expect that will cost you to work around the Czech tariff? Do you think there is going to be any additional cost?

Jung Pyo Seo

I mean, considering our aggressive plans for the reduction of our in-house cost, I think obviously buying cells from external sources will be more costly for us, but I think also considering that we’re going to reduce a multitasking the cost and if our Taiwanese suppliers provide us cells at a reasonable cost, I don’t think its going to have that (inaudible) in terms of our ability to penetrate the U.S markets.

Marina Shvartsman - Macquarie

Got it and one more question on the $0.50, that the target you have for the (inaudible) can you give us a breakdown of what way for (inaudible) may look like?

Ki-Joon Hong

I didn’t catch the last part of your question?

Marina Shvartsman - Macquarie

For the target of $0.50 for the processing cost, can you give a breakdown, what do you think your wafer (inaudible) processing would look like?

Ki-Joon Hong

Actually, I had already had explained to the (inaudible) and the $0.14 the worth for sale and the $0.24 per watts for module --

Marina Shvartsman - Macquarie

I apologize, what about the breakdown right now, I thought that was current break down, I didn’t hear it well.

Ki-Joon Hong

Firstly, roughly so ingot and wafer is 18, cell is 17 and module is 27 around. And this is non poly processing cost. And silicon is around 16.

Marina Shvartsman - Macquarie

Got it, thank you very much.

Operator

(Operator Instructions) You have a question from Caleb Dorfman, Siemens & Co.

Caleb Dorfman, Siemens & Co

Hi guys, thanks for taking my question. It is obviously a great decision to be proactive about (inaudible) levels to the U.S. Looking ahead, if there is a possibility of some type of (inaudible) coming in the EU, what type of actions would you take to the outsource the capacity? and how much additional capacity do you think there is in the market to still supply the European market from Taiwanese or Korean producers?

Ki-Joon Hong

Well, I terms of the EU, we’re very looking carefully, but as far as we see right now, we don’t see it (inaudible) and I think, what we understand from, the legal advice that we have received is that EU process is much more kind of individual company based and that we’re pretty confident that, since we’re not receiving any double issue in legal subsidies that we--our company wouldn’t really be subject to the tariff, but if we wanted to be subjected to tariffs I think it really depends on the scope, , I think the EU scope has similar to that of the US, it was outsourced else to other areas and for module production we have done outsourcing to Korea and that’s worked for us with the US – I mean that’s another option that we have with the module production, which we outsource.

Caleb Dorfman - Simmons & Company

Do you think on the cell, how much extra capacity within the market which is cost competitive (inaudible) is on the cell side?

Kim

You mean in the entire world?

Caleb Dorfman - Simmons & Company

In the entire world. It is just that the US Market right now is a fairly small market in comparison to Europe, so obviously it seems like switching over to the European market, it would drive on much larger need for cell capacity, and I wondering how much excess capacity you think there would be right now?

Kim

I think that is very (inaudible) considering, I don’t think there is a lot of economic capacity outside of China right now, and I think even the Taiwanese producers are slightly at a cost advantage to the top tier Chinese producers, so I am going to think your guess is just as good as ours, in terms of economic capacity outside of China and (inaudible). And I see numbers about, in Taiwan, between 5 and (inaudible) depending on (inaudible).

Caleb Dorfman - Simmons & Company

Great that is very helpful. And it looks like you have increased your CapEx status from a 100 million to a 150 million, I was wondering if you could break it down, what you attribute that 50 million increase in CapEx for 2012, Seo? And what type of decision could possibly make you to increase CapEx by that much, cut back on and your CapEx going forward?

Jung Pyo Seo

Okay, so out of $150 million CapEx, around $90 million to $100 million is carry over CapEx from last year and the remaining of that is for the upgrade of (inaudible) of each month for automation for the equipment. This is our general idea.

Kim

Kim here, I think really background to making that decision was to decrease our (inaudible) cost further through minimizing the utilization of high cost labor as well as increasing our cell efficiency.

Caleb Dorfman - Simmons & Company

Great, that’s very helpful and one last question, I know that on the last call you spoke a lot about your efforts to work with Hanwha Corporation, the life insurance subsidiary to finance actual projects and you were also looking at doing some project development on your own, could you just give us any details on updated shipment modules to the Hanwha backed projects or how the discussions or developments Hanwha has been going on those?

Ki-Joon Hong

In overall this year, we are aiming to ship 100 megawatt to the Hanwha affiliated company in that project.

Kim

And, but I think in terms of actual projects, as you know the rapidly shifting political sentiment and the political situation in Germany and Italy have kind of put on a hold or injured some of our project development activities in Germany and for the US obviously there is -- anti campaign incident has kind of (inaudible) the procurement procedures for a lot of the US projects that we have been looking at. So we are doing some, as I understand Hanwha Corporation is doing some projects in Korea and other markets but for the European and the US market the recent situation has kind of stalled the progress of these projects.

Caleb Dorfman - Simmons & Company

Is that 100 megawatts would probably be concentrated in late half of Q3, -- late Q3, early Q4?

Kim

In the second half of the year?

Caleb Dorfman - Simmons & Company

Great, thank you very much.

Operator

(Operator Instructions). You have follow-up from Kelly Dougherty from Macquarie.

Kelly Dougherty – Macquarie

Yes, hi. Can you just talk a little bit about how should we think about your operating cash flow generation for 2012? When do you expect to be operating cash flow positive? And also, how much are you planning to spend on OpEx?

Jung Pyo Seo

So, I think, you had what two questions. So, first one is operating cash flow and the other is operating expense, right?

Kelly Dougherty – Macquarie

That’s right, yes.

Jung Pyo Seo

Okay. So, actually how we just start to generate operating cash flow from March, actually. As we have already mentioned, we build positive gross margin from Q2, but actually we made positive gross margin from March. I don’t know how much. I think, Q2 actually we can make positive operating cash flow. I think we can continuously make operating cash flow throughout the second half of this year. Then regarding the OpEx, I mentioned, we will maintain operating expenses at 10% to 12%. But generally, 85% of operating expense is fixed expense. Even though our revenue is increasing, our variable expenses adjusting at 15%, so then there is no big change. Generally, it is composed of our labor expense and marketing expense, professional expense, and some other items. These are fixed expense. Freight or warranty can be a variable expense. I am sure we can manage and maintain operating expenses at very low throughout this year.

Kelly Dougherty – Macquarie

Got it. Thank you.

Operator

(Operator Instructions) You have a follow-up question from Caleb Dorfman from Simmons & Co.

Caleb Dorfman - Simmons & Co.

A quick question on interest expenses, it looks like it has increased a lot quarter-on-quarter. How do you think we should think about interest expense trending going forward?

Jung Pyo Seo

As you have seen from our balance sheet, our total amount of loan increased, so accordingly, interest expense increased. There is a non-cash amortization in interest expense by (inaudible), then there are other increases. So I think we will manage the cash at lower balance going forward. So our interest rate will be lower.

Caleb Dorfman - Simmons & Co.

So, do you think it itself was around 11 million in Q1, so do you think interest maybe 9 million in to Q2, Q3 will be more appropriate?

Jung Pyo Seo

I don’t have a tested number, but there can be – probably lower than 11 million.

Caleb Dorfman - Simmons & Co.

Great, thank you.

Operator

(Operator Instructions) At this time there are no other questions. I will now turn the call over back to Paul Combs for closing remarks.

Paul Combs

Okay. Thank you everyone for your continued interest. Have a good rest of the day. Thank you.

Operator

This concludes today’s conference call. You may now disconnect.

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