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Suntech Power Holdings Co., Ltd. (STP)

Q2 2010 Earnings Call Transcript

August 18, 2010 8:00 am ET

Executives

Rory Macpherson – Director, IR

Zhengrong Shi – Chairman and CEO

Steven Chan – President, Suntech America

Amy Zhang – CFO

Analysts

Jesse Pichel – Jefferies

Burt Chao – Simmons & Company

Sanjay Shrestha – Lazard Capital

Bob Stone – Cowen and Company

Lu Yeung – UBS

Vishal Shah – Barclays Capital

Sunil Gupta – Morgan Stanley

Kelly Dougherty – Macquarie

Mahdeep [ph] – Credit Suisse

Colin Rusch – ThinkEquity

Sam Dubinsky – Wells Fargo Securities

Gary Hsueh – Oppenheimer & Co

Shishir Singh – HSBC

Nitin Kumar – Nomura, Singapore

Dan Ries – Collins Stewart

Josh Baribeau – Canaccord

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Suntech Power earnings conference call. My name is Lacey and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call, Mr. Rory Macpherson, Director of Investor Relations. Please proceed.

Rory Macpherson

Thank you. Hello everyone and welcome to Suntech second quarter 2010 earnings conference call. My name is Rory Macpherson, Suntech’s Director of Investor Relations.

On the call today we have Dr. Zhengrong Shi, Suntech’s Chairman and CEO; Steven Chan, President of Suntech America; Amy Zhang, our Chief Financial Officer; also Ian Tu, our Senior Financial Analyst who’ll participate in the Q&A following Dr. Shi’s closing remarks.

Before we continue during this conference call we will make certain forward-looking statements in an effort to assist you in understanding the company and its results. The forward-looking statements will be made under the safe harbor provisions of the US Private Securities Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties. As such, Suntech’s future results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our earnings release issued today and our SEC filings. Suntech does not undertake any obligation to update any forward-looking statements except as required under applicable law.

To enhance our presentation of information and data during this conference call, we have provided a set of PowerPoint slides which we will refer to as management delivers their prepared remarks. This presentation is posted on the main page of the Investor section of our Website.

As a reminder, this conference call is being recorded and the webcast replay will also be available on the Investor Relations section of Suntech’s Web site after this call. Please make note that all figures mentioned during this conference call are in US dollars.

I will now turn the call over to Suntech’s Chairman and CEO, Dr. Zhengrong Shi.

Zhengrong Shi

Hello and thank you for joining us. Please turn to Slide number 3 of the presentation. We are pleased to deliver top line revenue of $625 million in the second quarter of 2010, the highest quarterly revenue in Suntech’s history. This result is over 6% higher than revenue in the first quarter of 2010, and approximately 95% higher than the second quarter of 2009. This makes Suntech the world’s largest module producer by revenue, which is a significant milestone for the company.

This record revenue was driven by a 12% sequential increase in quarterly shipments as we added equipment to meet our 1.4 gigawatt capacity target, and outsourced a small percentage of production. Blended gross margin was 18.2% in line with guidance.

However, we ended this quarter with a loss of $175 million or $0.97 per diluted ADS as a result of impairments related to our investee company, Shunda Holdings, and thin film manufacturing equipments. I will like to discuss these two impairments first before going to our strong operational performance during the quarter.

Please return to Slide number 4. In 2007, during the height of polysilicon pricing, we invested in a 50 megawatt multi-silicon thin film line to diversify our product portfolio and lessen our silicon dependency.

However, given the ramp for in the cost of silicon and the improving competitiveness of crystalline silicon solar products, in addition to delays in achieving far more acceptance testing of the line we have chosen to reaffirm our commitment to our core crystalline silicon technology and have ceased the trial production of thin film products. As a result we recognized a $54.6 million of thin film equipment in the second quarter.

Regarding Shunda Holdings, in 2008 we invested in Shunda, a manufacturer of polysilicon and silicon wafers in order to strengthening our partnership and diversify our supply chain. Shunda recently was forced to reorganize.

While the result of reorganization has not yet been finalized, we have made provisions for a significant sequential decline in the value of this investment, and the increasing credit risk related to the prepayment we made to them.

I would like to note that these impacts are non-cash and do not affect our core operations in any way and we have secured sufficient wafer supply to meet all our production targets. Amy will discuss how these provisions and impairments impacted our second quarter results shortly.

Turning to operational performance, I’d like to start by giving an overview of the second quarter as well as our expectations for market demand in Europe and Asia over the next few quarters. As Stuart couldn’t join us today, I will also give an update on our Pluto technology. Steven will discuss recent developments in North America, and Amy will provide color on our financial results.

Please turn to Slide number 5. During the second quarter we witnessed strong demand across all global markets. Our shipments to Germany increased to 43% of our total mix as we moved to support our customers ahead of July reductions in feed-in tariffs. Despite the middle year reduction, we expect German demand to remain strong in the second half of 2010, as the returns on projects in Germany remain above the historical average.

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