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Suntech Power Holdings Co., Ltd. (STP)

Q3 2010 Earnings Call Transcript

November 17, 2010 8:00 am ET

Executives

Rory Macpherson – Director, IR

Dr. Zhengrong Shi – Chairman and CEO

Andrew Beebe – Chief Commercial Officer

Dr. Stuart Wenham – Chief Technology Officer

Amy Zhang – CFO

Analysts

Ming Shui – Jefferies

Satya Kumar – Credit Suisse

Lu Yeung – UBS

Sanjay Shrestha – Lazard Capital

Burt Chao – Simmons & Company

Tim Arcuri – Citi

Rob Stone – Cowen and Company

Vishal Shah – Barclays Capital

Pranab Sarmah – Daiwa Capital Markets

Edwin Mok – Needham & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Suntech Power Holdings earnings conference call. My name is Eric. I'll be your audio coordinator for today. And at this time, all participants are in a listen-only mode. We will facilitate a question and answer session at the end of the presentation. (Operator Instructions) As a reminder, the conference is being recorded for replay purposes.

I would now like to turn your presentation over to Rory Macpherson, Director of Investor Relations. Please proceed.

Rory Macpherson

Hello, everyone. And welcome to Suntech's third quarter 2010 earnings conference call. My name is Rory Macpherson, Suntech's Director of Investor Relations.

From Suntech, we have on the call today Dr. Zhengrong Shi, Suntech's Chairman and CEO, Andrew Beebe, our Chief Commercial Officer; Dr. Stuart Wenham, our Chief Technology Officer; Amy Zhang, our Chief Financial Officer. Also Ian Tu, our Senior Financial Analyst will 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 U.S. 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 to your reference. 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 website after this call. Please make note that all figures mentioned during this conference call are in U.S. dollars.

I would also like to inform you that we will be hosting an Investor and Analyst Day in New York on December 6 for institutional investors and equity analysts. We hope that you will join us to hear presentations from our top executives from North America, Asia and Europe. For information or to register for this event, please contact our Investor Relations representatives located in New York. You can find their contact information in today's press release.

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

Dr. Zhengrong Shi

Hello. And thank you for joining us. Today, I will discuss some of our quarterly highlights and latest initiatives. Andrew Beebe, our Chief Commercial Officer will give an overview of our sales performance. Stuart Wenham will provide an update on Suntech innovation. And Amy Zhang will give further color on our financial performance.

The third quarter of 2010 was the most productive period in company history. Shipments were up by 25% compared to the second quarter and 107% year-over-year, driving revenues of $743.7 million. This equates to revenue growth of 19% quarter-over-quarter and 57% year-over-year. Gross margin came in at 16.4%, in line with our expectations. And we generated a net income of $33.1 million, or $0.18 per diluted ADS.

Our record shipments for the quarter were driven by continued strong sales and capacity additions that brought our annualized cell and module capacity to 1.6 gigawatts at the end of the third quarter. With demand for Suntech products running way ahead of our ability to supply, we will continue to expand capacity in the fourth quarter and are on track to achieve 1.8 gigawatts of installed cell and module capacity by year-end.

In 2011, we intend to expand our capacity in order to satisfy incremental demand from existing customers, grow into new markets and expand our market share. We will give details of our 2011 capacity plan at our Analyst Day in New York on December 6.

On the supply front, the price of silicon wafer on the spot market has progressively increased over the last few months, due to a bottleneck in wafer supply. Given Suntech's industry leading position, large appetite for silicon and healthy relationship with upstream suppliers, we were able to partially mitigate this temporary upstream. However, our wafer costs still increased marginally in the third quarter of 2010.

Now I'd like to discuss our progress on our upstream integration initiative. Our stated upstream strategy has been to invest in upstream supplies, to secure access to high quality and low cost polysilicon and silicon wafers. I am pleased to announce that we are taking this one step further and are in the process of acquiring 375 megawatts of ingot and wafer slicing capacity in China.

The wafer manufacturing capacity is being spun-off from a subsidiary of Glory Silicon Technology Investments Hong Kong Limited, in which Suntech holds an equity investment. We will acquire the remaining 70% shares of the capacity for a total cash consideration of approximately $127 million, which is the total consideration after – an offset of approximately $80 million of liabilities owed to Suntech.

Post to the acquisition, Suntech will own 100% of the 375 megawatts of wafer manufacturing capacity. We will take operational control in the fourth quarter of 2010 and expect it will be immediately accretive to earnings. We expect to receive numerous benefits from this acquisition.

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