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Suntech Power Holdings Co., Ltd (STP)

Q4 2010 Earnings Call

March 8, 2011 6:00 PM ET

Executives

Rory Macpherson – Director, IR

Dr. Zhengrong Shi – Founder, Chairman and CEO

Andrew Beebe – Chief Commercial Officer

Dr. Stuart Wenham – Chief Technology Officer

Amy Zhang – CFO

Analysts

Burt Chao – Simmons & Company International

Jesse Pichel – Jefferies & Company

Vishal Shah – Barclays Capital

Sanjay Shrestha – Lazard Capital Markets

Rob Stone – Cowen and Company

Tim Arcuri – Citi

Mark Bachman – Auriga

Gordon Johnson – Axiom Capital Management

Sam Dubinsky – Wells Fargo Securities

Kelly Dougherty – Macquarie Research

Paul Clegg – Mizuho Securities

Edwin Mok – Needham & Company

Nitin Kumar – Nomura Singapore

Mehdi Hosseini – Susquehanna International

Pranab Sarmah – Daiwa Institute of Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Suntech Fourth Quarter and Full-Year 2010 Earnings Conference call. My name is Dominique and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to Mr. Rory Macpherson, Director of Investor Relations. Please proceed sir.

Rory Macpherson

Thank you. Hello, everyone and welcome to Suntech’s Fourth Quarter and Full-Year 2010 Earnings Conference call. On the call today Dr. Zhengrong Shi, Suntech’s Chairman and CEO will give an overview of our performance and major initiatives. Andrew Beebe, our Chief Commercial Officer; will discuss sales and markets. Dr. Stuart Wenham, will provide an update on Suntech Technology and Amy Zhang, will summarize our financial performance. Ian Tu, Suntech’s Financial Analyst will also be on the call to answer any questions if required.

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 laws. To enhance our presentation of information and data during this conference call, we have provided a set of PowerPoint slides for 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 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. In the fourth quarter, we shipped above expectations, continued to diversify our sales and closed the acquisition of the wafer facility with a view to significantly reducing our costs in 2011. The extremely strong demand drove record shipments for the fourth quarter of 2010, which were up approximately 20% quarter-over-quarter.

To achieve this, our operations team was shipping as much as seven megawatt per day after the peak of the quarter. This enabled us to generate $945 million of revenues, up more than 27% over the third quarter. In 2010, Suntech shipped more than 1.57 gigawatts of solar product, or 125% more than in 2009. This elevates Suntech to the number one supply of solar panels worldwide. This not only gives us leverage over our supplies, it is also a clear indicator of customer’s belief in the Suntech brands.

Operationally, we made a significant shift from pure panel sale and a module manufacture to a more vertically integrated producer of wafers, cells and modules. This vertical integration process has been very smooth to-date. We closed the acquisition of Rietech Solar, a spin-off of Glory Silicon at the end of the fourth quarter. And I am pleased to report that Rietech is already generating returns for Suntech. In the fourth quarter, we recognized $24 million equity income from Rietech’s earnings.

We will fully consolidate the operating earnings in 2011, and this will to add gross margin expansion to approximately 20% in the first quarter. Our wafer business reached 500 megawatt of ingot and wafer manufacturing capacity at the end of 2010, and is on track to reach greater than 800 megawatt annualized capacity by the end of Q1. The internal wafer production is targeted to be close to 200 megawatts during the quarter, however due to the time required to process the wafers into cells, modules and then ship the product, only about 150 megawatts of the internal produced wafers will be used in the first quarter.

By year-end, we expect to reach 1.2 gigawatts of installed wafer capacity, which equates to 50% of our expected total sales and module capacity. This balanced semi-integrated strategy will enable us to lower our cost structure, while preserving enough capital to continue to expand our module capacity and maintain market share. It will also minimize the risk of underutilized wafer capacity and a higher fixed costs in the event of cyclical downturn.

Another key initiative of Suntech is our joint-venture with two Wuxi based companies to jointly own and operate a 1.2 gigawatt PV cell production facility located at our Wuxi campus. This JV will enable us to more effectively leverage our capital to expand capacity. Suntech will provide technology and a chain of management team for this facility so that we can ensure that PV cells meet our stringent quality and the performance standards.

We plan to achieve 600 megawatt of cell capacity by the middle of 2011 with the second phase of 600 megawatt to be completed in 2011 or 2012, depending on demand projected. Due to our focus on the wafer, cell and module segments of the value chain, we no longer fear it is necessary to invest in polysilicon facilities, and during the fourth quarter, we divested in full, our 20% stake in Asia Silicon. We have decided that the best way for us to ensure low cost polysilicon supply while minimizing capital outlay is to partner with some other leading poly players, by leveraging our scale and a market position, we intent to secure supply at below spot market price and we will continue to procure silicon from Asia Silicon going forward.

Next, I will provide an update on our investment in the global solar power. In the fourth quarter, we recognized revenues of approximately $54 million related to shipments to GSF investee companies. We collected the majority of the receivables during the quarter. In addition, I am pleased to say that we have also collected all of the outstanding payments related to the 2009 receivables.

We only had about $10 million of outstanding receivables from the GSF investee companies, as of the end of the fourth quarter. Secondly, GSF investee companies made excellent progress developing solar projects. They completed the construction of 95 megawatts of projects in the fourth quarter and the target to achieve grid connection before the end of June 2011 under the government decree. In accordance with ASC 323-10-35-1, we recognized our share of the earnings or losses of our equity investment in GSF. As GSF is an investment company, its net income or loss is effected by the changes in the fair value of its investee companies.

Due to the completion of their project, GSF pay a value substantially increased and Suntech realized equity income of $250 million in the fourth quarter. The fair value of GSF investments was determined according to discounted cash-flow analysis of the future energy revenues and with reference to target returns of project buyers. The inputs and assumptions used in a discounted cash flow models, reflect the best estimate of assumptions that market participants would use in pricing the same or similar investments in a current transaction as of the measurement date.

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