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Suntech Power Holdings Co. Ltd. (STP)

Q1 2011 Earnings Call

May 25, 2011 8:00 am ET

Executives

Rory Macpherson – Director, IR

Dr. Zhengrong Shi – Chairman and CEO

Andrew Beebe – Chief Commercial Officer

David King – CFO

Analysts

Min Xu – Jefferies

Tim Arcuri – Citi

Robert Stone – Cowen & Co.

Sanjay Shrestha – Lazard Capital Markets

Brian Gamble – Simmons & Co.

Dan Ries – Collins Stewart

Satya Kumar – Credit Suisse

Mehdi Hosseini – Susquehanna

Paul Clegg – Mizuho

Kelly Dougherty – Macquarie

Sam Dubinsky – Wells Fargo

Pavel Molchanov – Raymond James

Edwin Mok – Needham & Company

Josh Baribeau – Canaccord

Gordon Johnson – Axiom Capital Management

Shaun Parmar – Piper Jaffray

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the First Quarter 2011 Suntech Power Holdings Company Limited Earnings Call. My name is Modesto [ph] and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Rory Macpherson, Director of Investor Relations. Please proceed, sir.

Rory Macpherson

Thank you. Hello, everyone. And welcome to Suntech’s first quarter 2011 earnings conference call. My name is Rory Macpherson, Suntech’s Director of Investor Relations.

On the call today, Dr. Zhengrong Shi, Suntech’s Chairman and CEO, will give an overview of our performance and major initiatives; and Andrew Beebe, our Chief Commercial Officer, will discuss sales and markets. We are pleased to introduce you today our new Chief Financial Officer, David King, who will summarize our financial performance.

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 for your reference. This presentation is posted on the main page of the Investor Relations section of our website.

We have allocated one hour for the conference call and will endeavor to fill as many questions as possible within that timeframe. Please limit questions to one question and one follow-up so we can try to speak with everyone.

As a reminder, this conference call is being recorded and the webcast replay will also be available on the Investor Relations section of our website after this call. Please make note that all figures mentioned during this conference call are in U.S. dollars unless otherwise specified.

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

Dr. Zhengrong Shi

Thank you, Rory. Hello and thank you for joining us. In the first quarter of 2011 Suntech performed well despite the challenges presented by the policy uncertainty in Italy and the seasonality, especially in Germany.

The highlights of the quarter were, first, a 280 basis point increase in gross margin from the fourth quarter of 2010, which was driven by the increase in internally produced wafers and second, our planned sales diversification between different geographies which close to 50% of revenues generated from markets outside of Europe. This included an increase in shipments to China, which represented 8% of total revenues, compared to 4% in the previous quarter.

Shipments were up 63% year-over-year. However, due to Italy and the seasonality, they were around 3% lower than the fourth quarter of 2010.

Revenues were $877 million, up 49% year-over-year and a gross margin increased to 19% from 16.2% in the fourth quarter of 2010. We generated net income of $32 million or $0.17 per diluted ADS.

Now, I will give update on our key operational initiatives. Our recently acquired silicon ingot and wafer slicing facility is now fully integrated and operating smoothly. We expanded our installed wafer capacity to 1000-megawatt by the end of the first quarter, we’re ahead of target of 800-megawatt.

The lower cost of wafers produced in this facility was the primary reason for our gross margin improvement, despite lower ASP. We are on track to achieve 1.2-gigawatt of wafer capacity later this year, which will represent 50% of our total module capacity.

In addition to the lower cost of internally produced wafers, we also benefit from the recent downward trend of both polysilicon and our silicon wafers that have accelerated over the past month.

Our JV cell facility added 400-megawatt of capacity by the end of the first quarter taking our total sale and module capacity to 2.2-gigawatt. We are on track to achieve 2.4-gigawatt of installed capacity by the middle of the year.

On the technology front, we are on plan with the production ramp of Pluto power cells and modules. In addition to delivering superior power per square inch, the Pluto modules have showed exceptionally durability in good quality testing.

We have subjective Pluto panel to highest risk combined cycle tests way above the test criteria stimulated by the IC and UA quality standards. The results have been impressive. We are on track to ship 200-megawatt this year and we have scale our product sales and our deliveries across Europe and we’ve introduced Pluto to the Americas in the second half of the year.

Read the rest of this transcript for free on seekingalpha.com