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Suntech Power Holdings Co. Ltd. (STP)

Q3 2011 Earnings Call

November 22, 2011 07:00 am ET

Executives

Dr. Zhengrong Shi – Chairman and Chief Executive Officer

Andrew Beebe – Chief Commercial Officer

David King – Chief Financial Officer

Rory Macpherson – Director of Investor Relations

Analysts

Satya Kumar – Credit Suisse

Jesse Pichel – Jefferies & Company

Sanjay Shrestha – Lazard Capital Markets

James Medvedev – Cowen & Company

Dan Ries – Collins Stewart

Kelly Dougherty – Macquarie Research

[Bichel] Shaw – Deutsche Bank

Colin Rusch – ThinkEquity

Brian Gamble – Simmons & Company

Aaron Chu – Maxim Group

Pranab Sarmah – Daiwa Institute of Research

Nitin Kumar – Nomura

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2011 Suntech Power Holdings Co. Ltd. Earnings Conference Call. My name is Ann and I will be your coordinator for today’s call. As a reminder, this conference is being recorded for replay purposes. (Operator instructions.) I would now like to turn the presentation over to Mr. Rory Macpherson, Director of Investor Relations. Please proceed, Sir.

Rory Macpherson

Thank you. Hello everyone, and welcome to Suntech’s Q3 2011 earnings conference call. My name is Rory Macpherson, Suntech’s Director of Investor Relations. On the call today are Dr. Zhengrong Shi, Suntech’s Chairman and CEO who will give an overview of our performance and operational initiatives; Andrew Beebe, our Chief Commercial Officer who will discuss sales and markets; and David King, our Chief Financial Officer who will discuss our financial performance.

During this conference call we will make some 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 the 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 allotted one hour for the conference call and will endeavor to field as many questions as possible within that timeframe. Please limit questions to one question per person and one follow-up. As a reminder, this 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 note that all figures mentioned during the call are in US dollars unless otherwise specified.

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. Please turn to page 4. We were pleased to achieve strong shipments and gross margin results in Q3. Despite the due pressures of a volatile macroeconomic environment in Europe and an oversupply of TV modules, our shipments increased 16% sequentially in line with our guidance and our gross margin came in at 13.3% which is at the high end of our Q3 guidance of 11% to 13%. There were two primary drivers of our strong top line performance: first, customers’ preference to what we supply let our [backlog] have an excellent track record in a high performance product; and second, the strength and the strength and the geographic diversity of our sales channels. We have invested in building our globally diverse sales network for many years now and this is one of the clear benefits.

Operationally, we successfully reduced our cost of goods sold nearly in line with the [wafer price] decline. Our ASPs declined by approximately 16% sequentially while costs per box declined by approximately 14% quarter-over-quarter. The key element of cost reductions was a continued decline of [poly silicone] and wafer prices and a reduction of our poly to module non-silicone costs. Due to our strong relationships with our upstream suppliers we are confident that we’ll be able to continue to access poly silicone and silicone wafers at costs close to full market prices. Looking forward, cost reduction is a core focus of our Operations Team and our target to reduce our non-silicon [collusion] costs are now (inaudible) 65% at the end of 2012.

Turning to capacity on page 5, we achieved 1.6 GW of wafer capacity in line with our vertical integration strategy. Our cell and wafer capacity remained at 2.4 GW. While the total shipments in Q3 were in line with our expectations we have seen softness in the European markets continue into Q4, and as this has led us to reduce our annual shipment target from 2.2 GW to 2 GW for the full year 2011. Andrew will give you further color on our shipments and the markets shortly.

We expect that the softer demand environment will continue into Q1 which is seasonally impacted by winter in Northern Europe, Chinese New Year as well as (inaudible) direct reduction in most end markets. With the weak demand outlook for the next two to three quarters, we have decided to accelerate the implementation of a range of initiatives highlighted on page 6, that will optimize our operations while continuing to put out production efficiency. We also target to first improve OPEX capital by $200 million by the end of the year; second, reduce operating expenses by at least 20% in 2012; and third, to hold capacity expansion in 2012.

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