ATS Corp (ATS) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the ATS Automation third quarter conference call. The following statement respecting forward-looking information is made on behalf of ATS and all of its representatives on this call. The oral statements made on this call will contain forward-looking information. The actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.

Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast or projection, in the forward-looking information and the material factors and or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, are contained in ATS' filings with Canadian Provincial Securities regulators, including ATS' annual report and annual information from the fiscal year ended March 31st, 2007. Please be advised that if you are listening to the conference on the phone and watching the slides on the webcast, the audio and slides will not be in sync. Accordingly, we advise you to use the webcast for both the slides and audio and the phone for question period.

Now it's my pleasure to turn the call over to Management. Your hosts on the call are Anthony Caputo, Chief Executive Officer of ATS, Garry West, Acting CFO, Carl Galloway, Vice President Corporate Treasurer, Stewart Mccuaig, Vice President General Counsel, and Hans Einhell, Director of Corporate Finance. Also in attendance are Eric Kiisel, Eric Laborde, Bruce Seeley and Jim Sheldon.

Now over to Anthony Caputo. Please go ahead, sir.

Good morning, ladies and gentlemen. I assume you've seen our press release. Garry will walk you through the financial highlights in a few minutes. I have been with ATS for about three months. During that time I have made an assessment of our situation, business strategy and prospects. I have presented our Board with a vision and roadmap for the future. Obviously, to get to the future, we must deal with the present first.

The Board fully understands ATS' situation and has given me the mandate to execute this plan. I would like to make some comments in this regard.

I recognize that ATS has disappointed investors from a performance point of view. In the near term, my job is to get control, fix our problems, establish credibility and earn trust.

Today, more than 70% of our revenue comes from eight of our 24 divisions. Most of our divisions are underperforming. We have a non-strategic approach to our markets and keep surprising investors with recurring one-time items. On the other hand, today we have a global market position, a blue-chip list of satisfied repeat customers, opportunity in growing industries, a plan to divest of underperforming assets and talented committed people who all want ATS to succeed.

With respect to recurring one-time items, going forward, we have a number of potential positive items, which we will attempt to realize and use to offset potential negative items.

By way of example, we could potentially finance some planned improvements with proceeds from divestitures of non-core assets, such as the recent PCG $24 million non-cash charge being more than offset by the CSI cash proceeds of $32 million.

Our PCG operation continues to perform poorly. Needed operational restructuring has taken a backseat to a formal divestiture process. Our plan remains to divest of PCG assets. We have taken a non-cash asset impairment charge to reflect our expectation of the current process.

We also developed a plan B. In the event that expressions of interest don't progress to an acceptable purchase and sale agreement. Regardless of the sale process, we are taking a number of immediate actions to minimize operational losses.

Photowatt has struggled for several years as the result of allocating resources to Spheral Solar and not securing enough polysilicon to meet market needs. For good reason, Management attention has been focused on improving metallurgical silicon efficiency. We have made good progress in this regard.

Our immediate plan for Photowatt is as follows. Number one, improve operations, that is yield, cost and metallurgical silicon efficiency. Number two, expand output to 100-megawatts, based on polysilicon, by expanding ingot and wafer capacity and our supply chain. Number three, seek strategic relationships to improve market position and shareholder value.

These plans and silicon deposits will commit approximately 50% of the rights offering proceeds. We have benchmarked Photowatt's process costs and are developing specific actions to make improvements. We have developed a strategic framework to target selected upstream and downstream potential partners. Our objective is to bring together otherwise fragmented capability and offer integrated supply into growth markets.

Given our geography, the French market will be one area of focus. Directly and through the PV Alliance, we will continue to investigate alternative technology that could give Photowatt competitive advantage. This technology and growth will not be a substitute for performance and scale. We have no immediate plans to launch a major technology initiative in this regard.

I believe Photowatt should become a standalone company. The timing of that is related to achieving success in our plans.

ASG is the market and technology leader, but does not assert itself accordingly. Our divisions operate as standalone companies that often approach the market in an uncoordinated way. Our plan for ASG is to fix the underperforming programs, structure operations for growth and approach the market in a more holistic way. We will work to make this happen during fiscal 2009.

Fixing underperforming programs involves executive oversight, a revised performance management system, program management and a more robust bid process. Structuring for growth involves operating divisions that have a critical mass, a specific character and a predisposition to levering internal capability.

In terms of the market, ASG basically designs and sells sophisticated automation equipment. Going forward, we will think in terms of results achieved by our customers. By way of example, ASG will develop IP-based unsolicited proposals to give customers significant advantage in their market. Our solutions will be transformational and priced accordingly. We intend to develop a more strategic approach with all of ATS' key customers. Early discussions with several customers would suggest that this approach will be well received. In the future, ASG will sell systems, products and services.

It will take several quarters to instill the degree of control which I need before providing guidance regarding the outcome of our actions. In the short-term, PCG's performance will probably get worse and then it will stop. Photowatt should show some stability and then improve. If we are successful, a strategic combination could be a strong value driver for Photowatt.

ASG should continue to improve. We are still weak in Asia and parts of Europe. Our near-term focus will be on operational improvements, not growth. These improvements could still result in further one-time items, which we will expect to dampen over time.

To get better control, to date, I have hired a CFO, VP US Operations, VP Organizational Effectiveness, and appointed a VP Canadian Operations. I have also instituted a corporate-wide bid review process and monthly executive level performance reviews. We have strengthened our balance sheet to give us the flexibility to make these improvements.

Over the next few months, all divisional Y'09 plans will pass through a central performance filter, designed to impact and shape the plans to conform to pre-established standards. While we are still finalizing specific plans, I anticipate that implementing improvements over the next several quarters may cost approximately $30 million and have a payback of less than one year.

There are two major parts to the $30 million. Approximately one-third is restructuring and two-thirds is shaping and impacting divisions.

I'm pleased to be here and excited by the prospects for the future. I believe we will fix our problems, earn the trust of all stakeholders and then grow.

ATS will be one company, asserting its global position and competing from a foundation of technology, scale and performance. Thank you. And I would like to ask Garry to summarize our results. Garry?

Thank you, Anthony, and good morning ladies and gentlemen. I will break my comments into three sections. First, I'll address the major one-time items that have had a significant impact on this quarter's results. Second, I will review results for our business segments and finally, I will review our consolidated results and our financial position.

Three items had a significant impact on our financial results this quarter. We held 1.8 million shares of Canadian Solar as a portfolio investment. During the quarter we sold these shares at an average price of $17.00 per share for a total cash inflow of $32 million.

Second item is an impairment charge. As a result of the continued decline in PCG profitability, we performed an impairment test as recommended by the CICA handbook. This test indicated that anticipated future cash flows may not lead to a full recovery of the carrying values of PCG assets. In addition, a review of working capital assets was performed.

A non-cash charge of $19 million against long-lived assets was taken and valuation allowances of $4.2 million against inventory and $700,000 against receivables was taken. The third item is a $4.2 million provision in Photowatt for a customer dispute.

These three items shaped the financial results this quarter.

I will now review the segment operating results, beginning with ASG. ASG revenues were 9% higher than third quarter last year. This increase is even more significant given the stronger Canadian dollar. The breakdown of revenues by industry, demonstrates a greater diversification from prior periods and increasing penetration into fast growing industries. The expansion of opportunities in the energy sector is particularly encouraging.

Geographically, we experienced strong revenue growth in the Canadian market. This growth was offset by declines in the US and Europe. Repetitive equipment manufacturing posted strong growth over third quarter last year. Operating earnings for the quarter were $2.1 million, as compared to $2.4 million for third quarter last year and $2.4 million for second quarter of this year.

ASG order backlog is roughly the same as September 30, 2007, but is significantly better than at December 31st, 2006. Further, our current backlog shows significant improvement in industries with strong future growth prospects, such as energy and healthcare.

I will now turn to Photowatt. Revenue shows significant increases in both this quarter and for the first nine months of 2008. The revenue increase for this quarter reflects a 41% increase in megawatts sold. During the third quarter, revenue from metallurgical silicon products represented approximately 55% of total revenue.

Photowatt Technologies operating results were substantially improved over second quarter. When factoring in a provision for a customer dispute and severance costs, operating results are better than third quarter last year. Much of this improved performance can be attributed to increasing average cell efficiency in metallurgical silicon cell production to just over 13%.

PCG continues to suffer from difficult conditions in the North American automotive parts market and the strong Canadian dollar. Revenue for the quarter is $2.7 million lower than third quarter last year. Revenue for the nine months is $11.7 million less than the comparable period last year.

Excluding the impact of the asset impairment charges, the PCG quarterly operating loss was $3 million compared to a loss of $1.4 million a year ago. Foreign exchange negatively impacted these earnings by $700,000 as compared to third quarter last year.

I will now turn to the ATS consolidated results. Revenue for the quarter shows improvement over both third quarter last year and second quarter of this year. Revenue for the nine months is flat year-over-year.

Losses from operations reflect stable performance by ASG units, breakeven performance at Photowatt before one-time items, and significant losses at PCG. The ATS balance sheet is strong. At December 2007, ATS had no net bank indebtedness. Current assets at $362 million and current liabilities at $202 million indicate a strong current ratio.

The company is in the process of monetizing non-core assets as demonstrated by the realization of the Canadian Solar shares this quarter. Our real estate will produce some upside over carrying values in future quarters.

That concludes my results on the financial statements of ATS for the third quarter. Back to Anthony.

Thank you, Garry, and back to you, operator.

(OPERATOR INSTRUCTIONS) David Tyerman from Scotia Capital.

My question is on the -- or questions that are related to the ASG margin improvement efforts. I just wanted to confirm, the $30 million payback that you expect, is that an EBITDA annual run rate continuing type of number?

Yes.

Okay. And I guess related to that then, how do you get that much payback from what appear to be restructuring and other things like that? It sounds like an incredible payback. I'm wondering what kinds of things you're seeing that you can do that with or get that from?

Okay, so there's basically two buckets. The first is restructuring, in terms of creating companies of critical mass, let's say. And the second component, which is about two-thirds, is by taking our existing companies through this performance filter, which has certain characteristics. For instance, an EBIT of 10%, working capital ratio, etc. And that's where we believe the savings will come from. And there will be a number of initiatives over the next couple of quarters and we'll measure these initiatives in aggregate against this one-year payback requirement or we won't do it.

Okay, so is the goal then an EBIT of 10% on projects?

The basic business, in my view, is 10% business, yes.

Marko Pencak from GMP Securities.

I just wanted to get a sense, you talked about how you're focusing on operational improvements before growth. My question is, the order intake that you've reported is sequentially down. I know you had three very solid quarters prior to this. Would you anticipate that order intake stays roughly at these levels and with the new bid process, have you seen that the margins, you know, before you execute on these contracts, are getting, you know, the mix on the margin there is getting better than what's currently in your backlog?

I'm going to turn the question over to Hans, but it's early days in terms of making a specific comment about the return of our approach to market, which includes a bid process.

I think the order intake since quarter-end is not necessarily indicative of what's going to happen through the entire quarter. It's just what we've received in the first six weeks. No growth--it's not focusing on growth does not mean that we are not working on getting orders in. In respect to the centralized bid review process, there are a number of bids that have come in that we have sent back and have asked for improvements on. And some of those have been received well by customers and other ones we're still working on.

Okay. My second question, you said that you expect to incur costs of roughly $30 million to get the $30 million in EBITDA savings. Of that $30 million, how much -- should we just assume that the $10 million are going to just be write-offs and the $20 million, how much of that is sort of CapEx versus OpEx? I'm just trying to figure out from a modeling perspective how that dollar amount breaks down.

The $30 million is not capital expenditures, it's cost and it is separate from the EUR20 million that we are planning to invest in Photowatt. The 20 million we're planning to invest in Photowatt is primarily capital expenditure.

But am I correct to infer that over the next couple of quarters is going to be roughly $10 million of nonrecurring charges just as you guys go through trying to reshape ASG?

I mean, I used the word several as opposed to couple.

I'm not so concerned about the timing. I'm just trying to understand -- what I'm trying to understand really is if the company's going to be incurring $30 million of cost to improve ASG prospectively and to realize the benefits. I'm just trying to understand what portion of that $30 million "investment" is really sort of write-offs and charges and things of that nature, you know, shutting - aggregating facilities, as separate and distinct from investing in operational improvements, which are sort of either in Management or process or things of that nature.

Most of the costs are operational improvement costs as opposed to further write-off costs.

And not necessarily limited to ASG.

Peter Sklar from BMO Capital Markets.

First, just an accounting housekeeping issue. On two of the charges, the $24 million charge you took in PCG and the $31.8 million gain on the investment in Canadian Solar, I take that those are pretax charges and pretax gains. Do you know what the after-tax what provisions you'll be taking against that so we can see the after-tax?

Most of the tax impact of both of those transactions is in Canada, where most of our tax assets are fully provided for, there's about, I believe $2 to $3 million future tax impact from the sale of the CSI shares, but that's a non-cash item.

So you're saying that the $2 to $3 million provision that'll go against the $31.8 million gain, is that what you're saying?

Yes and that's reflected in our current -- the future tax provision as part of this quarter's results.

Then the $24 million PCG loss, that will just drop to the after-tax line, $24 million?

Correct and it has.

Okay. Secondly, again on this $30 million that you'll be spending for operational improvements, from an accounting perspective, how will that be disclosed? Will it be separated and identified as nonrecurring spending or will that just be buried in the operating cost of the various divisions?

Within the financial statements it will be included in the operating costs of the divisions, but within the MD&A we intend to describe those costs so that our shareholders can discern how much we're spending on that.

Right. And what did you mean when you described those costs, you talked about creating companies of critical mass. Does that mean taking some of your smaller divisions and consolidating them elsewhere in the company, is that what you're talking about?

Potentially, yes, so critical mass in terms of their size, capability, approach to market. So yes, and it partially refers back to my comment that our revenue in total, 70% of our revenue comes from eight of 24 divisions or companies.

Michael Willemse from CIBC World Markets.

Sorry, I got on the call late, sorry if you already covered this, but in the press release you talked about at Photowatt, a $4.2 million provision related to a customer dispute. I guess, could you just give us some more details behind that? What was the dispute about?

It's due and unfortunately, because it is an ongoing dispute, we're not able to comment on that at this point in time.

Okay. And just so I'm clear. This was a $4.2 million, I guess are you attributing it as kind of a bad debt expense right now?

It's a provision for a customer dispute. The dispute did not happen in this quarter. It happened several quarters ago.

Oh, okay. So, that $4.2 million should be kind of seen as a one-time cost. You're not going to take anymore provisions in the next quarter for that?

We do not expect to take anymore provisions in the quarter for that.

Okay. And then just on the Solar Cell efficiencies, you mentioned that you've got improvements to over 13% for cells made from metallurgical silicon. I mean, are you still anticipating the efficiencies to improve by about half a percent every six months? I know that was said in the last call.

Yes. We still are on track with this objective.

Okay. And just one last question on the solar. Last conference call you talked about getting into a thin film line. Are you still thinking about going in that direction?

We're looking at a number of technologies and certainly at this point we're not precluding anything, including technologies that could improve our existing capabilities, such as laptop, say. But we're doing that in parallel with and at this point focusing on some operational improvements, but we're doing both those things at the same time.

Mac Whale from Cormark Securities.

Hi, Tony, there's been a lot of discussion right now on the $30 million and how you'll sort of invest that and I'm wondering whether you could just give us a bit more broader view of what you found when you arrived at the company, what you saw in terms of sort of bid process and the cost-plus type of way of doing business and how these investments will transform the company? I'm trying to get an idea of what the real essence of your turnaround plan is.

I mean, there's two components. One which I tried to quantify and the second one that I haven't. The one that I haven't is really about the approach to market in terms of what we sell. Selling outcome, selling in terms of benefits that accrue to our customers as opposed to looking at our costs and applying a certain profit on top of those and then taking it to market as a product.

The second half, which I have tried to quantify, is in terms of the inside improvements. And the inside improvements are really at three levels. First one is at the program level. The second on is at the company level and the third one is at the structure of the company, for lack of a better term.

So the third one deals with critical mass of companies and giving companies character, so that they're not all competing in the same space. One company may have a pharmaceutical flavor, whereas another company might have a consumer packaging flavor.

On the program side, bid review processes and program reviews at executive levels in the company and making sure that the bids that we take to market have a significant amount of scrutiny in terms of the criteria that we want the companies to live up to.

So would you be expecting then a big increase in the amount of call it sort of unsolicited bidding work because of that restructuring?

Big, but as a function of time. So the immediate priority is to deal with the operating issues that I spoke about and really moving to the type of offering that I talked about takes a bit of time. But a step towards that objective has already been taken. That is, the first step has already been taken.

Okay. And then when looking at the sort of strategic outcomes and when you look at the relationships you have with these global accounts, you mentioned it in the press release about changing that nature. I'm wondering what exactly that means in terms of -- like what is the state of the relationship and what does it mean you do in terms of the revenue or the backlog? What do you need to do to enhance it and what is sort of the state of those relationships?

I'll ask Eric as well to jump in, but the state of the relationships are excellent. I've talked to a number of major customers and without exception they are, as I am, extremely impressed with ATS technology, people, capability, ability to deliver, ability to turn an operational problem into a machine type solution.

In terms of where we're going, hypothetically, a customer may have an operational problem or requirement that he doesn't even know about and we, with the process expertise and automation expertise, have an opportunity to get into that company, look around, provide that customer for an unsolicited proposal, but package it and price it in accordance with the benefits that the customer receives, as opposed to what our cost is. And that disconnection, for lack of a better term, is what we need to achieve.

Part of the company focusing on the market, the other part of the company focusing on cost and not having a direct coupling between those two components. Do you want to add something?

Our initial discussions at a higher level with our customers show a very high appetite for us moving up in the space and delivering a bigger solution than just the equipment side, so I'm very encouraged by that.

And just on a detail on the Photowatt side, you talked about this write-down. I think it says a customer dispute. Just for clarity, this doesn't have to do with the write-down of the silicon that you were getting from I think a Chinese supplier, this is a different issue?

Yes, this is a different issue.

Okay. But it's not related to that?

No, it's not related to that.

Cameron Jeffreys from Credit Suisse.

Just on the carrying value of PCG, could you give us what that number is now?

No, we can't. We're in the middle of attempting to sell the business, so we do not want to disclose that at this time.

(OPERATOR INSTRUCTIONS) Marko Pencak from GMP Securities.

I'd like to explore a little bit the comment you made about how you'd improved the direct cost for your metallurgical based products by 20% since Q1. And I'd like to know sort of what specifically has been driving that and given some of the improvement initiatives that you've identified for Photowatt, where might you be in terms of the overall movement towards an ultimate goal? In other words, how much more do you think you can achieve? Thanks.

So, I think one of the main drivers of the cost reductions is linked to efficiencies. This is the first order of reducing the cost. So as I stated before, we are on track to improve the efficiency by half a point per semester. So that's the main driver and then of course we have a lot of detailed operations behind that in order to achieve that, but that would be my answer for now.

But it seems, just going through your disclosure and prior quarters, your efficiency on metallurgical grade products has been roughly, you know, sort of sat always around 13% and like it hasn't really, at least from your disclosure, it hasn't really made that kind of a big improvement.

So, that's really why I'm just trying to understand. Has there been any material improvements in your yields and do you think that with the adoption of automation some of the things you can talk about? I mean, if you've saved 20% thus far, if you're successful in your initiatives, how much more do you think you might be able to achieve?

Can I just put it in buckets and then frame it. So, the first component is efficiency and specifically related to continuing the progress which Photowatt management has made in that regard. The second bucket is with respect to automation yield process improvement, etc.

And the third one is about balancing the process or line, which Eric spoke about the last quarter. So with respect to the third one, that means investing some resources and money in expanding ingot and wafer capacity so that we can have a balanced output from the front of the factory to the back of the factory.

The middle one, which refers to process automation and yields, I mean we have ATS an automation company, so we have done some significant work in terms of looking at the process and looking at specific pieces of equipment which could significantly improve the yield of the factory.

And with respect to the first one, I'll go back to Eric, which is the specific efficiency comment.

You have to see that even if it's a small percentage of efficiency gains we went through under 13 to a little bit over 13, the scrap rate and the yield improved quite a bit when we improved the efficiency. That's why our cost went down quite significantly.

Okay. Second question is, I just wanted to confirm, did you say earlier that you're looking to expand your capacity to 100-megawatts of polysilicon-based material?

Just to clarify my comments and then Eric, if you want to add. So what I said was output as opposed to capacity. And I used the word output, because we're also improving our supply chain. So, the total output of the factory using a measure of polysilicon will be 100. And then Eric can help you with the conversion if you want to talk metallurgical.

We always discuss capacity based on polysilicon, because otherwise it's confusing, since our metallurgical silicon it's a moving target.

Right. Okay, I understand that.

That doesn't mean that we're going to run 100-megawatts of poly.

Yes. That's what I wanted to confirm. And you have a sense, as you look over the next two to three quarters, what percentage of your revenues do you think will be comprised by metallurgical-based product?

I believe 80%.

Michael Willemse from CIBC World Markets.

Just following up on the expansion at Photowatt, I just want to make sure I had it right. You expect to be at about 100-megawatts of capacity and this is from start to finish?

Let me use the term again, output, because in order to get to 100-megawatts, based on polysilicon output, we are increasing our capacity in the first two stages of our process specifically ingot and wafers, and in addition, relying on our supply chain. So, in aggregate, output 100, using the polysilicon measuring stick.

Okay. And what would your capacity be right now?

Right now our capacity is unbalanced, it's based on metallurgicals, silicon - based on poly, let's talk on poly, it's 60-megawatts on cells and modules and - it's only at 60-megawatt cells and modules and it's lower on the upstream on wafers, let's say 45. So we have to increase the upstream.

Okay. And so you're not even using your full capacity on the cell and module side, because as far as I'm aware, you're not buying wafers now, correct?

We do buy some wafers.

Oh, you do?

Yes.

Okay. And then you talk about some value added activities you're doing on the solar modules now, solar installation systems. What percentage of your total sales is that now?

Solar installation systems, okay. It's very minimum. I would say it's 10% of the sales.

Do you think it will stay at that level?

I would like it to stay at that level, because otherwise we might incur variation from quarter to quarter as a percentage of sales. It will grow, but as a percentage of sales, we have to maintain it between 10 and 20% of the sales, no more.

Okay. And then just moving on to the precision components group, when do you think you'll reach a final decision on the ultimate decision for PCG, whether it be a sale or whether you'll keep it internally?

This is Carl Galloway. As we noted, we are in the sale process now and we expect to be moving towards bids during this quarter and we will assess those bids when we receive them and make our decision going forward from there.

And just to comment on keeping it internally, we're just talking about variants of the sale process as opposed to divesting of the assets or keeping it internally. We don't have a plan to keep it internally.

David Tyerman from Scotia Capital.

On Photowatt and output or capacity, however you want to define it, can you run at 100% or realistically is an operating rate of 90 or something like that a more realistic level to use? I realize you're talking SI equivalent.

As soon as we have solved the problem upstream so we have ramped up the furnace capacity, we will be able to run close to 100%, yes.

Okay, and that would include -- when you're saying 100-megawatts, would that include the one-month summer shutdown or would that take it down by 112?

That's annualized, yes.

Okay, so your real throughput is closer to 90-megawatts on that then, realistically. Okay. Could you just tell me what the megawatts produced sales was for -- or sorry, modules that were metallurgical in the quarter?

I'm not sure I understand your question.

How many megawatts of the total 11.6 megawatts were metallurgical in the quarter?

We're not disclosing that at this time.

Okay. On the order booking side for ASG, I'm wondering if you could give us any idea what you're seeing in the marketplace right now? I'm wondering if the economic weakness in the US, it looks like it's spreading globally here, is having any affect on bid activity?

This is Eric Kiisel again, ASG Canada. We're still seeing a very strong amount of RFQs come in and there's a very high level of bid activity. We are focusing on spread and focus on growth, we are focusing on our operating income, so we're putting more scrutiny into that bid review process, but the orders are holding well.

Okay. So no sign of the recession yet it sounds like?

No.

Okay. I was just wondering if you could comment on solar -- I'll use the word separation. Is there any metrics that would be preconditions to pursuing the separation process? You say you've got improved performance, but I'm wondering if you have to get back to where you were or halfway there?

I mean, in general terms there's two components that we're focusing on with respect to our plant. The first one is about profitability and stability from a financial point of view of our existing operations. The second one is the possibility prospect of entering into a relationship with someone upstream and/or someone downstream, which would create a left to right, input to output kind of offering into growth markets. So, we've initiated movement in both those regards and other than that, we don't have a specific timeframe.

And is the upstream/downstream referring to the EDF stuff or is it beyond that?

EDF would be one potential example of an upstream and/or a downstream relationship, but that would be one of a number of examples, yes.

Okay. And then just on the silicon itself, polysilicon, I'm wondering if you have any thoughts on the availability and price? I mean, there seems to be one school of thought that a lot of availability is going to be coming, the price is going to fall quite a bit in the second half of this year. Are you seeing any signs of that?

I'll let Eric answer the question, but I think Eric said on the Q2 call that we were pursuing a couple of long-term contracts in that regard and we have advanced and made some progress in that regard. But in terms of general market conditions, Eric, do you want to?

Yes. We don't see a price decrease for the next quarters on silicon. A lot of announcements are made for additional capacity to come on-stream, but so far there are also a lot of projects which are being late and delayed. So I don't see the price for silicon coming down next year.

In the next year?

Next year.

Oh, in 2009.

Yes. I don't see it coming down.

Okay. Do your long-term contracts have any kind of protection in case the price did come down or are they pretty much fixed price?

They are not fixed price, but the prices are declining over time, but they are not formulas for revision.

Okay, so if the price of poly came down dramatically, then you and I think a lot of other people would be stuck with these things.

Yes, but you know, all the companies are signing long-term contracts. At least half or three-fourths of the market is tied up on long-term contracts.

Right. And then on the module side, the poly modules were down 5% year-over-year. Any sense of a direction? Is it still 5% now or is it accelerating or decelerating?

Right now we don't see the module price going down that much. We are anticipating maybe the price to go down again next year, but right now the market is quite solid.

(OPERATOR INSTRUCTIONS) Mr. Caputo, there are no further questions at this time. Please continue.

Thank you very much ladies and gentlemen and thank you very much, operator.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.