Emeren Group Ltd (SOL) 2011 Q3 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for ReneSola Ltd's third quarter 2011 earnings conference call. At this time all participants are in a listen-only mode. After management's prepared remarks there will be a question-and-answer session. As a reminder, today's conference is being recorded.

I would now like to turn the meeting over to your host for today's call, Mr. Tony Hung, ReneSola's Vice President of International Corporate Finance and Corporate Communications. Please proceed, Tony.

Hello, everyone, and welcome to ReneSola's third quarter 2011 earnings conference call. ReneSola's third quarter 2011 earnings results were released earlier today and are available on the Company's website, as well as on news wire services. You can follow along with today's call by downloading a short presentation which can also be found on the Company's website at www.renesola.com.

On the call today from ReneSola are Mr. Xianshou Li, Chief Executive Officer, and Mr. Henry Wang, Chief Financial Officer. Mr. Li will discuss ReneSola's business highlights and strategy, and Mr. Wang will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the Company's annual report on Form 20F, and other documents filed with the US Securities and Exchange Commission. ReneSola does not assume any obligation to update any forward-looking statements, except as required under the applicable law.

Before I turn the call over to Mr. Li, please be reminded that, unless otherwise noted, all figures mentioned during this conference call are in US dollars.

It is now my pleasure to introduce Mr. Xianshou Li, CEO of ReneSola. Mr. Li will give his remarks in Mandarin and I will translate into English. Please go ahead, Mr. Li.

(interpreted) Thank you for participating in today's 2011 third quarter earnings call. If you have downloaded our presentation, please turn to page 3 for our business highlights.

Tough market conditions continue in the third quarter of 2011. Weak market demand and industry oversupply have resulted in fast declining ASPs, significantly impacting our revenues and margins. As such, we continued to execute on our cost-reduction strategy in the third quarter, decreasing our wafer processing costs by approximately 12% sequentially to $0.23 per watt, one of the lowest in the industry.

We have also begun to explore the systems business in China where we see the potential for high returns, and have conducted preliminary work on a project in Qinghai.

We do, however, expect tough market conditions to continue in the next couple of quarters. We are confident that our strategic investments, such as our Virtus technology and in-house polysilicon production, cost reduction strategies and strong balance sheet, will position us well once market conditions improve in 2012.

Please turn to page 5 for a quick snapshot of our shipments and financial progress.

Total solar product shipments in the third quarter of 2011 were 328.5 megawatts, an increase of 11.2% from 295.5 megawatts in the second quarter.

Despite difficult market conditions, wafer shipments were up 27.9% to 294.8 megawatts, due to strong overall demand for our new highly efficient Virtus wafers.

Module shipments decreased 48.2% to 33.7 megawatts as a result of the relatively weak market demand, tight credit control and challenging financing environment in Europe.

Rapidly dropping ASPs, in addition to lower module shipments, contributed to lower revenues, with $189.1 million for the third quarter compared to $249.3 million for second quarter. For the third quarter the ASP for wafers was $0.54 per watt compared to $0.69 per watt in the second quarter. But the ASP for modules was $1.19 compared to $1.53 in the second quarter.

Please turn to pages 6 to 7 for an update on our polysilicon production.

Our Sichuan polysilicon plant continues to help reduce our overall wafer production costs and protect us from market volatility. It remains central to our long-term manufacturing strategy.

In the third quarter of 2011 we produced approximately 760 metric tons of polysilicon, down slightly from 787 metric tons in the second quarter as a result of temporary electricity shortages from government-sponsored upgrades and facility improvements.

Our production cost was approximately $35.70 per kilogram at the end of the third quarter, down from approximately $40 a kilogram at the end of the second quarter, and on track to exceed our previous year-end cost target of $35 a kilogram, and reach close to $30 a kilogram.

We expect to add an additional 5,000 metric tons of polysilicon production facilities by the end of the second quarter of 2012, but may expand at a slower rate if polysilicon market stock prices and solar product demand remain low.

Please turn to pages 8 to 9 for an overview of our wafer business results for the quarter.

Our wafer business was substantially affected by the declining ASPs which dropped from $0.69 per watt last quarter to $0.54 per watt this quarter. While we were able to lower our wafer processing costs from $0.26 per watt to $0.23 cents per watt, the sharp decline in ASPs dramatically reduced our gross margin for our wafer business. For the third quarter our wafer gross margin was 4% without inventory write-downs, compared to 14.3% in the second quarter.

At the end of the third quarter, our non-silicon processing cost for Virtus wafers was $0.19 per watt. We are confident that our low wafer cost, wafer production cost, which is one of the lowest in the industry, will allow us to withstand challenging pricing conditions and position us well once macro conditions stabilize. By the end of the year we expect our wafer processing costs to further decrease to approximately $0.19 per watt.

During the quarter our higher grade V-Grade Virtus wafer consistently achieved cell conversion efficiencies greater than 18%. We're also on target to upgrade all multicrystalline wafer production to Virtus wafer production by the end of 2011.

Given the current market conditions, we have temporarily lowered our capacity utilization in the fourth quarter to reduce losses from potential future inventory write downs as a result of price declines. We may continue to do so until we see the ASP stabilize. In the long term, however, we remain committed to expanding our capacity to further grow our business.

During the third quarter we also began research on producing diamond-steel wires internally, which would enable us to cut extremely thin solar wafers of 150 millimeters. We're currently in the trial production phase, but expect to mass produce diamond-steel wires by the end of the year and integrate the diamond-steel wires with wafer manufacturing in 2012.

As always, we will continue to invest in research and development to further advance our technology and manufacturing methods, as well as to lower overall costs.

Please turn to page 10 for an overview of our module business results for the quarter.

Our solar module business was heavily affected by Europe's financial environment and evolving solar policies, [some] of which have weakened demand and led to lower ASPs.

In the third quarter of 2011 we shipped 33.7 megawatts of solar modules compared to 65 megawatts in the second quarter. In addition to the 33.7 megawatts of modules shipped in the third quarter, we also shipped 20 megawatts of modules to our own 20 megawatt systems projects in Qinghai Province.

We expect tough market conditions to continue for solar modules in the fourth quarter of this year, as well as the first quarter of next year. However, we still believe there is long-term potential in the solar module business. We will continue to reduce our cell and module processing costs, which is currently at $0.44 per watt, and will conservatively increase our sales force in an effort to expand our module business.

Now I would like to turn the call over to Henry, who will discuss our financial results for the quarter.

Thank you, Mr. Li. As Mr. Li mentioned earlier, our revenues and margins were significantly impacted by the declining solar wafer and module ASPs in the third quarter. Fortunately our rigorous cost-reduction strategy has helped to softened the impact.

Not including a non-cash inventory write-down of $19.4 million, which reflects the declining price of solar products across all value chains, we would have achieved a gross margin of 6.2% for the third quarter, in line with our previous guidance and reasonable, considering the current marketing environment.

In addition, we continue to maintain a healthy balance sheet with a strong cash position that allow for strategic capital investments, such as the repurchasing of outstanding convertible notes.

Now, I would like to run through the details of our financial results. Please refer to pages 12 to 15 for historical comparison of some key figures from our financial statement.

Net new revenues for the third quarter of 2011 were $189.1 million, a sequential decrease of 24.2% from $249.3 million in the second quarter. A sequential decrease in the revenue was driven by significant declines in the average selling price of solar wafers and modules, as well as a large decrease in solar module shipment to Europe, driven by weakened demand and a challenging financial environment in the regions and tight credit control.

Gross profit margin for the third quarter was negative 4%. It was down from a gross margin of 18.4% in the second quarter, primarily due to the large declines in the solar wafer and the module ASPs, as well as an inventory write down of $19.4 million to reflect the significant drop in the prices for polysilicon solar wafers and solar modules. As I mentioned earlier, excluding the $19.4 million write down, we would have achieved a gross margin of 6.2% in the third quarter of 2011.

Operating loss for the second quarter of 2011 was $34.5 million compared to operating income of $23.2 million in the second quarter.

Total operating expenses for the third quarter was $26.8 million, an increase of 19.1% (Sic -- Press Release) from $22.7 million in the second quarter. The increase in expenses was primarily due to higher sales and marketing expenses resulting primarily from the storage fees for modules shipped to Europe, bought, but not yet sold, and expenses related to our system project in Qinghai Province, as well as higher general and administrative expenses as a result of the reversal of our accounts receivables provisions and personal expenses in the second quarter.

Operating margin was negative 19.2% (sic - see slide 14) in the second (sic - see slide 14) quarter compared to 9.3% in the second quarter. We recognized a tax benefit of $5.1 million for the third quarter, compared with a tax on expenses of $2.7 million in the second quarter.

Net income attributable to holders of our ordinary shares for the third quarter of 2011 was negative $8.2 million, compared to net income of $1.8 million for the second quarter. This represents basic and diluted loss per share of $0.05 and basic and diluted loss per ADS of $0.09. It is worth noting that this result includes gains on repurchase of convertible notes of $20.2 million in the third quarter.

As mentioned in previous quarters, we may repurchase our convertible notes from time to time. On the balance sheet, as of September 30, 2011, our overall debt was $691.4 million, excluding $130.8 million due to convertible notes.

Short-term loans, short-term borrowings increased from $428 million in the second quarter of 2011 to $523.5 million in the third quarter.

Our net cash and cash equivalent position was $406.3 million and the total cash, including restrictive cash, was $450.3 million at the end of the third quarter, compared to a net cash and cash equivalent position of $438.1 million. And the total cash, including restrictive cash, was $480.8 million at the end of the third quarter.

Given our strong cash position, we have been buying back our convertible bonds from time to time, as I mentioned earlier. And we are prepared to strategically deploy our capital if conditions warrant.

Our capital expenditures for the third quarter of 2011 were $46.4 million. We expect to reduce our expected capital expenditure for the full year of 2011 from $270 million to $158 million in order to conserve cash and extend the timeline for the capital expenditures.

Our current investment priorities are the expansion of Virtus wafer production capacity, expanding our phase 2 of our polysilicon plant, diamond-steel wire production and our Qinghai priorities and projects and in research and development to reduce our costs.

Now let's turn to our guidance, which can be found on page 16.

We're expecting the solar market to remain challenging as we run out in the fourth quarter of 2011 and heading into the first quarter of 2012.

For the fourth quarter, we expect shipments to be in the range of 280 megawatts to 300 megawatts and the revenues to be in the range of $140 million to $150 million. Due to the uncertainties surrounding ASPs, we are not providing guidance on gross margin at this time.

For the full year of 2011, we expect shipments to be in the range of 1.23 gigawatts to 1.25 gigawatts and the revenues to be in the range of $935 million to $945 million.

At this time, we are happy to take your questions. Operator, please?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). Satya Kumar, Credit Suisse.

This is [Prahan] now calling in for Satya. I just had a quick question regarding your inventory write down. To what price did you adjust it to? And also, if you -- what pricing trend you are seeing so far in the quarter would be really helpful.

Actually, we write down the polysilicon cost to $35. And, at this moment, probably the price of the polysilicon is almost $25. For the module side, we write down the inventory to $0.95 per watt.

Thank you. And in terms of your CapEx for next year, can you just give us an idea on how much you are planning for 2012 and what your potential is for cutting the CapEx next year?.

Yes, for the CapEx of the next year, actually we will delay the current year's CapEx to the next year. This will be about $180 million. And we will put in maybe another $20 million for some new projects under research and development.

For this year, actually, we reduced it, but for the next year it is almost totally (inaudible) almost $200 million. It is possible to reduce more, but it currently is almost like this.

Yes, as we mentioned earlier in the announcement, depending on the market conditions, we can certainly adjust things accordingly. So, right now, that's the plan.

Okay, thank you. And last question, in regards to the pricing trends, how low do you think the wafer pricing can get to in the fourth quarter and even in the next quarter? In the first quarter of next year, we are probably heading into a seasonally weaker period. So do you expect a product price reduction in the next quarter?

And I just want to hear your thoughts on what the pricing trends are likely to go to in the coming quarters.

This is Tony. I'm translating for Mr. Li.

Right now, we're seeing about $0.35. And in terms of what's in the market out there, I'm sure you're going to hear also some surprises. But really, based on what we're seeing and what we're experiencing, this is probably about as low as it's going to get, at least for us in the foreseeable future.

And so he also added that in the overall market, one of the things that's helped us a lot is that we've been doing the Virtus with the higher efficiency, which has been selling well. That's allowed us to command a price premium. For regular, just normal multi that everyone else can do, it's very easy to find a $0.30 per watt price out there somewhere.

Thank you, that's all I have.

Philip Shen, Roth Capital.

My first question is related to your Qinghai project. Can you give us a sense for the megawatts under consideration and then potential revenues, as well as timing on those revenues?

(interpreted) So just to give you a flavor, we've moved actually very quickly on the project in Qinghai. And, if everything goes according to plan, we should be able to connect to the grid very quickly; as early as by the end of this year. The project will be for 20 megawatts and, if everything goes smoothly, we should have a very high IRR of about 10% on the project, based on our calculations.

Now because of the national resources, if you will, in Qinghai when it comes to sunshine and the announcements that we've done around it, we feel that there is great potential there in that market. So we're also going to apply for an additional 60 megawatts in the coming weeks.

Great, that's helpful. And then transition to your module business, your megawatts dropped down to about 34 megawatts in Q3. What kind of run rate should we expect in Q4 and then into 2012?

And if you could comment on your module processing costs as well, that would be helpful. $0.44 was a bit of a surprise. What do you expect, in terms of module processing costs in Q4 and perhaps Q1 of '12 as well?

(interpreted) In terms of the shipments on the modules, we're hoping to sell 60 megawatts to 70 megawatts this quarter. And we feel that Q1, we believe that it should be the start of some kind of a recovery, or some kind of expanse, in the sales of modules. So we're hoping to increase, or improve, on that 60 megawatts to 70 megawatts number in Q1.

In terms of the pricing, right now, the spot pricing, we're looking at anywhere from $0.90 to $1, so $0.90 is definitely out there. The big picture is this is probably as low as it's going to get for everybody.

Our cost structure, as you mentioned, is very, very competitive but we'll continue to try to knock that down. We will probably be able to get to something like $0.43 to $0.44 in terms of processing costs on the cell and module side for the fourth quarter. So altogether, we're hoping to get our costs to something around the $0.80 range, which will enable us to continue to have decent margins on the modules.

Great. One last question, if I may. Can you give us a sense for average utilization of the wafer and module capacity in Q3? And then what your expectations for utilization are for wafer and modules in Q4?

(interpreted) I'm not sure if you understood that but, basically, for wafers, it should be about 70% for this quarter. And for the last quarter, it could be about 70%, but it kind of depends on how you measure it because we were doing some upgrades on our existing furnaces.

On the module side, last quarter it was a little bit worse; it was probably around 60% or so. This quarter, we're hoping to have that ramp up somewhat.

Kelly Dougherty, Macquarie.

Just a quick follow up on the utilization question. Is there some kind of metric we can think about the impact of underutilization on your cost structure? So running at 70% has an $0.X per watt impact on your processing costs? Or where we can think about how processing costs can improve when your utilization starts to ramp back up?

(interpreted) Yes, the big picture is, as you know, unlike, say, the semiconductor industry, we're not that capital intensive. So I think this is an answer you'll hear quite often, Kelly, that ultimately this will probably -- it may well be the lower utilization would probably increase the cost by something like $0.01. And when we have full utilization again, it'll probably decrease it by $0.01.

Okay, so running at 70% utilization only increases your costs by $0.01?

That's correct.

Okay. And just a housekeeping question related to that. You mentioned that you were targeting $0.19 end of year wafer processing costs. Is that a blend of standard and Virtus? And then I guess does that also include that $0.01 of underutilization? And maybe you can give us a similar number that would an average for the fourth quarter?

Yes, I think, basically, you're absolutely right. And this is, I think, some investors have now gotten a little confused with all the numbers out there. The $0.23 and the $0.21 is out there right now; the (inaudible) out there is exactly that. It's exactly as you said, a blended average. It includes Virtus, it includes some multi, which we're increasingly not doing. It increases mono, which, of course, costs a lot more.

So right now, the numbers you're hearing from us are all blended, and for clarification on the call this time, we gave a pure Virtus number. But let me also double check on your other question with the team here. (Spoken in Mandarin)

Yes, so the $0.19 is based off the underutilization of 70%. So if, in fact, we were at 100%, that would be something like $0.18. And again, that would be, by the end of this quarter, the Virtus as well as mono, and no multi, hopefully.

Okay, great. Thanks. That's helpful. And then just another quick one about the customer base. Maybe you can give us a breakdown of what you sell to integrating Chinese, or, say, the other Chinese producers; maybe some is going to Taiwan. I [definitely think] as a shake-up has to happen, comes over the next few months, how do you think about the strength of some of your customers? And maybe how you reposition yourselves in the (inaudible) the inevitably that some of them probably don't make it through.

Yes. As you know -- let me take a shot at this before consulting with the team. As you know, we don't disclose the full details of our customers in our regular reports. But big picture is, given that we've been selling and doing so much on the Virtus side, so if you look at, shall we say, marginal companies out there that are selling the Virtus-type products, basically high efficiency mono-like multi-modules out there, chances are those guys are our customers. Or people who are buying those types of cells from someone else, chances are those cell manufacturers are our customers.

So, in essence, I think if you take a look at what's out there includes announcing they're selling X-type of high efficiency multi, well, chances are those would be our customers.

With regards to positioning, let me check with the team a bit.

Can I just have a quick follow up on that?

Sure.

I'm sorry. Do you have a sense of what percentage -- I mean, that's the kind of buffer you want, but what percentage of your overall shipments or volumes do you [expect]? Maybe we're just talking about the ones that are for better or for worse going to make it through?

Kelly, let me double check with the team on the latest numbers. (Spoken in Mandarin)

So Mr. Li gave a full breakdown of the industry but, Kelly, let me deal with the downstream first.

So big picture is the vast majority of our customers, and the way Mr. Li said, it was only a few very small percentage were the European companies, or even some local Chinese companies, on the downstream side where we've seen are having problems, or have had problems. So it's a very, very small percentage; probably negligible.

The rest are big, listed companies, be they in China or overseas in places like Taiwan, the US, or Korea. And all those customers, we get a very strong sense that, through one way or another, and be it through government support or perhaps they have some other avenues of financing, it's pretty clear that they should be able to survive the downturn. So we're pretty comfortable with the situation with our customers.

And Mr. Li also added that he thinks that in the immediate future, with our particular part of the solar value chain, the companies that are going to get into the most trouble are those just producing regular multi. And the area where there's going to be a lot more issues is potentially on the poly side, wherever there are companies that have not actually started production yet. And there are few of those that may run into some trouble.

So, essentially, that's his view on the industry at this point.

Maybe add comments on the -- okay. Actually, we -- from our customer side, we control the credit very tightly. As I already mentioned just now in the call, from the module shipments, due to our tight credit control, the shipments decreased a little bit. That's one reason, because we implemented the tight credit control policy.

And then the second one is that we use the insurance (inaudible) to secure our [area]. But for the [export] shipments, we use a single insurer, and we also try to find some new insurance also for the domestic sales.

Thank you very --

Vishal Shah, Deutsche Bank.

This is Scott Reynolds for Vishal Shah. I know you said this, but can you say again what you wrote your wafers down to? And also, as a percentage of your inventory, can you talk about what you have for modules, wafers, and then raw materials and work in process?

Yes. I didn't quite catch the first question. What was the first question on wafers again?

Yes. The first part, it wasn't quite clear what you had written your wafers down to. If you could just state that again.

What we have written our wafers down to? On the write down?

Yes.

Okay. I believe we've primarily written down on the poly, but let me check on both questions with the team. (Spoken in Mandarin)

Actually, at the end of September, we write down the polysilicon, which is including the raw materials, and also the materials in the wafers.

Okay, so only the wafers right down to (inaudible).

So basically we only wrote down the raw materials, we didn't actually write down the wafers and for the modules we wrote down. The big picture is, I think as mentioned in previous calls, we don't really have much in the way of wafer inventory, which is not surprising. What we have more of in terms of finished product inventory is probably more modules, which is also not surprising. But let me go back to Henry with the answer for you on the second question. (Spoken in Mandarin)

Okay, so I think you understood that from Mr. Li. Basically right now in the inventory, 50 megawatts of wafers, about 30 megawatts of modules and about 1,000 metric tons of raw materials.

Sorry, on the polysilicon side what was your blended costs for the third quarter, and where do you see that trending over the next couple of quarters?

Okay, yes, for the past quarter, for Q3, it was a blended number on the poly side of $52. For the fourth quarter we're expecting it to be about $30 blended, and we're targeting very aggressively for the first quarter of next year; hopefully it should be blended of around $25.

Okay, thank you. And on the mono side, can you talk about what the processing cost is for mono wafer and also what kind of pricing premium for -- what kind of pricing you're seeing in the market there.

Yes actually -- mono the -- yes hold on, let me just double check with the team on something. Yes, the current mono processing cost is probably at around $0.25, and it's probably selling at around $0.40.

Okay. And what percentage of your shipments would you expect to be mono in the fourth quarter?

For the fourth quarter we're thinking that it may be as high as 40% to 50% mono.

40% to 50%.

All right, thank you.

Sam Dubinsky, Wells Fargo.

On the systems business, can you say how you'll recognize revenue on projects? Will it be a percentage at completion or upon project sale? Also, what's the pricing and target margins for this business?

Let me explain this question, okay. Actually for the system projects we will alter our [power station] could it be [wrong]. We will recognize the revenue by electricity income, and electricity (inaudible) income, and, at the same time, the course would be like the operating expenses and the depreciation of the power station. Currently our system projects, there's a net (inaudible) for our projection into what the net income percentage will be about 20%.

Okay so you --

Yes, (inaudible) but at the same time if we can to improve our cash flow we also have the -- there is other options that we can sell our power station after we [sell the] (inaudible) all the profit will be the (inaudible) what is the net profit between the investment and the sales amount.

Do you think you have a big enough balance sheet to fund your own projects without selling them, because I think you tied up some working capital? Is that a correct assumption?

(interpreted) Big picture is that it depends. I mean obviously we're going to try to get as much project financing into the project as much as possible and not commit our own balance sheet, but you're right, it is what it is. So we're going to have to look carefully at every single project and make sure that's good, that we can get good returns from it. And we don't need to commit an inordinate amount of capital.

So the way I would put it is what we're doing now is similar to what we have done in the past in the module business, or the poly business. We're being very, very careful and we'll take our shots accordingly.

Okay. Also just for clarification, you said your panel processing costs, I believe, was $0.44 per watt in Q3. Is that the panel processing portion only, or does that also include the cell processing as well?

Yes, that includes the cell and module.

Okay, great. And then lastly what was your tolling mix for wafers in 3Q? And what should we model for 4Q?

For the third quarter there's probably something around 70 megawatts/74 megawatts of tolling. For the fourth quarter right now it looks like it would be relatively negligible or close to zero.

Okay, great. And that's just for wafer tolling, right?

That's correct.

Okay, great. Thank you very much.

Ahmar Zaman, Piper Jaffray.

This is Karen calling on behalf of Ahmar. So just a couple of quick questions to follow up on your poly. Can you talk about what is your current poly contract price for third quarter and fourth quarter? And how long do you expect to work through your 1,000 metric tons of poly inventory, given that you're expecting to produce another 700 metric tons internally at the cost of, say, $30 per kilogram, your expected target cost?

(spoken in Mandarin)

I think, Karen, you might have understood some of that. Big picture is we've only got one fixed price contract for about something like 50 metric tons, although that's adjustable now, as I'm sure you've heard what's happening on the poly side. And right now, we're taking all the contracts, and they're increasingly moving to the spot price.

So, in essence, we're having a situation where you can look at the contract prices as being closer and closer to the spot prices, not the spot prices for Q3 and Q4. And you already have heard our blended poly sourcing [cost].

For the 1,000 metric tons, it's not just poly, it's other things as well, but it'll probably take us one or two months to get the (inaudible) of it.

Okay, that is helpful. Did I also hear Mr. Li mention EUR39 for the contact price? Or did I mishear that?

The number that -- I think that the number that gets [sucked] out there once in a while, but, as you know, there's no official number per se on some of these contracts. And, as just mentioned, these things, shall we say, are quite often a historical price, and now everything can get adjusted to the spot price, or, alternatively, we can get higher quantities.

Okay, thank you. And for going forward your expansion plans on your poly, isn't that your expectation for your blended poly cost to go down to $25 next year? Does that mean your internal poly expansion plans will be delayed or halted until your internal costs get to below that level?

I think for that it's fair to say our internal poly expansion right now, it's still going to follow the guidance, which we gave, which is by second quarter 2012. So essentially, that's still ongoing, so we haven't given any guidance that changes that.

Okay. And what's the price premium for your Virtus wafers? And how, in terms of the processing costs, do you guys see any -- a penny or two difference between processing the Virtus wafers compared to multi?

Okay, it can command -- I think this ties to the numbers we were saying earlier, about say, $0.30 versus $0.35. It can command something like a $0.05 premium.

Okay. And I know you didn't talk about your customers, but can I -- can we get a general -- some information about the geography breakdown?

(spoken in Mandarin)

I think you understood that. Basically there's two big Chinese customers that are using a lot of the Virtus wafers now, and there's also two or three in Taiwan and also elsewhere overseas.

Okay. Thank you very much.

Sanjay Shrestha, Lazard Capital Markets.

(inaudible) there are two or three questions, guys. First off, with the different dynamic of the industry this time where there is going to be a lot of poly and that's always been the (inaudible) in the past. What is it that makes you guys still want to move forward with your poly capacity expansion when you can probably buy poly in the stock market at $25 a kilogram and that's where your (inaudible) cost is going to go next year? Why should you continue with that capital expansion plan?

(spoken in Mandarin)

In essence, when we look at the polysilicon situation, you're absolutely right, the prices are low now; there's a lot of cheap poly out there. And we perfectly expect come December, January we might be seeing even cheaper poly and, hence, we budgeted for that accordingly. But this is probably a short-term trend that eventually won't last.

As I always like to say to investors, and now, as you can imagine, I get this question a lot on polysilicon; where would you forecast the average polysilicon price to be in the next five to 10 years? I don't think there are many analysts or investors out there that would forecast the average polysilicon price for the next five to 10 years to be where it is right now.

Right now, yes, you can get very, very cheap poly. This is unlikely to last.

Also, as was just mentioned by Mr. Li, if you look at the big picture of what is actually occurring right now in the market, what's happening to cause the price to go down is that there's a lot of intermediaries. There's also other people who have, if you will, too much inventory on their hands who are now disposing of it, including smaller wafer companies. And that is causing a dramatic drop in the polysilicon price.

If you look at the underlying cost structure of the top producers in the world, the good ones are $25 to $30. The very good ones are around $20. They're typically not offering poly at such a cheap price. And long term, obviously, they wouldn't be able to afford to offer poly at such a cheap price. So long term, polysilicon is bound to rebound.

And simultaneously, what we're also seeing in the market is that because people expect the polysilicon price to rebound, there are actually people out there who are buying polysilicon right now, temporarily keeping it in storage somewhere, in anticipation that one day the polysilicon price will recover.

And long term for us, we believe that it's still a strategic imperative and an absolute that we have cheap polysilicon that we can access. And when the market recovers, which, as we all know, eventually it will, it will make a huge difference between those companies that have access to their own cheap polysilicon and those companies that do not have access to cheap polysilicon.

Okay. Well -- so if they finance this -- quick follow up then. So how are you guys planning on -- because obviously, (inaudible) has been pretty aggressive in terms of expansion, they talk about a pretty low processing cost, pretty low poly cost, and so the benefit that you guys might have from the domestic supplies (inaudible).

Help us understand, how do you see that competitive force impacting your business, given how aggressively they want to expand and how they want to cut the cost of wafer? And can you maintain premium pricing with your high efficiency wafers in the market, given how aggressive they seem to be?

(interpreted) First, what you said on the last part of your question, that's absolutely right and, of course, that's what we've been doing. We are, therefore, one of the leaders, if not the leaders, on the wafer side. We, therefore, have the most advanced technology. We have the most advanced products.

And our costs may not be obvious at first glance, but anyone who takes a closer look will realize that, well, we have a clear understanding of what it costs to produce quasi-mono, or, in our case, the Virtus wafers. So again, we're on the leading edge there. And you're right, as long as we continue to be on the leading edge, we will command a premium on the wafer side.

Now on the polysilicon side, their cost structure probably arises from, and I'm sure you've heard this from several sources, slightly different accounting. And if you look at our cost structure and our plans for our own polysilicon, eventually we should be able to come close to matching their cost structure. So, in essence, it will be a situation where we'll continue to have the lead on the wafer side and the wafer technology side, and also we will have our own polysilicon. So in that sense, we will be in a very good position to match whatever it is that they do.

And then, of course, we have our own module business, which we have developed some experience in, to say the least, over the last few years. And as we expand on that, that will support our underlying business and margins as well.

Okay. One final question from me then, guys. So talking about that module business, it seems like a new trend here, with everybody back to that whole vertical integration to capture more margin and get the revenue multipliers back given what has happened to pricing. You guys talk about releasing CapEx on the module side. So what's your view on that (inaudible) your -- how much of your wafer do you plan to be allocated to your module business? And what's your current thinking there, if you can talk about that?

(interpreted) Big picture, if you look at how we approached the entire module business over the past year, we were very negative on it at the beginning of the year. And, hence, we have not done much there on the module side pretty much in the last few quarters. We don't want to build up inventory; we don't want to take some risks with customers. And essentially, it's a situation where, I think, given the instability, if you will, in Europe, had we taken those risks right now, the balance sheet would be a little bit worse and our inventory receivable situation would reflect that.

Now going forward, now that we are in a sub-$1 module world, I think everybody expects, sooner or later, there will be a demand pot of some kind. So we are getting ready to prepare for that potential demand pot and that demand rising, now that we are in a sub-$1 module world.

And the key to doing that will be to focus a little bit more on the module business, and to take our technical expertise, in particular on the wafer side and on our high efficiency wafer, into our module business, and to have that drive the high efficiency modules, which will, hopefully, in turn, drive sales.

Very helpful. Thanks so much, guys.

Thank you, ladies and gentlemen. Unfortunately, we have run out of time for any further questions. I would like to turn the call back to ReneSola's Chief Financial Officer, Mr. Henry Wang, for his closing remarks.

Overall, we experienced a relatively tough quarter, as a result of the macro conditions within the solar market. While fast dropping ASTs negatively affected our margins, we lessened their impact by further reducing our silicon and (inaudible) costs. Though we expect these challenging conditions to continue through the beginning of next year, we are confident that the market will improve shortly thereafter, as we have already began to witness polysilicon price drops in line with [retail] market prices in fourth quarter.

Meanwhile, we will continue to capitalize on our cost-reduction capabilities and the strategic investments provision as we are when macro conditions stabilize.

Again, thank you for joining us today. If you have further questions, please do not hesitate to contact us. Operator, please?

Thank you for your participation in today's conference. This concludes the presentations. You may now disconnect. Good day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.