Emeren Group Ltd (SOL) 2011 Q4 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Ltd. fourth quarter and full year 2011 earnings conference call. At this time all participants are in 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 call over to your host for today, Mr. Tony Hung, ReneSola's Vice President of International Corporate Finance & Corporate Communications. Please proceed, Mr. Hung.

Hello, everyone, and welcome to ReneSola's fourth quarter and full year 2011 earnings conference call.

ReneSola's fourth quarter earnings results and 2011 earnings results were released earlier today, and are available on the Company's website, as well as on newswire services. You can follow along with today's call by downloading a short presentation available on the Company's website at www.renesola.com.

On the call today are Mr. Xianshou Li, our Chief Executive Officer; and Mr. Henry Wang, our 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.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe-harbor provisions of the US Private Securities Litigations 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 20-F, 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 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 joining today's 2011 fourth quarter earnings call. If you have downloaded our presentation, please turn to page 3 and page 4 for our Company highlights and update on market conditions.

2011 was a challenging year for the solar industry, defined by a soft global market, evolving solar policies across Europe, and significant over-supply throughout the solar value chain. As a result, the industry faced increasing pricing pressure, with solar module and wafer ASPs dropping significantly. While this impacted our margins substantially, especially in the fourth quarter, our low cost structure allowed us to achieve a positive net income for the year, making us one of the few Chinese solar companies to do so.

In the fourth quarter, we drove our in-house silicon and non-silicon costs to record lows of $30 per kilogram and $0.20 per watt respectively. We also delivered record shipments in 2011, a major accomplishment given the market environment.

We experienced a particular surge in module shipments in the fourth quarter as a result of our increased marketing efforts, along with stronger demand from Germany ahead of the country's expected cuts in feed-in tariffs.

I will now quickly review our shipments. Please turn to page 6 for a snapshot, as well as an overview of our financial progress.

Total solar product shipments in the fourth quarter of 2011 were 339.9 megawatts, an increase of 3.5%, from 328.5 megawatts in the third quarter. Tough market conditions resulted in wafer shipments of 245.4 megawatts, down 16.8% quarter over quarter.

Module shipments on the other hand, increased 180.4% to 94.5 megawatts, as a result of increased demand from Europe, particularly Germany, coupled with our improved marketing capabilities.

Full year 2011 shipments rose to a record 1.3 gigawatts, an increase of 9.5% from 1.2 gigawatts for the full year 2010. The increase in shipments was the result of an increase in the demand for our solar wafers, especially our Virtus wafer. Our solar module shipments were similar to 2010 as a result of Europe's challenging financing environment.

ASPs dropped significantly throughout the year, with wafer ASPs dropping to $0.36 per watt, and module ASPs dropping to $0.97 per watt in the fourth quarter. This resulted in full year revenues of $985.3 million, 18.3% lower than 2010. Fourth quarter revenues were $187.7 million, relatively unchanged from $189.1 million in the third quarter as a result of higher module shipments.

Please turn to pages 7 and 8 for an update on our polysilicon production.

Our polysilicon plant's costs continue to decrease, helping to reduce our overall wafer production costs, and shield us from market volatility. In the fourth quarter of 2011, we produced approximately 1,089 metric tons of polysilicon above our originally expected capacity, up from 760 metric tons in the third quarter.

Our production cost was approximately $30 per kilogram in the fourth quarter, down from $35.70 per kilogram at the end of the third quarter, and reaching our cost target.

We expect to increase polysilicon production capacity to 10,000 metric tons in year 2012. Our in-house polysilicon remains central to our long-term manufacturing strategy, and we will continue to invest in this area.

Please turn to pages 9 and 10 for an overview of our Wafer business results for the quarter.

We continued to lead the Wafer business in 2011, achieving record shipments of over 1 gigawatt. However, our margins suffered from the fast - declining ASPs. In the fourth quarter, ASPs dropped to $0.36 per watt from $0.54 per watt in the third quarter.

In response, we continued to execute on our cost reduction strategy, reducing our average mono and Virtus wafer processing cost from $0.23 per watt in the third quarter to $0.20 per watt in the fourth quarter.

This is significant improvement from $0.24 per watt at the end of 2010, especially considering the costs associated with integrating our Virtus wafer production. We are confident that our low wafer production cost, which is among the lowest in the industry, will allow us to withstand challenging pricing conditions and position us favorably once macro conditions stabilize.

By the end of the fourth quarter, we'd already driven down our mono and Virtus wafer processing costs to $0.19 per watt, and we expect it to decrease further to approximately $0.15 per watt by the end of this year.

Additionally in 2011, we upgraded all multicrystalline wafer production to Virtus wafer production, bringing our total multicrystalline and Virtus wafer production capacity to 1.6 gigawatts.

Please turn to pages 11 and 12 for an overview of our Module business results for the quarter.

Our Solar Module business was heavily influenced by Europe's financing environment and evolving solar policies which have weakened demand and suppressed ASPs. As a result, our shipments decreased in each of the first three quarters of 2011.

However, in the fourth quarter, we shipped 94.5 megawatts of solar modules, up dramatically from 33.7 megawatts in the third quarter. This was due in large part to our increased sales and marketing efforts, as well as to increased demand in Germany ahead of announced cuts to the country's feed-in tariffs.

We believe our Module business is capable of yielding higher margins than our Wafer business, especially as we continue to decrease our module processing cost, which was $0.42 at the end of the fourth quarter, down from $0.44 in the third quarter.

Going forward, we will increasingly focus on our Module business, capitalizing on our reputation, low costs, high quality products, and new regional teams to increase our sales. We have already placed three new regional presidents in Europe, Asia Pacific and the Americas. For full year 2012, we expect to ship at least 600 megawatts of modules.

Please turn to page 13 for an update on our research and development.

During the fourth quarter, we began mass-producing diamond-steel wires after a successful trial production in the third quarter, and have already begun integrating the diamond-steel wires with our wafer manufacturing, and plan to sell them to other companies soon.

In addition to diamond-steel wires, we have other developments in the pipeline. First, we are working to improve the efficiency of our Virtus wafer technology and to expand its advantage to our Virtus modules.

Second, we are looking to improve our overall manufacturing and product efficiencies through various methods, including factory enhancement and a line of low-oxygen concentration solar wafers and modules. Lastly, we are experimenting with producing our own in-house carbon composite materials, which are used in solar manufacturing to drive down costs.

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

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

Thank you, Mr. Li. Please turn to page 15 and 16 for a glance at our financial highlights.

As Mr. Li mentioned earlier, our revenue and margins have significantly been impacted by the decline in solar wafer and module ASPs, especially in the third and fourth quarters.

Inventory write-downs were necessary reflecting substantial drops in prices of our solar products. Fortunately, our rigorous cost reduction strategy has helped lessen that impact and allowed us to deliver positive returns for the full year 2011.

Although we delivered a negative gross margin in the fourth quarter, we are confident our cost reductions will enable us to generate gross profit in the first quarter of year 2012.

In addition, we continue to maintain a healthy balance sheet and a strong cash position that allows for strategic capital investment, such as the repurchasing of our outstanding convertible notes.

Now I'd like to run through the details of our financial results.

Please refer to pages 17 and 18 for historical comparisons of some key figures from our fourth quarter and full year 2011 financial statement.

Net revenue for the fourth quarter of 2011 was $187.7 million, exceeding our guidance, and a sequential decrease of 0.7% from $189.1 million, primarily due to the decrease in the average selling price of solar wafers and modules, offset by an increase in solar shipments.

Full year 2011 net revenues were $985.3 million, exceeding Company guidance, and a decrease of [18.3]% (Company corrected after the conference call) from $1.2 billion in 2010. The decline in full year revenue was driven by a significant decline in ASPs of solar wafers and modules.

Gross loss for the fourth quarter of 2011 was $43.4 million compared to a gross loss of $7.7 million in the third quarter, primarily due to declines in the solar wafer and module ASPs, as well as the write-down of about $26.2 million to reflect the significant drop in prices.

Full year 2011 gross profit was $96.1 million compared to a gross profit of $348 million in 2010. The year-over-year decrease was primarily due to the declines in solar wafer and module ASPs, as well as inventory write-downs to reflect the significant drop in prices.

Gross profit margin for fourth quarter of 2011 was negative 23.1% compared to a gross margin of negative 4% sequentially. Full year 2011 gross profit margin was 9.7% compared to a gross margin of 28.9% in 2010. Excluding the inventory write-downs, we would have achieved a gross margin of a negative 9.1% for the fourth quarter, and a positive 14.7% for the full year.

Operating loss for the fourth quarter 2011 was $52.7 million compared to an operating loss of $34.5 million in the third quarter. Total operating expenses for the fourth quarter were $9.3 million, down 65.3% from $26.8 million in the third quarter. Sequential decreases in operating expenses were primarily due to a one-time gain of $13.5 million arising from the forfeiture of a prepaid deposit due to the breach of a solar wafer contract with a buyer.

Operating expenses represented 5% of total revenue in fourth quarter 2011, a decrease from 14.2% in the third quarter 2011.

Full year operating income was $11.5 million compared to an operating income of $245.9 million in 2010. Full-year operating expenses were $84.5 million, a 17.2% decrease from $102 million in 2010. This decrease in operating expenses was primarily due to a one-time gain of $13.5 million from the cancelled contract I just mentioned.

Operating expenses represent 8.6% of total revenues in 2011 compared to 8.5% in 2010.

Operating margin for the fourth quarter 2011 was negative 28.1% compared to an operating margin of negative 18.2% in the third quarter. Full year operating margin was 1.2% compared to an operating margin of 20.4% in 2010.

We recognized a tax benefit of $13.1 million for the fourth quarter compared with a tax benefit of $5.1 million in the third quarter. For the full year 2011, we recognized a tax benefit of $4.9 million compared with a tax expense of $60 million in 2010.

Net loss attributable to holders of ordinary shares for the fourth quarter of 2011 was $36.7 million compared to a net loss of $8.2 million for the third quarter of 2011. This represented basic and diluted loss per share of $0.21, and basic and diluted loss per American depositary share, or ADS, of $0.43.

Net income attributable to holders of ordinary shares for full year 2011 was $0.3 million compared to a net income of $169 million in 2010. This represented basic and diluted earnings per share of $0.002, and basic and diluted earnings per ADS of $0.004.

It is worth noting that these results include gains on the repurchase of convertible notes of $8.2 million in the fourth quarter of 2011, and a $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 December 31, 2011, we had increased our overall debt to $715.6 million, excluding $111.6 million due senior convertible notes. Total bank borrowing increased by about $24.2 million sequentially, and short-term borrowing increased from $523.5 million at the end of third quarter to $570.9 million at the end of the fourth quarter.

At the end of 2011, short-term borrowing consisted of $250.3 million in trade finance, $228.8 million in revolving the short-term facilities, and $91.8 million as the short-term portion of the long-term debt.

Our net cash and cash equivalent provision was $379 million. And total cash, including restricted cash, was $437.4 million at the end of the fourth quarter compared to a net cash and cash equivalent provision of $406.3 (Company corrected after the conference call) million, and total cash, including restricted cash of $450.3 million at the end of the third quarter.

Our CapEx plans are relatively conservative for the year. We expect to spend $100 million for the full year 2012 to increase our polysilicon production from the current 4,000 metric tons to 10,000 metric tons. Additionally, if demand for our solar modules increases, we will expand our solar module capacity.

Please turn to our guidance which can be found on page 19. We expect the overall solar market to remain challenging in the first quarter of 2012. We expect shipments to be in the range of 400 megawatts to 420 megawatts, and revenue to be in the range of $180 million to $190 million. We expect a positive gross margin in the first quarter of 2012, primarily due to the cost reduction in our production costs.

For the full year 2012, we expect shipments to be in the range of 1.8 gigawatts to 2 gigawatts.

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

(Operator Instructions). Philip Shen, ROTH Capital.

Let's start off with wafer and module ASP trends. Can you tell us what you're expecting for Q1 ASPs, and then how they may trend throughout 2012?

And also, I know you're expecting positive gross margin in Q1. What are your expectations throughout '12 as well?

(interpreted) For the first quarter, the module ASP we're expecting EUR0.60 on average, which would be about $0.80. For wafers, it will be around $0.32 to $0.34.

And let me check with Mr. Li now on the 2012 trend.

(interpreted) Based on our current expectations, we feel that in the second quarter, the ASPs for both wafer and modules will continue to trend downward. We think that it's possible that in the third quarter, it will stabilize and even rise.

And similarly, for the margins, for the current quarter, as you know, we're expecting positive gross margins as a result of what we foresee as challenging conditions in the second quarter. It could be the worst quarter of the year. We think that it may be possible that the third quarter the margins become positive again.

Great, thanks. Can you give us a sense for where you're seeing module and wafer pricing ending at the end of this year?

(interpreted) For module, we believe that it will be somewhere between $0.70 and $0.75 at year end, and for wafers, around $0.30 at year end.

Great. One other follow-up, if I may. Can you elaborate on your CapEx strategy? In your release, you mention you plan on spending $100 million on poly capacity expansion. You also highlight plans to expand your module capacity to 1 gigawatt from 500 megawatts. Does the $100 million include your module expansion plans? And also, if you can elaborate on whether or not you plan on expanding cell capacity.

Okay, actually, we -- polysilicon, [US mainly saw strategy] starting actually [investing] the significance of polysilicon starting from last year. This $100 million [continues] this project. Okay? That is the [full] polysilicon. But overall, we will keep the conservative for overall CapEx.

For module, we have a planned year, but we will look at the overall market if we -- the market is good, and we think we will increase another 500 megawatts.

So Philip, just to summarize, the $100 million, to answer your question directly, it's just for the phase 2 poly, which we've spent $50 million already. But as you can see, originally we were thinking it would add 5,000 [megawatts] capacity, now we're thinking it could add 6,000 megawatts.

On the module side, it will be a little like last year. We have high expectations and hope to do a lot, but we will see exactly what our sales team delivers and adjust accordingly.

Great. One final question, if I may. Now that you're considering thinking about investing more in modules, can you help us think about how your OpEx might trend throughout 2012? As it seems like you may make more investments in branding downstream.

Yes, actually, I think that overall investment on module will be $5 million to $6 million for to set up in [new regions] for the operating expenses.

So, yes, the OpEx will probably go up by $5 million to $6 million since we're starting from a very, very low base.

As you know, we don't have much in the way of European sales. We don't do any sports sponsorships, etc. We probably won't do any of that going forward either to keep our costing .

And I guess one other thing I'd like to add is that we're finding it a bit easier than certainly early last year to hire top sales people from the various top module

Great. And just to clarify, that's $5 million to $6 million for the full year, right? Not per quarter?

Yes, for full year.

Okay, great. Thanks very much.

Satya Kumar, Credit Suisse.

I was wondering if you can comment about your polysilicon to module conversion cost for Q1 and the roadmap for that for the end of the year.

(interpreted) Right now, the current full all-in costs for creating a module, including poly, is probably around $0.72 to $0.73.

Right now, we're thinking at year end, it's probably going to look like something like $0.67 to $0.68, but it is perfectly possible that it could be lower.

Okay. And then on your slides for the wafer cost reduction, you show that from Q3 to Q4, it seems like most of the reduction, or [units ended] from Q2 and Q4 has come from the raw material cost reduction for the wafer processing. Can you give a bit more color on what exactly is going down in the material side for wafer processing?

(interpreted) Okay, for the raw materials, the primary decrease was due to decrease in steel wires. And just to clarify, this is not our in-house steel wires which are diamond wires now.

And the second part of that is a decrease in pricing for slurry, on top of the fact that with our improving processes, we're actually using less slurry as a result.

Okay. And then on the ASP trends, can you give a sense of what's the difference between mono and Virtus pricing? And what is the mix between mono and Virtus?

And also, on the overall volume guidance that you give for megawatts, what's the wafer versus module megawatts guidance for Q1? And how do you expect that mix to be for the year?

Okay. Well, there's a lot of questions there, so let me break it up into several pieces.

(interpreted) For the answer to your first question, between the price difference of mono versus Virtus, it's probably something like a $0.03 to $0.05 difference, and it depends on what grade of Virtus wafer. So for example, for the higher grade, the difference will be only something like $0.03. For the lower grade, it could be higher.

And let me follow up by asking the team your second question. (Spoken in Mandarin).

Okay, so in terms of the mix, it's probably one-third mono and the rest the quasi-mono right now. And we think that will likely to continue for the year.

And let me follow up by asking the team your final question. (Spoken in Mandarin).

Okay. So in terms of the first quarter guidance and the full year guidance, for the first quarter, it's probably along the lines of about 80 plus megawatts in modules, with the remainder being wafers. And for the full year, we're hoping to sell about 600 megawatts of modules, so the remainder would be wafers.

Right, thank you so much.

No problem.

Kelly Dougherty, Macquarie Research.

Just wanted to get an understanding of what gives you the confidence that you can more than double your module shipments in 2012. Obviously, module demand was strong in Germany in the fourth quarter, I guess presumably in the first quarter as well. But now what kind of impact do you see in Germany specifically after that? And maybe where some of your other module customers are located.

(interpreted) Okay, Kelly, to answer the first part of your question on the projected module sales, I think it's important to point out that, historically, we've been a very low cost culture driven Company. As such, we've only had about 10 people based in actually the factory here in China handling module sales.

We haven't hired a European or, if you will, German, Spanish or Italian speakers in the past, and this is again a reflection of our historical culture.

And this year, we're thinking of going from just the 10 salespeople that we mentioned to over 100. So we've been expanding the module effort significantly, as you can see in our press releases, and hiring some new people with very, very strong track records, and we plan on continuing to do that.

So that's the first reason for our confidence in potentially being able to get to 600 megawatts of module sales.

Another reason is that China is going to be a more important market this year, and we feel that given again our background and in terms of what we have in place in terms of the sale infrastructure, as well as who we're hiring and the fact that we're opening additional China offices, that we should be able to capitalize on the opportunities here.

And the third important reason that always important to point out is that we're a very viable, low cost alternative to our competitors. Many of the other low cost competitors out there are not big public Chinese companies like ourselves. And given the fact that we have low costs internally and we can deliver low prices versus some of our peers, we definitely represent both a bankable and credible alternative to our potential competitors.

Now let me ask the team about your second question with regards to the markets and what we're seeing there. (Spoken in Mandarin).

Okay, with regards to the market, and first the German market, right now, we're expecting the price decline to resume in a significant way after April 1 based on what we're seeing from our module sales growth. And this, in turn, will no doubt impact all of Europe and continue to drive pricing downwards.

We're also seeing that the Chinese market will be very, very strong this year, with a lot of projects coming down in the coming weeks. Because of that, we think that there will probably be a lag in installation that will make the installations occur in the third quarter, and the amount that will get installed may be as high as 7 gigawatts, so maybe something like 5 gigawatts to 7 gigawatts.

And finally, we're seeing that some other markets are demonstrating strength, such as Australia and Japan.

Great, that was helpful. Can you give us a rough geographic mix of that 600 megawatts or so of modules, how that breaks down maybe between Europe, China, the US, just your major markets for this year?

(interpreted) Okay. I think for China, we're expecting about 200 megawatts; for Europe, about the same as last year, which was about 300 megawatts. We think we might actually be able to do about 50 megawatts in the US, and the remainder will be in the Asia Pacific region.

Great. That was helpful, thanks. Just with regards to wafers, really quickly, have you seen any increased interest from customers in Taiwan or elsewhere in Asia, as they may expect the boost from the likely imposition of US tariffs on Chinese cells?

(interpreted) That's 100% correct what you're saying. We are definitely seeing that due to the potential US trade tariffs, we're definitely seeing more activity coming out of Taiwan. We expect that to be a very good market this year.

Great, thanks; and then just a quick OpEx clarification. When you say it will be $5 million to $6 million higher this year, what base are you using for 2011? Is that the total overall OpEx number, or is that OpEx excluding some of the one-offs that you've had?

Can you --? Just a minute. Actually, for the selling expenses or ( inaudible) selling expenses (inaudible), [$17 million]. And because really probably when you're hiring (inaudible) this is mainly for the -- the operating expenses, the [G&A] (Company corrected after the conference call) expenses would be like about $40 million per year. Per quarter, it should be $10 million. Total overall OpEx is normally about $25 million per quarter. (Company corrected after the conference call)

$10 million per quarter?

Yes, $10 million, G&A (Company corrected after the conference call) expenses.

Okay, great. Thank you very much.

Thanks, Kelly.

Vishal Shah, Deutsche Bank.

This is Scott Reynolds for Vishal Shah. I just wanted to know what was your blended poly cost for the fourth quarter? Also, what are you currently buying poly silicon for in the market, and where do you see it trending over the year?

Our blended wafer processing cost is $0.20 in first quarter. No, no; give us a second here.

So for the external sourcing cost for the fourth quarter, it was about $0.27. For the first quarter, we think at the end, the blended average will be about $0.27 for the external sourcing again.

We feel that in the second quarter, it should go down to maybe $0.25. We think there's a strong possibility that it may go higher in the third quarter, leading to an overall average or range for 2012 of $0.25 to $0.30.

Okay, and I just want to talk about competitive dynamics of the market. So with your Virtus wafers and your mono wafers, are you currently seeing other multicrystalline producers really selling volumes in the market, or is mostly high efficiency products?

Are you referring to are we seeing other people selling quasi-mono?

No, it's -- so we're seeing an awful lot of high efficiency product coming into the market. Can you talk about the competitive dynamics with some of the lower efficiency products, and are you seeing them become less competitive overall?

(interpreted) Okay. So, Scott, just to re-emphasize the point on the subject, I think we would like to remind everyone in terms of the high efficiency products that many people announced -- that put out there, especially if it's quasi-mono, chances are they're using our wafers, just because there isn't much volume out there for quasi-mono right now. We're probably the biggest supplier of quasi-mono wafers today.

That may change in the future, but whatever the various products that you hear are out there under all the different names, again, chances are that is probably us behind it.

Now to address your question more directly, the quasi-mono technology and products, to be frank, it's not matured, but it's clearly the trend. So for the other products that are out there that are lower efficiency, it's clear that it's going to become very much a low cost, low priced battle, if you will, to see who can compete solely on price and get by on that basis.

Okay, thank you.

Ahmar Zaman, Piper Jaffray.

This is Karen [Tai] calling on behalf of Ahmar. I have two quick things. One is your fourth quarter revenues, was there an undefined revenue that's other than your wafer and module shipments? Did that come from tolling or some other source?

(interpreted) So, Karen, I think you understood that. There was probably something like 17 megawatts of tolling, very little now. And unlike some other quarters in the past, there was an, if you will, sale of various materials.

Okay, thank you. And can you elaborate more for us on your wafer cost reduction efforts by diamond-steel wires? How much total cost do you expect to reduce your wafer processing cost, as well as what's the initial CapEx or retrofit cost involved for upgrading these tools.

Okay. So I guess you mean just primarily around the diamond-steel wire, right?

That's correct.

(interpreted) Okay. Okay, Karen, I think you got that. Just for everyone, we think that installing the diamond-steel wire, the costs will be relatively minimal. It will save us about 1 penny to 2 pennies, and it will have a couple of other benefits; one, the efficiency to go higher on the wafers by 0.2%. Also, the other benefit is that it will be a cleaner process. And in terms of the total cost to put everything in place, it's probably about RMB20 million.

Okay. So the RMB20 million is for the entire -- your current capacity?

(interpreted) I think, Karen, you got that. So the RMB20 million should cover about 1 gigawatt.

Okay, so that's replacing the current wires with the diamond wires, right? (Inaudible)?

That's right.

Okay, and then what was the 1 penny to 2 pennies per watt referring to?

That's the cost saving per watt.

The cost saving for the wafer processing costs?

That's right.

Okay, that's very helpful. Thank you. I'll get back in the queue.

Aaron Chew, Maxim Group.

Two, if I may; one quick one. Where's your poly consumption ratio down on a wafer level?

(interpreted) It's about 5.5 right now.

So I just have a poly question. In hopes of better understanding just the demand pricing and dynamics, and the poly wafer market, the big question is just why is poly trading at $27/$28? And why is there a market at these prices with high quality wafers like yours, and low 30s per watt and lower quality wafers arguably in the high 20s per watt, given the losses facility, it ultimately implies on the bottom line for most wafer makers?

I just don't really understand what's keeping poly in the high 20s. Why wouldn't it be trading, let's say, at $20 or less? Is it the pricing power of the poly producers? Is it just a question of it being a matter of time, or is there some other dynamic in play there? I'd greatly appreciate your insight.

Thanks.

(interpreted) Based on everything that we know, the worldwide average cost for producing poly is probably around $27 to $28. So right now, it is probably at the cost price or the where fully loaded cost with depreciation would be for poly worldwide. So for many, many producers, this is about as low as it can get.

What we're seeing also on the supply side is that there is a dynamic going on. In China, for a lot of the suppliers who can't produce at $30 or below, they're definitely shutting down and closing down. And for something like poly, it is quite possible that if it goes to, say, $20 or lower than that, that there would be a lot of shutdowns taking place. So hence, it's a much tougher dynamic for poly.

Right, but in all fairness, don't you think that cost number is including depreciation and the proper measurement probably would be the cash cost, which is arguably probably in the low 20s, maybe $20 depending. I understand the argument a lot of it's the marginal Chinese players are probably well higher than $30, but just looking at Walker, OCI and GCL, whose cash costs are arguably in the 20s, it's just hard for me to understand why you guys are buying poly at $27/$28. Because arguably most of the wafer guys are selling below cost at this point.

So you don't think that it's -- you don't think there's a -- the [Chairman] said he was thinking poly may go up in the third quarter. I'm just trying to reconcile why it doesn't go to $20. So you guys think it actually holds here and rises?

I think that's one possibility, just based on the demand, but let me address the question to our CEO.

All right. Thanks, Tony.

No problem.

(interpreted) So, Aaron, you're absolutely right about the cash costs being lower. The problem is that for a lot of the capacity that's out there, it tends to be higher than that. The $27/$28 is an average. And in the case of poly, perhaps globally as compared to China, you have more rational producers, if you will. Hence, they will stop producing if they are not making money. That's one reason.

Another reason is the fact that you do have a lot of people out there who have contracts that they are locked into. And while contracts have become more flexible, there are a lot of contracts with substantial prepayments that would be forfeited if the contract is not adhered to. So hence, that would lead to many companies paying somewhat higher prices and leading to, if you will, slightly higher overall poly prices than what one might expect given the overall supply demand and margin trends.

Okay. Well, thanks for the insight.

Mark Bachman, Avian Securities.

Tony, real quick, just for clarification. Did I hear you say that your Q1 ASP on the module side was going to be $0.80 a watt?

Yes, about $0.80, or basically EUR0.60, so I'll translate that to about $0.80.

Okay. So if I think about that versus the $0.97 that you just posted now, that's about 18% drop in ASPs quarter over quarter that you're expecting. On the wafer side, you thought $0.36 to $0.32, so that's another 11% down. You also ran at a gross margin of negative 9% in this last quarter, but you're guiding us to a positive gross margin in Q1. How do you overcome these ASP declines and the fact that you're already running at a negative gross margin and now expect that to be positive in Q1?

Well, I think it would be safe to say that we expect to continue to cut costs and also increase volumes, but let me get more precision from our CFO. (Spoken in Mandarin).

(interpreted) Yes, Mark. In addition to what I mentioned earlier about the fact that we will definitely reduce our costs in Q1, there's also something that was relatively high in Q4, which is the fact that the Virtus utilization wasn't as high as it would be now. So right now, our Virtus utilization, capacity utilization is something like 80% to 90%, so that will also lower the cost versus Q4.

So, Tony, if I look at your guidance here, you're only expecting about 80 megawatts worth of modules. Volumes, it will play into this given where the ASP decline are, but out of 400 megawatts and somewhat for the total shipments, are you suggesting that maybe your costs on the wafer side are down 15% to 20% quarter over quarter?

(interpreted) Yes, I think we're thinking that for the first quarter, on average, the costs on the wafer side will probably go down by 10% or so, above that. I think the difference, to get to the right number, would be also a decrease on our module costs.

Okay. Thanks, Tony.

No problem.

We are now approaching the end of the conference call. I will now turn the call over to ReneSola's Chief Financial Officer, Mr. Henry Wang, for his closing remarks.

In conclusion, we continue to experience extreme pricing pressure as a result of macro conditions and the marketing oversupply. With declining ASPs substantially hurt our margins in the second half of the year, our cost reduction allowed us to deliver a positive return to our shareholders during an extremely challenging time for the solar industry.

Although we expect the conditions to remain difficult, we are confident in our cost-reduction strategies, and the increased focus on solar modules will enable us to capitalize on our marketing activities and generate positive margins for the first quarter of this year.

Thanks again for joining us today. If you have additional questions, please do not hesitate to contact us.

Operator, please.

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

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.