SunPower Corporation (SPWR) 2007 Q4 法說會逐字稿

Good morning.

Welcome to SunPower fourth quarter 2007 earnings release conference call.

Today's conference is being recorded.

(OPERATOR INSTRUCTIONS) If you have any objections you may disconnect at this time.

Your lines have been placed in a listen only mode until the question and answer segment in today conference call.

I would now like to turn the call over to Mr.

Tom Werner, CEO of SunPower.

Sir, you may begin.

Thank you for joining us today.

We will report on our fourth quarter and full year 2007 financial results.

Providing some color on our strategies of investments in channel, technology and cost reduction initiatives.

Then we will provide guidance for the first quarter in full-year 2008.

Our fourth quarter performance once again exceeded our top and bottom line guidance.

The Q4 2007 revenue was 224 million up 201% from our Q4 2006.

System revenue accounted for 55% and components revenue accounted for 45%.

In addition, Manny will describe in detail more on the financial results including how we view EPS guidance, our updated raised guidance for 2008 and and outlook for 2009.

Overall, 2007 was another exceptional year for SunPower.

We more than tripled our top line revenue for the second consecutive year while growing pro forma operating income 273%.

This rate of profitable growth is a testament to the contribution of the SunPower team.

So I would like to take this opportunity to thank them for their hard work over the past 12 months.

SunPower continues to execute on the key elements of our long-term strategies, specifically, we will build a robust downstream channel and deliver brand preference.

We will innovate technically to create unique high value products and we will reduce cost across the value chain to compete with the retail electric rates .

Lastly, we will hire the best people in the industry.

These strategies led us to competence in our guidance to achieve our model of 30% gross margin, 10% operating expense and 20% operating margin, no later than Q1 of 2009.

I will elaborate on the first three of these strategies briefly let me start with channel and brand.

We have been working hard on this front for over three years.

Both organically here our North American dealer network and through the acquisition of Power Light.

More recently the acquisition of Solar Solutions in Italy.

We have deliberately invested in channels to reach all four major market segment and these are, residential retro fit, new home construction, commercial and power plants.

SunPower now has robust channels to market all four of these applications.

We have expanding our channel footprints in new markets such southern Europe both through acquisition as well as organic growth.

This portfolio of market opportunities and delivery channels gives SunPower a unique ability to rapidly capitalize on new opportunities, adjust rapidly to specific incentive risks and leverage products between geographies and market segments.

We believe that control over the downstream channel, will, overtime build more predictable demand in superior margins because we increasingly control our destiny through our own channel strategy.

For example, in Q4 of 2007, approximately 70% of our revenue was derived through a downstream systems and bar channels.

We are convinced that brand preference will play an increasingly important role in the Solar Industry as product supply and technology choice increase.

In 2007 SunPower was named as, The Number One Solar Panel Brand by an Independent Market Research Firm.

We recently hired a new Chief Marketing Officer with extensive retail industry experience to help us make SunPower a global power house brand to insure our products are the clear first choice for customers in our key markets.

Let me elaborate with some channel highlights Q4.

In Europe, we closed the acquisition of Solar Solutions in Italy providing us with immediate expansion into one of the fastest growing markets in the world.

In residential retro fit we expanded our North American dealer net work to approximately 150 dealers in more than 25 states.

New homes, we had a record breaking quarter.

We performed above plan and extended our relationships to new builders.

Power plants, we had an outstanding quarter.

We signed 60 megawatts of projects in Spain.

We dedicated the greater than 14 megawatt Nellis Air Force Base Power Plant outside of Las Vegas, and we announced our system in Korea called Woongjin.

The commercial systems we accomplished a wide range of major milestones.

Hit important early goals in the construction schedule for Macy's and Wal-Mart.

Combined this represents 35 facilities, they will be fully built out by year-end 2008.

We also expanded SunPower axis PPA Power purchase agreements in U.S.

Commercial Systems by signing two key financing agreements to provide visibility on how we can reduce the cost of delivering systems to our customers.

First was Morgan Stanley project finance facility.

This was a $200 million facility 95% funded by Morgan Stanley, 5% by SunPower.

It has built in Standard terms and conditions.

What this allows us to do is leverage a prearranged pool of financing which we can apply new business to.

We use this facility at our option and we can use other vehicles if they work better for our customers.

Second was GE Financing of 8 megawatt systems for five customers.

These customers were HP, Toyota, [Agelent] and two public agencies.

This is different than Morgan Stanley facility in that we first bundle the projects and then found the best financing partner for the mix of systems.

The most important conclusions from these efforts is that we have a very come competitive market for financing systems in the United States, plus high quality investors looking to participate in Solar.

Now let me move to the second leg of our strategy which is Technology Innovation, something that is in our DNA here at SunPower.

Part of our product advantage is our high efficiency solar cell technology and our high performance solar systems.

I am pleased to report our solar cell technology road map is on schedule and producing excellent results.

2008, our Generation 2 solar cell production volume will exceed that of the first generation.

The first two lines in our Fab 2 are complete.

Third starts ramping in late Q4.

Five more will ramp this year for a total of eight in production by the end of this year.

This is in addition to Line 4 and Fab 1.

We are now able to rapidly replicate Generation 2 new lines in our Fab 2 very quickly.

Additionally we have successfully made panels with 145-micron cells and expect to start shipping in volume very soon.

On the system side we are applying our manufacturing competencies by moving to manufacturing plant assembly of systems instead of field assembly, redesigning systems to lower the cost of the bill of material and to improve energy harvest and finally scaling manufacturing.

Our approach of moving final assembly from the field to the factory work exceptionally well at our Nellis Air Force Base project.

This is where we demonstrated installation rates of over 1 megawatt per week using our innovative new T20 Tracker.

We are now gearing up to deliver more than 45 megawatts of power plants in Spain during 2008 using our proprietary tracker technology.

Our redesigned T20 Tracker produces almost 10% more energy as measured in kilowatt hours compared single-axis tracker and up to 30% energy than an fixed-tilt system.

Let me move on to the third leg of our strategy which is cost reduction.

We have initiatives across the full value chain to drive our stated goal of reducing installed system costs 50% by 2012.

Let's go through the elements of cost reduction starting with silicon.

We expect to see cost reduction in 2008.

This is the first quarter where average silicon prices will decline since we started commercial production.

M.

Setek has succeeded in the transition to internally produce TCS gas and is making and delivering ingots with polysilicon meeting our quality specifications.

We expect this TCS transition to resolve the [nano larity] in the delivery of ingots some M.Setek that limited our total cell production in Q4.

M.

Setek is delivering linearly less this quarter.

DC Chemical has delivered it's first polysilicon to Woongjin Energy as of this month.

Woogjin ingots made with this poly meet our specifications.

We expect DCC to meets its schedule for volume deliveries in the next couple of months.

With the success of both of these partners, we have further implemented our diversification strategy with new silicon suppliers last week we announced that we will be a customer of a new polysilicon plant to be built in Saudi Arabia, to a joint venture of NorSun and two Saudi investor groups.

NorSun is led by one of the founders of REC and is already under contract to supply SunPower with ingots and wafers from a facility in Norway.

Incremental silicon from this contract supports the increase in our expected solar cell production volume in 2010 to 650 megawatts or more.

Combination of these agreements is in line with our long held strategy of a diverse silicon portfolio.

As a final note on silicon success in the fourth quarter, we were very pleased to see our Woongjin Energy joint venture in Korea ramp very successfully delivering ingot volume about twice our ramped plan, moving them into position to be one of our top ingot suppliers.

Not lets take stock of our competitive cost position.

Let me be clear, our modules our cost competitive today.

We believe our cost reduction road map will allow us to improve our margins faster than others in the industry.

We have high visibility of our cost reduction trajectory from our technology road maps.

Let me give you some examples.

We are moving to thinner wafers, we are extending our industry leading position of 6.5 grams per watt.

We are moving to higher efficiency solar cells, beyond our industry leading initial production of 20% cells with we are moving to 22% minimum conversion efficiency at 10% improvement.

We are moving to larger solar panels with greater than 300-watts of rated power that reduce manufacturing and installation costs.

And we are trying to economy to scale throughout our cell and solar panel factories.

Our systems group with we have the unique ability to integrate our product development teams to address cost reductions from the solar cell all the way across the value chain to the final site installation.

We have built a pipeline of new systems products with a focus on reduction or elimination of redundant structure and features, factory manufacturing instead of field assembly, radically reduced installation time and costs.

Let me quantify some of the installed cost savings associated with these initiatives.

First, a 1% conversion efficiency improvement yields approximately $0.20 per watt cost reduction of total systems cost.

Now, when we first started production several years ago, we had industry-leading 20% conversion efficiency.

We have improved that and are implementing as we speak a full 2 percentage point improvement.

Second example, a 20-micron reduction of silicon thickness reduces yields a $0.15 to $0.20 per watt cost reduction.

Third, our signed silicon contracts that will be implemented between now and 2010 reduce our cost by between $0.40 and $0.50 per watt.

Fourth, 10% higher energy harvest from our T-20 product yields $0.30 to $0.50 per watt cost reduction.

Combining these with our other cost reducing initiatives leads to our guidance of attaining our 30% gross margin, 10% operating expense, 20% operating income model no latter than Q1 of 2009.

Let me end by spending a few minutes talking about market growth and dynamics.

First, demand is strong.

Preliminary estimates we have seen indicate that market growth, 2007 was once again extremely strong with shipments up about 45% compared to 2006.

We see continuing strong demand for our products and systems driven by high efficiency superior studies of our solar cells and high performance systems with rapid low cost installation.

Next, SunPower is poised to respond to market dynamics.

As our current market's mature and new growth markets emerge, we fully expect and are planning for both surges and softening in individual market as they transition to various stages of growth.

SunPower has demonstrated the ability and channel options to be flexible with respect to these short term portabation.

We believe we are well positioned to address key industry policy issues such as the ITC extension in the United States as well as both feeding tariffs in both Spain and Germany.

Currently it is SunPower's plan to compete with retail electric rates.

Ultimately we are driving our company to go move beyond the current set of solar initiative incentive policies by reducing installed systems costs 50% by year-end 2012.

This goal is embedded in the development road maps across the entire company and will allow us to be competitive with grid power in much of the developed world as I have described with concrete examples today.

SunPower is positioned to win when silicon becomes more.

We have been anticipating significantly increased competition in ample silicon supply for several years now and we believe we are positioned for success in this market.

In an environment of abundant out stream supply, we expect redistributed profit poles in the solar value chain.

As a result, we have been preparing for this by vertically integrated and investing in the downstream channel.

We believe that core success factors in this new environment will be channel control and brand preference.

Differentiated high value products and competitive cost at the installed system level.

We believe that SunPower is in an industry leading position for each of these three factors and we look forward with great anticipation when it is outstanding performance and execution 2008.

I would like to turn the call over to Manny Hernandez who will report details of our 2007 Q4 and year-end results.

Provide guidance for our first quarter of 2008, full-year 2008 and our first look at 2009.

Manny?

Guidance for first quarter 2008 and full year 200 and first look at

Thanks, Tom and good morning everyone and thank you for joining SunPower earnings conference for the fourth quarter and fiscal year 2007 which ended December 30, 2007.

I would like to remind everyone that during this call management made and will continue to make statements that are not historical in nature.

Is consider the statements as forward-looking, pursuant to the Private Securities Litigation Reform Act of 1995.

Those statements are based on our current expectations and are subject to certain risks.

Please refer to our press release and our SEC filings for a more detailed discussion of those risks.

Now let me give you a summary of 2007 fourth quarter financial results for the combined in our segments.

Our total SunPower for the 2007 fourth quarter was 224.3 million, exceeding our guidance of 210 to 220 million, but down approximately 4% from our prior quarter revenue of 234.3 million up 201% from our year ago fourth quarter revenue of 74.5 million.

For the year, 2007 revenue was approximately 775 million or more than triple that of the 2006 revenue of 237 million, and as Tom noted we had a great year.

Our component segment accounted for 100.4 million of our fourth quarter revenue exceeding our guidance of 90 to 95 million, representing a 31% increase from the prior quarters revenue of 76.6 million.

Our systems segment accounted for 123.9 million of the quarters revenue, within our guidance of 120 to 125, representing a 21.4% decrease from the prior quarters revenue of 157.7 million.

Because of our third quarter systems revenue included scheduled completion of certain phases of projects in North America and Spain, most notably the Nellis Air Force Base project, which was, which contributed to a very strong systems performance during this quarter.

As noted by Tom earlier, that Nellis project was successfully completed in the fourth quarter.

Our systems segment represented 55% of the Company's total revenue Q4 versus approximately 67% in Q3.

Please note that the ultimate sale of SunPower manufactured panel which are allocated by the company to the system segment is reflected as revenue of the systems segment.

In the 2007 fourth quarter, approximately 30% of panels installed by our systems group were SunPower manufactured solar panels.

We expect this allocation to grow to approximately 50%starting in Q1 of '08 trending upwards for the duration of the year.

Now, let's cover earnings, on a GAAP basis, SunPower operating income of 11.2 million diluted income per share of $0.06.

These figures include non-cash charges for amortization of purchase accounting intangible assets of 7.1 million and non-cash stock-based compensation expense of 14 million.

Also included in our fourth quarter GAAP result was a charge a non-cash charge of 8.2 million for the write off of an amortized debt issuance cost related to the issuance of SunPower convertible debentures which became callable in the first quarter of 2008 essentially effective December 31, 2007.

Pursuant to the debentures, these convertibles can now be turned in for conversion by the holders.

However, as most of you are aware, there is a low probability of this happening since there is a very good market for this convertible debentures so they will most likely just continue to be traded in the open market and not redeemed.

It is also noteworthy that this convertibles are currently trading at a value higher than their conversion value.

Due to the time value of the embedded options, as well as the present value of the remaining coupons for this converts.

However, proper accounting requires us to reclassify this convertible debt to current liabilities and we did that in Q4.

On a non-GAAP basis, adjusted to exclude non-cash charges for amortization of intangible assets, stock-based compensation, write off of the unamortized issuance cost and the related tax effects, SunPower reported a total operating income of 32.4 million and diluted net income of $0.39 per share.

This exceeded our guidance of $0.33 to $0.37 per share for the quarter.

This also compares with our prior quarters operating income of 27 million or $0.33 per diluted share .

The companies overall non-GAAP gross margin for 2007 fourth quarter was 25.3% versus our guidance of 24 to 25% and compares with 20.4% in the third quarter.

The fourth quarter total gross margin was influenced by our systems segments revenue which included a favorable mix of high margin sales, resulting in systems segment gross margin of 26.8%.

While our components segment achieved gross margin of 23.4%.

As Tom noted earlier we experienced (inaudible) had in the fourth quarter which impacted our factory absorption.

This is mostly due to M.

Setek one of our best suppliers converting to in-house TCS supply during the quarter.

As a result, we procured a higher quantity of polysilicon from our suppliers resulting in a slightly higher average silicon cost in the quarter.

We believe this issue is behind us now and better supply linearly and cost in Q1 of '08 as you will note later when I give you guidance for margin for that segment.

Briefly on the balance sheet, we ended the fourth quarter with cash, including short-term investments and restricted cash of approximately 488 million.

Our DSO was 56 day, while our net inventory ended at 76 days.

We ended the fiscal year 2007 with total capital expenditures of 202 million full-year depreciation of approximately 27 million.

I would like to now take a moment to address some questions we have received recently or more specifically negative commentary written about certain elements of our working capital.

We want to reiterate that working capital efficiencies and getting our company to free cash flow positive is just as important to us as delivering good operating results.

For starters, SunPowered generated positive cash flow from operation this quarter despite growing receivables as our top line grows and the need to state inventory to support our large system projects.

Now, it is difficult in the systems business for there to be cost that are incurred but yet to be billed.

That is labeled in our reported balance sheet if you care to look at it as cost and estimated earnings in excess of billings.

We call it CIX, C - I - X for short.

You can think of this as unbilled receivables.

Now, there are several reasons why costs with e have already incurred cannot yet be billed.

It could purely a contractual condition , but mostly it is a timing or awaiting a project billing milestone prescribed in the contracts.

To give you an idea in the third quarter of 2007, our unbilled receivables were 79.4 million.

In contrast our unbilled receivables in the fourth quarter was 39.7 million, approximately half that of the prior quarter.

The reason Q3 was such a big number.

It was largely influenced by the Nellis project.

Those receivables got billed in Q4 and all of these receivables eventually get billed in due course.

Now, billing is good, that is unbilled receivables came down this quarter.

One should not extrapolate simply from this balances that Q3 was therefore bad and Q4 was great.

This account alone is not an indication of the future state of our systems business.

Now, let me switch gears because there's another that behave it is other way.

It is also difficult in your business for there to be billings in excess of cost.

That is labeled in our reported balance sheet as billings in excess of cost and estimated earnings.

We call that BIX for short, B - I - X..

You can think of this as deferred revenue or advanced billing.

Now, there are several reasons why we can bill a customer even before we have incurred certain costs but it is mostly contractual in nature.

The simplest example here is when we are allowed by contract to bill an amount upon signing of the contract.

Although this is great for working capital, we cannot recognize that billing as revenue yet.

It is reflected in our balance sheet as a liability essentially as deferred revenue.

To give you an idea, in the third quarter of 2007, our deferred revenue was 20 million whereas in the fourth quarter our deferred revenue was almost 17 million, 69.9 to be exact.

Almost 3.5 times that of the prior quarter.

Now though it is great, the deferred revenue increased in Q4, again one should not extrapolate simply from these balances or draw a conclusion that the state of the business is particularly good or bad.

Again, this is simply a timing issue of when balance sheets date falls relative to contractual billing schedules particularly on our large EPC contracts.

Now we expect these two accounts that I have just explained to fluctuate from quarter-to-quarter and will be influenced by the type and the size of the projects that we undertake as well as the contractual terms that we enter into and the timing when we end quarters.

Since more and more of your projects are likely to cross quarter boundaries, this account will fluctuate because our balance sheet as you know, is just a snapshot in time.

The artificial creates boundaries or cut offs within our project schedule.

Any way, certain analysts and write ups have been made about this account including that the future state of our business must be deteriorating because certain ratios were degrading or balance declining.

Again I would like to emphasize that these two accounts are very essential to working capital management and we try to drive them to the best condition for cash flow, but this is also largely influenced by the terms and conditions and timing of projects that we undertake.

Sorry this took a while but we thought it is important for our investors to understand this.

Now, let me head to guidance, but before that, as usual, let me reiterate as we have noted in prior calls, that our business results may reflect quarterly shifts in mix between systems and component segment revenue.

Also from quarter-to-quarter we expect shift even within the system segment due to the size and the type of project and percent completion factors that would lead to non-sequential or even marginal growth in revenue gross margins or earnings.

Our margin mix between segments can also be influenced by the allocation of SunPower produced panels to the system segment as well as well as fix some projects even within the system segment.

So as we enter 2008, I just want to remind everyone that these factors will continue.

Now, before I give you the numbers let me say a few words about the reaction of some investors and analyst today to our Q1 '08 guidance..

First let me remind everyone that this is the first time we are giving guidance for Q1 of '08.

So we are not therefore taking our number down or any number down.

The first time we are putting up numbers for Q1 of '08.

The positive thing to reflect on is the fact that can we are actually upsiding our 2008 outlook, both revenue and earnings.

I think to note is we have a very solid first half outlook in the Q1 guidance that we are giving today is just part of that.

The most important thing not to lose track of is we are looking at a very good year here and expecting to deliver based on our guidance, going forward.

So now let me give you the numbers.

For the fiscal year 2008, we are raising our guidance for our non-GAAP results to revenue of approximately 1.2 to 1.3 billion.

That is estimated to be comprised of component segment revenue in the range of 440 to 460 million.

The systems segment revenue of 760 to 840 million.

Gross margin for 2008 average for the whole company is estimated at 26.5 to 27.5% and that will be comprised of the components segment obtaining an average gross margin of 35.5 to 36.5% for the year and the systems segment an average of 21 to 22% for the year.

The non-GAAP EPS for 2008 is also being increased to $2.10 per share.

Please note that the estimated tax rate for 2008 is now 24 to 25%.

Now for the first quarter of 2008, our total company estimated non-GAAP results are as follows, total company revenue of 230 to 250 million.

Thing about it at the high-end of this range is essentially SunPower's first $1 billion annual revenue run rate.

We are very excited about that.

Gross margin for the first quarter for the Company is estimated at 24 to 25% essentially flat to last quarter due to shift in segment gross margin, which I will cover next.

Earnings per share, non-GAAP for Q1 is estimated at $0.33 to $0.36 per share.

Please note that one of the drivers to our change in EPS trend in 2008, the change in tax rate, largely due to lower NOLs and shifts in North America profit.

We now expect 2008 tax rate to be 24 to 25% versus 2007 which ended at approximately 11%.

Just to give you an idea if we normalize the fourth quarter report that we just reported to you, using 2008 tax rate, the fourth quarter non-GAAP EPS would have been $0.32.

Almost there.

For Q1 '08 by segment, our non-GAAP estimates are as follows component segment revenue (inaudible back ground noise) to 77.5 million.

A decrease --(inaudible background noise) increase allocation, SunPower produced solar panels for our system segment during the quarter.

Our systems segment revenue is now estimated at 155 to 172.5 million for Q1.

We expect the components segment gross margin to improve to 26.5 to 27.5% benefiting from higher factory output and improved factory utilization.

While the systems segment gross margin is estimated at 23 to 24%, influenced by a reduced mix of high margin system sales versus Q4, while at the same time benefiting from increased allocation of SunPower panel.

Which is estimated at 50% of system segment installation.

Now collectively, we expect total company gross margin of 24 to 25%.

Now, lastly we are providing rough and early guidance for 2009.

We expect to grow our revenue at least 40 to 50% from 2008 or at least the rate higher than what's projected for the industry in that year.

Let me now turn it over to Tom to lead us through the

Thanks, Manny.

We will open to questions in a moment.

First let me note that with me I also have Howard Wenger our VP of Global Business Units, Peter Aschenbrenner,our VP of Corporate strategy, Julie Blunden, our VP of Public Policy and Corporate Communications, lastly Mike [Swanson] our VP of Finance.

They may provide answers to some of your questions.

We have quite a few people on the call.

We also made extensive remarks.

So we will attempt to limit one question and we will hold up our end and try to answer directly and quickly so we can get as many questions as possible.

We will take the first question, please.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Steve O'Rourke you may ask your question, please state your company name.

Thank you.

This Steve O'Rourke from Deutsche BAnk The question on your 2009 preliminary guidance here, can you help us understand how you came up with this 40 to 50% year-over-year growth range for revenue?

Hi, Steve, This is Tom.

Let me comment, Howard you may want to to add color.

So, we look at it first of all, of course you have to have a bases to look at '09 off of.

The first thing is to get comfort on '08.

As Manny noted, not only did we get comfort but we bumped up the guidance.

That's distributed to the two channels, both components and systems.

So your question, we do a bottoms up by revenue projection in our components business much like many the other cell and module producers.

So you can think of that that way.

In terms of systems, we look at two things.

We look at size of markets in different regions in the world and our expected share.

We also do a bottoms up projection in each of those region.

We compare the two.

That gives a us a range of numbers for '09, of course it is our job to pick a number and at this point we are comfortable giving you a reference point, off of '08, so take '08 times 1.4 or 1.5 or the midpoint, and that gives you the first overall guidance for 2009 albeit a range.

We are very focused on delivering our results and this coming quarter as well as this year.

So, but we want to give you some sense of '09.

That was the thinking behind what we did.

Howard, do you want to add anything?

We believe that the fundamentals are going to enter their in 2008 and into 2009 and by fundamentals I mean the policy, our cost structure the availability of silicon, the trajectory of the erogenous variables around climate change and so forth and oil and so forth.

And we also look at our pipeline.

We have a very robust pipeline with these projects that we are developing that extend beyond 2008 and into 2009 and 2010.

That gives us additional visibility and comfort.

Lastly we look at industry experts and their forecast and build off of that.

So we do both a bottoms and as Tom mentioned and tops down.

Can I ask one follow up to that?

Is that your forecast or close to your forecast for industry growth in 2009 and if not, how big of a difference is there?

Should you be significantly outgrowing the industry with your brand name, positioning with your business model?

Yes, Peter Aschenbrenner he will take the question just let me comment on that.

We have a different approach when we look at '09 and '010.

You can be out projecting very significant numbers but not having the underpinnings for that.

So you could sort of do an overall forecast just based on the gut feel or percent of market.

We are not doing that.

We are giving you things we are deriving from business we are booking and seeing and how the outlook looks.

Clearly as the market growth rate we are going to grow and we will grows faster, that would be me comment, but to nail down the specifically your question, how is this compared to market growth rate I will turn that to Peter.

Yes, it is quickly, we see market growth forecast for third parties for 2009 ranging from around 30% in a business as usual case to maybe a little over 40% in an accelerated case.

So, I think our guidance already implies that we are going to be growing faster than the market.

Fair enough thank you.

If you wouldn't mind getting back in the cue.

I will.

Thank you.

Kelly Dougherty you may ask your question and please state your company name.

Kelly [Dougherty] with Calyon Securities.

I appreciate the details, guys.

Thank you very much.

I am hoping that maybe you can give me some what of a bigger thoughts on where you think the current policy environment is going particularly here in the U.S., support got caught up in the tax provision, the energy bill.

I am wondering what your thoughts are on timing of an extension or something more permanent, when you think something needs to be done before it starts to hinder growth in the U.S.?

Julie Blunden.

We have are absolutely excellent fundamentals for policy in the U.S.

and around the world for solar and really for renewables generally.

As Howard alluded to, there's an awful lot of forces, pushing renewables forward and solar end of the market because of your unique ability to be modular and deliver at peak energy times.

So, what we have seen consistently is outstanding bipartisan support at the Federal level for solar What we also saw unfortunately by one vote last year, was a tax title that couldn't support the votes for the pay force that were on the other side, what we seen very recently is both commitment from leadership in both houses of the U.S.

Congress to move the investment tax credit forward and we take that bipartisan leadership statement very seriously.

The reality is that we have not at the point yet in the session where we have vehicles or calendars at hand to point to and say definitively here is the vehicle and here is a set of hearing dates but we do feel confident that the support for the investment tax credit is there.

Our job is to insure that we continue to put the pressure on to move that as quickly as possible.

You're right to reference the fact that movement of the investment tax credit fast is good for the industry.

SunPower is in the fortunate position to be able to be flexible in our market application, not all solar companies are as fortunate.

We think it is important for industry development to move the ITC forward quickly.

Do you have kind of a date where you think if something doesn't happen by X month that demand in the U.S.

is going to be adversely impacted as people are kind of getting nervous it won't be extended?

You don't want a specific date, just the month?

Day, month, whatever you have got.

Let me take that.

I would say that I will characterize Spain, Germany and ITC in America.

In Spain and Germany, there's indications of what will happen with CAPs and feed in tariffs that we built into our plans if there were radical departure from what's been indicated that would be bad.

Suffice it to say, the direction that those two Governments have indicated they would have to take a right turn.

In the United States this year, you need a ITC this year, get on my soap box.

I feel like they have been, whether you are Republican, , whatever party you are from, that you would allow renewable support to lapse in an environment like we have so, we find extremely unlikely but certainly

Thank you very much.

Congratulations on the quarter.

David Edward, you may ask your question, please state your company name.

It's Dave Edwards from Morgan Stanley.

Wanted to ask questions on margin guidance for '08 and help us understand the drivers that are moving especially the systems margin there.

If you think about sort of where you sit today if the components are trending up, the mix of internal panels to the systems business is going up but you are seeing system margins come town at least from Q4 numbers..

Can you talk about what is affecting those trends and how those things add up to the 30% in Q1 '09.

This is Manny, very good observations, -- part of the question first, the fact that the component segment which we have guided to a 26.5, 27.5 Q1 in our best estimates average 36 plus for the year.

What is happening is as we continue to ramp the factory, we get the benefits of scale, the cost reductions during his talk with regard to conversion of our lines to thinner wafers are also helping as well as directionally correct silicone cost as far as the rest off the year.

That's essentially what's driving the component mix.

For the systems side we are estimating certainly for Q1 for the system sales to have 50% SunPower produced modules in that number.

In contrast to the most recently Q4 as I noted earlier our margin was influenced by a high mix of high margin sales in that segment we have not projected as mush content of that high margin sales in our guidance.

It can certainly happen, as it happened favorably in 2007, but for the moment we have kept it relatively low if you will without the benefit of those margin spikes.

So, 21 to 22 would represent mathematically about 40 to 50% allocation of SunPower modules to that segment.

This is Tom, I would like to add a comment.

I want to make sure it is clear our confidence in our factory and technology in the components side, think of it as, as superior cars, superior engine that had insufficient fuel in Q4 and the fuel in Q1 is there from our silicone suppliers.

So, and then the advantage you get is you absorb cost more effectively run more linearly and we are also capitalizing on the transition behind us, and lines are coming on much more rapidly.

So, the fact that we have talked about the last four quarters, imagine when you start silicon through this engine with thinner wafers, higher conversion efficiency and expanding volume improving, how the economy is going to improve and you are going to see that.

That's what I am projecting.

Okay.

Thanks very much.

Thank you.

Stuart Bush you may ask your question and please state your company name.

Yes, hi, RBC Capital Market.

I was hoping you could talk a little bit about your conviction that silicon will be much more abundant in late' 08 and beyond.

Is it based one confident of new supply coming from the encumbrance and new entrance or is it more a statement about the elasticity of demand?

This is Tom.

And someone else may want to comment well.

Let me know.

So we say abundant silicon, there's two sides to that.

Let's talk about supply and then demand.

From a supply standpoint, we do a profitability-weighted expectation of supply.

We take the incumbents and multiply it times a high profitability and the encumbrance projection so that would be the Rodgers and the Hemlocks of the world et cetera.

And then we take the new entrance and we put a lower probability weighting, typically also a delay in schedule.

Now, that we have been at this a few years we have evidence at M.

Setek both of our partners and DC Chemical can produce new plants with sufficient quality, so it can be done.

Those probabilities are are increasing, and that is how we come up with a quote unquote supply prediction.

We would tend to discount some of the radically high numbers for the next several years because as we have been to many of these new facility, there's significant technology hurdles yet to be accomplished and many of them specifically that being TCS gas production.

So, we take that moderated few, take an expected value and we come up with an silicon estimate.

On the demand side we think it's real important to note that as improved economic silicon flow through our P&L obviously that reduces cost in at a installed level, as you reduce cost there's elasticity in the end market.

So we haven't used the word over abundance or over supply we have used the word more silicon because we we will lower cost and leverage that.

Of course we leverage that on top of your high efficiency cell and high energy harvest systems.

We think we are in the best position to leverage lower silicon costs.

The way we look at it is weighted average of supply on the demand side, lower cost moving through to the customer, and ultimately, stimulating increased demand, perhaps there as we said in our comments that might be uneven and might vary by market but in the immediate term, lower costs will stimulate demand.

All right.

Thanks a lot.

Thank you.

Mehdi Hosseini, you may ask your question, state your company name.

Thank you.

Mehdi Hosseini, Friedman Billings, Ramsey.

Going to your guidance and assuming if I take your production guidance from your press release, you implied that pricing in '08 will be down mid to high single-digits and then down double-digits in '08 and 2009, am I reading this correctly?

Is there something I'm missing here?

Sir, your question just make sure we heard the level, is pricing 08, '09 implied decreasing single-digits in '08 and low double-digits in '09.

The short answer that sounds very close to what we are assuming.

Do you want to say anything else?

Yes.

That's right.

I will just give a little more precision to anticipate further questions.

We had our ASP go up slightly, low single-digits in Q4 and we anticipate ASPs to be steady/flat Q1 and then as we get into the second half of the year, down slightly low single-digits and then as you said, in 2009 time frame, we are anticipating ASPs decreasing in the 5 to 10% range.

Is the 5 to 10% decline, is that enough to get us to that trajectory that would help with grid parity by 2012, 2015 time frame?

Yes.

That, this is Tom, and if you have more questions, if you don't mind jumping back in queue, that gets the cost reduction profile over the time frame between now and 2012.

It is a very fair question.

I think you would see that pace continue for '09, 10, 11 and 12 and when you compound that, yes, you get to that 50% reduction.

And in '09 we would tend towards the high end of Howard's guidance.

Thank you.

Thank you.

Mark Bauchman you may ask your question, please state your company name

Mark Bauchman Pacific Crest .

I want to go back and revisit your 2009 guidance.

I want to hear proto straightforward answer.

Are you assuming that the ITC gets not only extended in 2008 but also gets enhanced, in other words so the utilities can participate in it so you don't have the ANP penalty and residential goes up to the 4000 Cap I want to get a sense of what you have actually in -- considered in your assumptions for your 2009

No enhancement happens this year.

Howard, do you want to add anything.

No, that's spot on.

Okay.

So this is very much a base-case scenario then that the extension happens and I guess puts one draw away from this then that you think that the growth could be higher if you get the enhancements as well.

You can draw that conclusion or what gets implemented because we clearly need to change our energy mix in North America.

Perfect.

Thank you so much.

Thank you.

Paul Clegg, you may ask your question.

Please state your company name.

Hi, Paul Clegg with Jefferies, add to the earlier comment, thank you for the additional detail on the call.

Given just looking at on going concerns about recession and credit access, have you seen any indication that project developers are going to have more difficulty accessing capital on favorable terms let say?

Hi, Paul.

It is Manny.

The answer is no.

We are certainly not seeing it.

It is likely to come up in the call anyway.

Let us just cover our point of view or potential recession in the U.S.

or even potentially spilling into other regions of the the world, how it might impact our company or the industry.

We believe that the potential recession in the U.S.

or even it potential to spill into other markets will have a low impact on the solar industry and certainly our company.

Our conclusion is premise on the following.

One, if you will agree the price of electricity is increasing and not getting any cheaper.

Two, in contrast, the cost of solar systems or solutions is continuing to improve or decline, (inaudible), there will be a continued driver for use of alternative energy sources like solar.

The policy and Government support for alternatives in general are solar in particular is largely not economic cycles.

We even expect favorable policy support in the U.S.

and other regions despite this talk of potential recessions.

Also if history is a good reference solar industry as a whole continues to grow in the last (inaudible) recession in the U.S.

on average 29% activity ,it is pretty amazing.

It is not absolute predictor of the cycle it is conforming to know that solar continues to grow during those periods.

We believe the recession can have some impact in certain segments of the market, for example new homes that we are already seeing, all though even in our case were growing the segment that's relative to the base.

Never the less positive and however one further point.

An advantage that SunPower has in certain economic conditions is their ability to flex their business into different market, regions or channels due to our deliberate strategy to go down stream.

Sorry for the long answer but we think the impact is low and for your specific question of developers having issues, the answer is no.

Okay.

Just briefly for the finance here, they, they increasingly understand that SunPower is a rock solid investment in terms of predictability of power delivery and therefore income so you have a predictable internal rate of return.

Next question, please.

Thank you.

Rob Stone you may ask your question.

Please state your company name.

This is Cowen and Company.

Given the ASP trends it sounds like you are factoring in the impact of the lower rates expected in Spain and Germany, can you comment on whether you are getting a sense from those two markets there will be demand exhaustion as you run up to the end of the current rate and a fall off in volume or do you expect continued volume just at lower prices?

This is Howard.

With respect to Spain and Germany, we believe that the demand will continue to be very strong there and we believe that the resolution of the new feed and tariff will happen in the Q2 time frame.

And let's just talk about Spain for a second.

It is an important market.

What we are seeing is that the more established players are are in fact continuing to make security deposits if you will of 500,000 Euro per megawatt to get in line for the new feed in tariff.

In advance of that happening.

So we expect tabular resolution of the feed in tariff, they have already announced nearly quadrupeling the Cap to 1.2 gigawatts, that's not solidified yet, but there's every indication that's going to happen that the new feed in tariff will be finance able in Spain.

Spain is behind in renewable targets.

There's a lot of industrial support, a lot of land there.

We think that's going to have good outcome.

Germany has a very solid program.

It is uncapped.

The market is continuing to grow although more slowly than it has in the past.

The upside for our company is that we have very little penetration into the German market.

That has been by choice in the past.

We now have going there with our value added resale program.

We did so last quarter and we expect that market to be important to us going forward.

This is Tom.

Let me really briefly comment.

If you combine the last two questions about financing and then continuity of market due to changes in incentives, that ties together with my comments about structuring the company so that we own our channel, control our own destiny.

We are in a position to react to and manage the way we sale based on those input variables.

We have no buffer between us in the finance here or us in the change in feed tariff or us in the other variables.

So we have, we belief the best ability to structure our company and to deliver revenue even with those uncertainties, next question, please.

Our next question comes from Sanjay Shrestha, you may go ahead.

Thanks, guys, How you see the growth opportunity materializing in Italy in '08 and '09.

This is Peter.

I will take that.

Having spent quite a bit of time there over the last few months, we are extremely bullish on the Italian market, we believe that in terms of absolute size that it could rival the Spanish market in a few years.

It is obviously at an earlier stage of maturity.

That's why we are particularly excited about getting in at this stage with an on going company there.

That's one of the top five suppliers in the market already.

Italy figures prom prominently in our resource and band width allocation.

We spend a lot of time there and we have high hopes for it.

Can I have a quick follow up here ?

Given a lot noise in the market about this the broader supply and demand dynamic, Tom, can you talk about your channel strategy and how in fact, actually even in a scenario in '09 and '010, there's an oversupply, can I ask you to go into some of that

Yes, I can.

First let's think about oversupply, not oversupply, what we purposely phrase as more abundant silicon.

If you look back at the transcripts over the last probably eight earnings calls we have been saying we expect capitalism to work and for lots of silicon to come on line.

Apparently a lot of people agree with us now.

We have structured our sourcing strategy around that.

We talked about a diversified approach to sourcing silicon.

We are in a position to capitalize on that because we will be able to buy silicon in that abundant environment, convert it.

That's the way we structured our agreements.

I also mentioned that the contract that we have signed get us to cost reduction of $0.40 to $0.50 per watt installed.

That's sort of the supply side.

On the demand side, what we can do is essentially accurately forward-price systems because we know we are vertically integrated.

We have operating people that own silicon conversion costs, conversion costs of modules, system costs, system installation costs, sales tax, financing costs, there are names on each of those.

We are in a position to forward costs and business with a great deal of confidence in a closed-loop system because we have direct control over those costs.

We think we are in a position to be more swift or more flexible and we are working.

And to line up with customers in a way that makes them comfortable because we control our own test destiny.

Terrific.

Thanks a lot.

Colin Rusch, you may ask your question, please state your company name.

Colin Rusch Broadmore Capital I actually want to get into a good more detail of the U.S.

utility market.

What you are seeing develop.

How big are the systems and bids you are looking at right now you?

Can you give me a range on how big those systems or those contracts as well?

Well, we'll let Howard take that and tee it upright quick.

Global portfolio Standards are real, and that in California we have utilities that are leading edge.

And are forward-leaning in terms of various renewable energy sources and do have bids out.

I will let Howard more on precisely the range of those systems and that sort of thing.

It actually has been a, this is Howard.

It hah has been a some what surprising development in terms of the speed that that particular segment is developing.

We are seeing opportunities that are in the tens of megawatts to the hundreds, low hundreds of megawatts.

So that is a range.

And on average what are you looking at?

They're all over the map.

So the wild guessing but it is certainly on a par greater than the systems that we have announced at Nellis in the Spanish systems.

It is greater on tens of megawatts.

And just a quick clarification, what's the time line on those contracts getting finalized?

What are you looking at?

Are you thinking the contracts will get closed this done this year or are you looking at '09 for project completion?

It is a little hard to say because it is a closed contract.

You have to get the land, get the permits and access rights et cetera et cetera.

So there's a number of variables you are multiplying together.

It is possible this year and certainly within the next, within the time frame you suggested, certainly within '09, one of the advantages we have with our technology is the implementation of time is almost immediately, immediate so the time between closing the contract and power being delivered from one of our systems is almost immediate, certainly vis a vie the alternatives .

The other advantage is that once we build out the system you get more and more power as you go.

It is not all at once implementation.

We believe utilities are seeing those vang

Michael Molar you may ask your question, please state your company name.

Goldman Sachs.

Good afternoon, everyone.

I will keep it quick since we have gone long just one question but two parts on the systems business.

Let's say there's material over supply at some point in the future, ASP falls by some very large number, 20, 30%.

Would you anticipate margins falling or flat in the components but rising as you procured cheaper modules is that too simple minded?

No.

That's exactly the idea.

In the systems.

Our internal modules but lower in cost as well in that by delivering a superior solution to the customer, we would command margin in th outbound channel that's exactly the situation we expect.

Okay.

Just one last part of that, how do you see your competitive advantage in the systems business?

You mentioned some of them, is the main or a key advantage being if you grow big enough you can procure cheaper models?

Is that a big advantage.

This ties together with Sanjay question earlier I didn't elaborate on.

We will build a channel.

We will partner with others modules producer as we do today.

And we believe that the time frame is about '09, '010 that people, that people that make modules will see us as a great channel.

We expect to use third party modules in our systems going forward.

Howard, you want to take it from here?

Yes.

I will give a little color.

Our advantage in the systems business, there are many.

Some of advantages relate to our experience and the fact we have within doing it ten years, we have the expertise, procedures, personnel we understand how to do that and arguably at the largest scale world wide in terms of our systems delivery capability.

The other half of the advantages relate to, as Tom mentioned, the closed-loop development processes where when we look at next generation products, we look across the value chain.

We are not developing a piece of it and handing it off to an arm lengthens customer for them to develop the next piece.

We are optimizing total solution from wafer to roof top.

I want to make a couple of more comments.

I came from five years ago, from the data communications net work or industry.

And of course predecessor to that was PC and mainframes and that sort of thing.

There was a phrase that you never get fired for buying IBM.

That was perhaps 20 years ago, but the idea is that you go with the blue chip supplier because it is an important purchase, and you just want it to work.

So that is a big part of what we are.

We are a blue chip supplier.

We have tenure, we know how to manage all of the moving parts and we offer a superior solution.

We offer more energy delivery.

So, there is also overall part of the preceding question was about as you move more SunPower modules in your margins would increase.

That's absolutely accurate.

Particularly as we leverage center wafers higher efficiency, lower silicon costs.

You should note, however one of the things Manny tried to make clear, is if you track that quarter-to-quarter, it is almost ridiculous you think about a, a 20 megawatt system in Spain that is, that is the implementation of that can take six to nine months.

If you measure that within a quarter that's not going to give you an indication of are they on track or not.

The systems business is very much a six to nine month kind of business.

Yowl really ought to be looking at the performance of the system channel on more of rolling six or nine month interval.

We are going long.

We are going to take a few more questions and we apologize if we miss a few people.

Next question request, Michelle.

Our next question is from Chris Blansett, you may ask your question, please state your company name.

JP Morgan.

When looking at your calendar '09 financial metrics you have talked this a little bit about the subsidy environment I want to get your just a clarity on what that means, constant subsidy in the U.S., are you using the proposed subsidies in Germany and Spain as your reference?

This is Howard.

The answer is yes.

I mean we are certainly in making plans for any kind of contingency if for some reason the ITC didn't pass in the U.S.

we are not going to be flat footed.

One thing Tom has mentioned in this call is that our ability to shift gears quickly and emphasize other markets through our vertical integration.

So, we believe in the 2009 time frame that Spain is going to be solid, Italy is going to be a very important market.

It has a 1.2 gigawatt Cap, 4X Spain right now..

We have got Greece which is paving, coming on.

It is behind the other European countries.

It will be, we are paving the road for 2009 there.

France is growing especially for building integrated products, where our dealer cell technology plays very well.

There's a 55 Euro set per kilowatt hour feed in tariff in France for building integrated technology.

We have the higher efficiency, best-looking product for building integrated.

We expect that to be very interesting market in 2009.

We have other countries, Canada, that is coming on and other interesting countries such as even Belgium and Australia.

So there's a pipeline of countries that are going to be coming on line and that we are factoring in.

One last quick one.

On the estimated price decline in '08 and '09, are those on a system or a module level?

That's a module level and then Peter Aschenbrenner was going to just add one more comment.

Sorry.

I wanted to say we are doing a fair amount of scenario planning now as a way of looking forward both at the individual country level and then as roll up of the aggregated demand we are using that with backward looking time fences to chart our next moves.

Thank you.

Thank you.

Our next question comes from Pierre Maccagno you may ask your question, please state your company name.

Needham, congratulations Tom and Manny .

What was the total installed megawatts that you had on those as a total production and if you can tell us about the ASPs, also.

Yes.

I will let Manny take that.

Let me just comment on the last few questions first and then he will answer your question.

By the way, it is very important that people talk about installed cost for systems and even better yet, cost per kilowatt hour because that's what the customer pays for.

We have seen some things printed pining , cell cost or module cost.

Those article would, negate the impact of high efficiency.

There would be no point in making high efficiency if you just sold the model, you sell an installed system and you get the advantage of a high efficiency panel because you use less balance of the system.

So, I want to make it clear that we are using as our preference point over and over again installed cost , that however is not to say that we are not cost competitive at the module level we are.

Manny, can you answer

Yes.

For the production question, in terms of, megawatt produced our factory produced 32.1 megawatt of products in the fourth quarter of 07, that's up 33% from the prior quarter.

Okay.

We have about five to ten more minutes and then we have six people in queue.

We will not get to all of you.

But let's go.

Burt Chao, you may ask your question and please state your company name.

Burt Chao, Simmons & Company.

How are y'all?

Good.

Following up on the question on Spain, if we do see a negative change in the feed in tariff, are there any geographic markets that can make up for soften demand coming out of Spain?

To that effect, there have been significant realized differences in ASPs in certain geography's for many reasons, are there foreseeable geographic diversions, do you guys see any diversions in 2008 within specific regions of the world?

That was a complex multi part question.

This is Peter Aschenbrenner.

I will try to be brief.

We do see differences I think the history of this industry is that we see fairly preannounnced differences in regional pricing.

We have tended to be what we think is relatively strategic in terms of our choice of a market as opposed to chasing the highest ASP that quarter.

Sure.

So we are not going to change our footprint build out plans on the basis of near-term ASP due to local supply demand imbalances.

The, I guess the second part of the question is that our plans for 2008, 2009 are based on our best guess of where these feed in tariff levels are going to land.

I think particularly in Europe there has been a lot of transparency at the Government level in forecasting that.

In Spain they have indicated a reduction in the feed in tariff, we built that into the plans, in the Italian market will pick up.

It will grow.

It is not clear it will grow in lock step to offset reductions in Spain.

It clearly has the potential, it has a better solar profile and uncapped feed in tariff , the implementation does have a little bit of friction but it will be a great market.

Probably sufficient to, it will be sufficiently large and simular to the other large southern European

Cory Tobin, you may ask your question, please state your company name.

Corey Tobin from William Blair, just one quick one if I may.

Can you give us- a feeling if you would on the amount of contracted business or backlog you have schedule to meet the targets for 2008 and 2009.

This is Tom.

We don't quote backlog.

We will tell you the first half of 2008 is booked in the systems business.

I will talk primarily about that.

As we have talked in previous calls the way the residential retro fit cannel works, their dealer partners , the forecast, they're working with us are booked for the first half of the year.

Think of the first half of the year as booked.

Back half of the year, I am, at least half, north of half, and of course dropping percentages in the out years but not dropping to nothing.

Those bookings when you think of bookings our bookings are with the people buying the power.

The ultimate customer, there isn't a buffer between us.

In my view that means the quality of the booking is different and sticky.

So perhaps we can do follow up and the other calls but our bookings and projects are just like the implementation.

They, they are not, it is not great to measure them quarterly.

That's why we are being cautious about quoting bookings numbers as you can

Just a follow up on that.

Is it safe to assume as you sit here today and look into not '08 but '09 that your amount of business booked today for the out year is higher than any other year sort of going into that year?

Yes.

Great.

Thank you.

Thank you.

Al Kaschalk, you may ask your question, please state your company name.

Al Kaschalk with Wedbush Morgan.

Tom the Italy market is a very key market as indicated.

The acquisition of Solar Solutions looked shrewd.

I was wondering if you can add other color on that acquisition, particularly any book of business you may have acquired.

Sure.

Peter Aschenbrenner is the architect of that transaction and speaks Italian as well.

Peter can speak to that, please.

I will answer the question in English though today.

So, the, with we bought the business that was focused mainly on the channel that we would characterize as the channel tor dealer channel here in North America that is selling standardized systems including panels, converter, services et cetera through a network of dealers to residential and small commercial customers.

We are now in the process of injecting capabilities for larger systems, one of the great near- term potentially seeing in Italy is the systems in megawatt scale range.

So we are using our capability out of our Geneva and Spanish operations and quickly upgrading the capability in Spain and it Italy to follow that.

In terms of leverage, they're one of our customers, we represented something in the neighborhood of 20% of their business in terms of panel supply going in.

So we have the ability to ramp that up as well.

It's in it's early day so lots more on SunPower, Italian as we view investor conferences over the next month or two as well as the next earnings call.

Next question, we will take a couple more and we are going to wrap up.

Michael Carboy, you may ask your question, please state your company name.

Michael Carboy at Signal Hill.

Manny, I would like you to elaborate on the under absorbed start up cost that you bore in Q4 and how should we think about start up costs for some of the ensuing lines in Fab 2 here during the '08 time period?

Hi, Michael.

Yes, the two parts.

For the under absorption comment for the fourth quarter, just ended, we called, we guided component segment to margins of 25, 26% and we came in three, almost 200 basis point less than that.

You could pretty much deduce from our results that 2/3 of that delta was due to the under utilization.

So very similar to last quarters ratio.

As far as the preoperating cost.

You hardly hear us talk about it because we consider it just part of cost of sales of the growing company.

So, all of the margins you have heard from us from the time we went public has always included preoperating costs.

We make no excuses about it.

So you would, we will follow up, Michael.

In terms of quantify.

But you, most of that preop unabsorbed preop is behind us.

Okay.

Thanks, guys.

Congratulations.

One more and we are going to close.

I apologize.

Vishal Shah, you may ask your question, please state your company name.

Lehman Brothers.

Tom, when you achieve your 30% gross margin targets, what percentage of your silicon cost reduction do you expect to achieve in that time frame?

The short answer is I don't have that number in front of me.

The, it is, I will give you a rough estimate, that our, that $0.40 to $0.50 per watt installed over, between now and 2010 is substantially in '09 and '010 actually.

I have kind of -- to, I can dig through the papers and find it but it is more back end loaded actually which obviously implies we are prepared for price reductions after the early part of 09.

Great.

Thank you.

Thank you.

Michael Horwitz, you may ask your question, please state your company name.

Pacific Growth.

Actually, it was all good.

So thanks for all of the transparency.

I will talk to you later.

So we do have Paul Leming, (inaudible) Adam Hinkley, Mark Manly, Stephen Chen et cetera in the cue.

We apologize to you.

We need to close the call.

We will follow up with you.

We have gone quite long.

Thank you all very much for the excellent questions.

We appreciate your joining us.

We had an outstanding 2007.

We are very confident about another strong execution and outstanding 2008.

We look forward to our next earnings call with you.

Michelle we are all set.

Thank you.

This does conclude today's conference call.

Have a nice day.