SunPower Corporation (SPWR) 2010 Q4 法說會逐字稿

Good afternoon, and welcome to the SunPower Corporation's fourth-quarter 2010 earnings conference call.

I'd like to turn the call over to your host, Mr.

Bob Okunski, senior director of Investor Relations at SunPower Corporation.

Sir, you may begin.

Thank you, Ed.

I'd like to welcome everyone to our fourth-quarter and fiscal-year 2010 earnings conference call.

On the call today, we will start for a fourth-quarter 2011 overview from Tom Werner, SunPower's CEO, followed by Dennis Arriola, our CFO, who will go into greater financial details of the quarter, as well as our 2011 guidance.

We will then open up the call for questions.

We have allotted 60 minutes for today's call and a replay will be available later today on the Investor Relations page of our website.

During today's call we will make forward-looking statements that are subject to various risks and uncertainties that are described in our 2009 10-K, third-quarter 2010 10-Q, as well as today's press release.

Please see those documents for additional information regarding those factors that may impact these forward-looking statements.

To enhance this call we have posted a set of PowerPoint slides, which we will reference during the call, on the events and presentations page of our investor relation website.

In the same location, we have posted a supplemental data sheet detailing some of our historical metrics.

On slide two of our PowerPoint presentation you will find our Safe Harbor statement.

Our prepared remarks will run approximately 30 minutes, which will allow time for questions.

With that, I'd like to turn over the call over to Tom Werner, CEO of SunPower, who will begin on slide three.

Tom?

Thanks, Bob, and thank you for joining us today.

Our strong Q4 results drove performances that substantially succeeded our 2010 plan, which we updated after our SunRay acquisition closed last Spring.

We are proud of the execution of our team.

During this call we will cover our Q4 and 2010 results, our cost reduction progress, and detail our strong channel visibility, which gives us confidence in our forecast for 2011 and beyond and, finally, Dennis will update our 2011 Q1 and full-year guidance.

Please turn to slide four.

For 2010, both our business segments exceeded their plans, as we recognized 546-megawatts for the year.

In our residential and commercial, or R&C business segment, we added approximately 500 dealers to our global dealer network, ending the year at more than 1,500 dealers.

We also doubled our North American commercial backlog, which gives us clear visibility for revenues and margins in that business for 2011.

In our utility and power plants, or UPP business segment, we met all our project commitments and we delivered more than 270-megawatts globally.

Our UPP revenue almost doubled in 2010.

And, with the successful integration of SunRay, we financed and sold the world's largest solar park to date, the 72-megawatt project in Montalto.

Both our UPP and R&C businesses provide us with contracted demand and pricing in our pipelines.

Our R&C segment has built the industry's strongest global dealer network, with the flexibility to rapidly adjust allocation toward opportunities and away from risk.

2010 was also a year the SunPower team delivered many important innovations.

We announced the world's first 24% conversion efficiency production solar cell, as well as the first 20% panels.

We launched our Oasis power plant in the US and Europe, which will reduce power plant balances systems cost by 25% between 2010 and 2011.

We also made significant progress on our low-concentration PV system that we detailed at Analyst day.

Our beta system is performing above expectations and we are currently in active discussions with a number of potential customers for deployment.

In Malaysia, we established our JV with AU Optromics for our 1.4 gigawatt Fab 3 facility, which reduced our capital cost per watt, partnered us with a skilled, high-volume manufacturing company.In Italy, we completed the world's first publicly rated bond issue for the last two phases of our Montalto solar power plant.

This offering, totally approximately EUR195, was rated investment grade by Moody's and is indicative of SunPower's bankability and ability to drive diversified financing options for our projects.

Lastly, we achieved our 2010 manufacturing cost reduction targets and remain on plan to meet our 2011 targets, as well.

Thanks to our manufacturing team we set records for output, yields and overall equipment effectiveness.

We automated the last few steps of our manufacturing process and we installed our first three lines in our Fab 3 JV and beat plan on all metrics in that Fab.

Now, let me provide further detail on our cost initiatives.

Please turn to slide five, where we list some of the specific actions we are taking to reach our panel cost goal of less than $1 per watt by the middle of 2014.

At Analyst day, I mentioned a number of initiatives we are focused on in order to drive down levelized cost of energy and panel cost per watt.

One of these initiatives was to reduce the number of steps in our cell manufacturing process without sacrificing efficiency.

We've been able to combine and automate several steps at the end of our manufacturing process, resulting in several points of yield improvement.

We've invested in several other step reduction projects and we plan to reduce the number of steps by 40% by 2014 from 2010.

Step reduction results in lower capital requirements and lower cost.

We will design these step reductions into Fab 3 for implementation starting in 2012.

We would then retrofit other lines Fab 3 and eventually our first two fabs.

We've also eliminated waste in our manufacturing processes, allowing us to improve space utilization in our factories.

For example, we reduced our panel manufacturing footprint by 50%, allowing us to produce the same volume in half the space, with the 2012 plan of tripling output in the same footprint.

We're also redesigning processes to reduce chemical and gas usage, as well as reducing wafer thickness and improving conversion efficiencies.

Additionally, as a result of our manufacturing improvements, we expect to increase our nameplate capacity in Fabs 1 and 2 by 10% in 2011, compared to 2010.

This gives us 60-megawatts of additional capacity for very little capital spend.

Finally, due to our 25% cost savings from Oasis, we expect to be able to maintain gross margins above 20%, as a system cost reductions support our planned ASD reductions this year.

Given all these efforts we remain confident that we can reach our panel costs goals of less than $1 per watt on a nonefficiency-adjusted basis by the middle of 2014, as well as $1.08 per watt on an efficiency-adjusted basis in Q4 of this year.

These efforts are consistent with the panel cost reduction roadmap we provided at Analyst day, which you can find on slide six.

We can confirm that we are on track to deliver these cost reductions.

With that, I will turn our attention to our 2011 visibility on slide seven.

As the industry transitions to a demand-driven market, the value of our downstream strategy is reinforced, as we are able to create a revenue plan driven by specific booked projects.

Our production in 2011 is fully allocated.

UPP Americas is now greater than 95% booked, while our North American commercial business is greater than 90% booked.

We expect to install more than ten power plants in Italy this year, with no single project greater than 20-megawatts.

The balance of our production will be allocated to our dealers, where we have three-month lead times due to strong global demand.

Our built-in flexibility to reallocate megawatts and other resources toward opportunities, away from risk, between geographies and business segments is essential to our planning and margin stability over time.

2011 is a transition year for our UPP business, as we leverage our diversified model and balance deployment between Europe and the US.

We also expect to expand our strong R&C position in Europe where approximately two-thirds of our global dealer base remains focused on long-term rooftop markets.

As you'll see on the next slide, we plan to deliver up to 130-megawatts in Italy in 2011.

We expect approximately half of these projects to be completed or sold by September 1.

Additionally, we have the ability to accelerate certain Italian projects planned for Q4 to earlier in the year.

Our development pipeline in North America has established long-term revenue visibility, providing us the ability to plan specific projects well in advance of building them.

For example, we announced a sales agreement for our 250-megawatt CBSR power plant to NRG solar in Q4.

We are in the final stages of permitting San Luis Obispo county and we are working closely with the Department of Energy to receive a loan guarantee for the project in order to begin construction this year.

Earlier this quarter we expanded our relationship with Southern California Edison by announcing three PPAs totaling 711 megawatts, the largest solar PB contract award to date.

They have a great team and we are looking forward to working with one of the countries leading renewable utilities.

We expect to start construction in 2013 and the project's to be complete by 2016, with the ability of pull construction into 2012.

This contract builds on our previous 200-megawatt rooftop supply agreement.

These wins are a direct result of our industry-leading technology and the ability to deliver a complete solar system, which is competitive with conventional energy generation on a levelized cost of energy basis.

Now, let me provide further detail on our UPP project pipeline.

Please turn to slide eight.

Looking at Italy, in 2011, we continue to see growth in that market, as our high-energy density solutions offer our customers superior returns.

As we grow faster in other markets, Italy's UPP megawatts contribution with total Company deployment, 2011 will decline from approximately 25% to approximately 15% this year.

We will develop the vast majority of our Italian project ourselves and given our previous success in [Solare Roma], we are very confident we can complete and finance these projects per our guidance.

In UPP Americas, we are now 95% booked for 2011 in contracted volumes and pricing, which will account for 30% of their UPP revenue this year.

In 2012, our project plan shifts further into the US, as we ramp construction of our CVSR project and continue delivery under our Southern California Edison rooftop contract.

In 2013, we will begin construction under our 711-megawatts agreements with Southern California Edison, which will complete delivery in 2016.

Our UPP business is central to our planning for the market transition we see beginning soon and continuing for the next couple of years.

Please turn to slide number nine.

Our R&C business has been growing strongly and we expect to gain share in our major markets in 2011, including the US, where we hold number one position of megawatts installed.

The predictability of our dealer network has been proven over the last five years, as we add dealers and we add volume.

We hold the number one share of the residential market in the US and, importantly, our European dealer network is substantially larger than the US with quite a bit of room to continue to expand share as Fab 3 ramps this year and Fabs 1 and 2 increase capacity.

We continue to add new markets and we have backlog for three months, with our current dealer base of approximately 1,500 dealers globally expanding to 2,000, by year end.

Our commercial business has ramped significantly over the past year with a very strong showing from the public sector, from education and federal markets.

We are the leading company in the US with pioneering deal structures and we expect to take advantage of our success with our commercial business in North America and expand our presence in Europe, where rooftop systems remain the focus for solar policy.

We entered 2011 with North American commercial bookings twice 2010 bookings and are greater than 90% booked with a mix of roof, ground and carport projects.

We are proud of our multi-site agreements, like Mount Diablo school district, which will include 11 megawatts across more than 50 facilities in the district.

With that, I'd like to turn the call over to Dennis to go over the financials.

Thanks, Tom and please turn to slide 10.

As Tom mentioned, our successful fourth quarter was a driver for our outstanding 2010 performance.

As planned, all segments of the Company were executed and we continued to improve the foundational infrastructure of the Company, which should allow us to leverage future growing revenues off a stable operating expense base.

Overall, we're very pleased with 2010 and well-positioned to continue our growth in 2011.

Let's turn to our fourth-quarter and full-year 2010 results in more detail.

Slide 10 shows a summary of our quarterly and annual results and the full financial statements are attached to our press release.

Revenue in the fourth quarter was $937 million, up 69% over the third quarter of 2010 and 71% over the fourth quarter in 2009.

For the full year, revenue increased 46% over 2009.

In the fourth quarter, we successfully completed and monetized the final two phases of our Montalto di Castro solar market in Italy totaling 44-megawatts and the 13-megawatt Solare Roma project.

In the case of the Montalto project, we monetized the solar park with leverage in the form of institutional project debt, and, as Tom mentioned, this financing totaled EUR195 million and was publicly rated as investment grade by Moody's.

Now, to our knowledge, this is the first time a solar financing has utilized this type of structure and further demonstrates the bankability and confidence that investors, lenders and rating agencies have in our -- in SunPower's technology and our development expertise.

In the fourth quarter, we recognized revenue from the sale and installation of 201-megawatts.

For the full year megawatts sold, installed and recognized in revenue was 546, up 50% over the 365-megawatts in 2009.

By business segment, the utility and power plant group, or UPP, was responsible for 129-megawatts of revenue and the residential and commercial group, or R&C, delivered 72-megawatts in revenue in the fourth quarter of 2010.

For the full year, UPP deliver 271-megawatts and R&C had 275-megawatts.

Geographically, Italy and the US were our two largest markets in Q4 and in 2010 in both megawatts sold and revenues recognized.

The majority of UPP's fourth-quarter megawatts and revenue were generated in Italy while for R&C the US market was the main driver.

UPP revenue more than doubled in the fourth quarter to $664 million, compared to $261 million in the third quarter of 2010.

The strong performance was primarily driven by our successful execution and monetization of power plants in Italy and the build-out of projects in North America.

For the full year, UPP revenues grew 83%, from $654 million in 2009 to $1.2 billion.

Our R&C business also had a very strong quarter, with revenues of $273 million.

Revenues in the quarter were lower than Q3, as we've intentionally shifted available products to help complete our Italian power plants in the UPP segment.

Full-year revenues were up nearly 19%, from $871 million to $1 billion.

Non-GAAP gross margin on a consolidated basis was 26.6%, compared to 22.3% in Q3 2010 and was better than our guidance of 20% to 22% for the quarter.

The significant increase in gross margin was primarily driven by three factors.

First, our solid execution on the construction and monetization of solar parks in Italy.

Second, stronger pricing in the R&C market.

And, third, continued cost and yield improvements in our cell and module manufacturing processes.

For the full year, consolidated non-GAAP gross margin improved to 24.8%, from 20.4% in 2009.

Gross margin for UPP in Q4 was 27.7%, compared to 20% in the third quarter, and was driven by the strong economics related to the monetization of the Montalto and Solare Roma projects.

For 2010, UPP's gross margin was 25.4%, versus 20.9% in 2009.

The improved margins in this business segment further validate our acquisition of SunRay earlier in 2010 and strongly demonstrates that developing, constructing and monetizing projects does create more value for SunPower.

R&C recorded gross margins of 23.8% in the fourth quarter and 24.1% for the full year.

We experienced strong demand from are growing dealer days in the quarter and we were able to leverage off of our geographic channel diversity, in order to shift product to higher-margin markets.

Operating expenses for the quarter on a non-GAAP basis were in line with our internal plan of $80 million and fell to 8.6% of revenues, compared to 14.1% in the third quarter.

Full-year operating expenses as a percentage of revenue in 2010 were 13.1%, and included several one-time items, including costs related to our acquisition of SunRay and our joint venture with AUO.

In 2011, we plan to further scale up our operating expense base, as we grow and expect operating expenses as a percent of revenues to be in the range of 10% to 12% .

Other income and expenses was a net expense of approximately $1 million and $50.2 million for the fourth quarter of 2010 and for the full year respectively.

In the fourth quarter, the net expense was more favorable than our original plan, due to lower interest and hedging expenses and a benefit related to additional income from the Montalto 20 solar plant sale.

Profit before tax on a non-GAAP basis improved to $168 million, up from $24.2 million in the third quarter of 2010.

Now, for the full year, profit before tax nearly doubled to $210.5 million from $108.5 million in 2009.

As a result of our increased profits from our European activities, our non-GAAP effective tax rate for the quarter improved to 12.2% from 15.4% in the third quarter, and, for the full year, our tax rate was 13.4% compared to 22.8% in 2009.

Earnings per share on a non-GAAP basis grew $1.36 per diluted share in the fourth quarter from $0.26 per share in the third quarter of 2010.

And, for the full year, non-GAAP earnings per share was $1.85 a share, up 84% over the $1.01 per share recorded in 2009.

Let me now turn to our GAAP financial results for a moment.

For the quarter, GAAP earnings per share was $1.44 per diluted share and benefited from a $24 million pre-tax gain related to the sale of our Lehman Brothers share lending arrangement plan.

We excluded this one-time gain from our non-GAAP results.

Our GAAP effective tax rate for 2010 was 12.7% and benefited from higher profitability from our European activities.

For the full year, our GAAP earnings per share results were $1.75 per share.

We continue to believe that our non-GAAP results more closely align with the economic operating performance of our Company.

By all accounts, our financial performance in the fourth quarter and in 2010 was very strong and we're very proud of all of our employees around the world that contributed to this successful year.

Now, let me turn to our balance sheet and liquidity on slide 11 and also address our cash flow from operations and current foreign exchange positions.

As a result of our strong fourth quarter, we ended the year with over $900 million in cash and investments.

Approximately $605 million was liquid and available to help fund our operations and capital requirements.

During the quarter, we successfully executed several new credit facilities that will provide us with increased liquidity and flexibility going forward.

First, we entered into a $70 million revolving credit facility that utilizes our shares and our investment in Woongjin Energy.

Next, we entered into a separate $75 million Euro facility that can help us finance the construction of our UPP solar projects.

And, finally, we also received $50 million in the quarter from our $75 million commitment to the International Finance Corporation.

We ended the year with an improved leverage ratio of 35.8% debt to total capital, compared to 37.4% at the end of 2009.

Capital expenditures in the fourth quarter and for 2010 were $15 million and $119 million, respectively.

We also contributed $16 million of capital to fund our share of the Malaysian JV with AU Optromics.

With the cash proceeds from the monetization of our Italian solar plants, we generated $243 million in cash flow from operations in the fourth quarter and ended up free cash flow positive in both the fourth quarter and for the full year, when you exclude the cost of the SunRay acquisition.

As a result of our increased visibility and confidence in our revenue profile in 2011, we have had 65% of our net Euro exposure at a minimum weighted average US dollar rate of $1.34 to one Euro.

In the first quarter of 2011, we have hedged 100% of our Euro exposure at a rate of $1.37 to one Euro.

Now, let me quickly touch on our financing outlook for the remainder of 2011.

First, we have continued to expand our relationships with key financial institutions globally, and we have various lines of liquidity to help fund our operations and capital programs.

Second, with the successful monetization of UPP projects in North America and Europe, including the issuance of our solar bonds in Italy, we've continued to expand our pool of international investors and financial partners.

Many of these institutions have expressed a strong interest in providing SunPower with construction financing facilities, which would alleviate the need to finance these projects on our own balance sheet.

Lastly, we have no convertible debt maturities in 2011.

So overall, I'm very comfortable with our financial position, liquidity and our access to investors and project financing for our UPP projects.

Let me turn to our updated guidance for 2011 on slide 12.

As Tom mentioned in his opening remarks, we remain fully allocated for the year, with an increasing level of visibility for 2011, as we see more demand for our products than we can supply.

As a result, we are raising the revenue and earnings guidance we provided at our Analyst day in November.

For the first quarter, we are forecasting revenue of $475 million to $525 million and non-GAAP earnings per share in the range of $0.15 to $0.21 and that's up from the $0.12 to $0.20 per share range we've provided in November.

For the full-year 2011, we've increased our revenue guidance to a range of $2.8 billion to $2.95 billion, up from our previous guidance of $2.65 billion to $2.85 billion.

We also increased our non-GAAP earnings per share guidance for the full year to a range of $2.00 to $2.20 per share, up from our previous guidance of $1.75 to $2.05 per share.

We've provided additional detailed guidance metrics on slide 14, as well.

In summary, 2010 was a great year, and we're extremely well-positioned to continue our growth and success in 2011.

With that, I'll turn it back to

Thanks, Dennis.

As Dennis said, 2010 was a great year for SunPower.

We grew our revenue by 46% and non-GAAP EPS by 84% from 2009.

We accelerated our cost reduction roadmap while ramping Fab 3 and launching capacity expansion in Fabs 1 and 2.

Our 2001 visibility improved throughout Q4, as we booked business in both UPP and residential and commercial for 2011 and beyond.

As a result, we are raising our 2011 guidance.

With that, I'll open the call to questions.

In addition to Dennis, we also have Howard Wenger, President of our utility and power plant business; Jim Pape, President of our residential and commercial business; Julie Blunden, our EVP, Public Policy and Corporate Communications; Chuck Boynton, Vice President of Finance and Corporate Development; Bob Okunski, our Senior Director of Investor Relations, so that they may provide some of the answers.

Let's try to manage the call like we usually do with a question and one follow up, please, and by all means you can jump back in the queue and we'll try to answer as many questions as we can in the next 30 or so minutes.

First question, please.

Our first question today will come from Michael Horwitz.

Your line is open, state your company, please.

Great, Robert W.

Baird.

Congratulations, everyone, nice execution.If I could just touch on the US market out over the next few years, and maybe specifically how you went about pricing your Southern California Edison deal?

I'm assuming that you did that looking at your own cost curve declines?

But also, if you could give us some view on how you're going to price against relatively low natural gas pricing that many people think will go on for multiple years and how you compete with other folks that may have a lower panel cost but perhaps you have better downstream capabilities?

Thanks.

Sure, Michael, and thank you for the questions, this is Tom.

So we'll split this thing.You asked about US, Southern Cal Edison pricing natural gas panel costs, we'll let Julie take natural gas and I'll ask Howard to talk about So Cal Edison.

Let me just comment broadly about competition and pricing.

I think it would be fair to say that the American market's going to be -- is and it's going to be the most important market in the near term within a few years.

The pricing is very competitive in North America, yet you've seen us complete many projects over the last few years very successfully and hold the number one share of residential and commercial, so we're very prepared for that type of pricing environment.

You're exactly right.

As we look at the RFO cycles for multi-year project pipelines with customers like Southern California Edison, we do forward our cost and we've demonstrated over the last three or so years the ability to deliver the margins that we originally projected, so we're quite comfortable with that.

In terms of competing with other -- Chinese panels or other panels that have a perceived cost advantage, the utility business is the best example we can think of to demonstrate that the cost competition is on cents per kilowatt hour, or levelized cost of energy.

And as you can see by the size of our announcements in the UPP business, we compete quite favorably on a levelized cost of energy basis.

We think we compete even more favorably as time goes on because we're extremely aggressive about our investments and cost reduction and we think that will increase our competitiveness over time.

Howard, perhaps you can talk about So Cal Edison real quick and Julie could comment on natural gas competition.

Sure.

Thanks, Tom, this is Howard.

Regarding SCE we're building on our existing relationship with them.

We've got a multi-year agreement for our T5 product, 200-megawatt contract, and so we've built on that with the 711-megawatt signing of power purchase agreements on three sites with them.

The reason why we believe that we're getting contracts with SCE and other utilities is that we've got the most bankable system in the industry and we continue to evolve it and innovate it, including our Oasis power block, which we're rolling out in the second quarter of this year.

The Oasis power block is a standardized system, pre-engineered, completely standard and it's taking cost out, as Tom mentioned, so we have a lot of confidence in our cost roadmap, both for PV and BOS.

And since we're vertically integrated we're uniquely capable to deliver a system cost that can compete with others in our industry and other technologies outside of our industry, including natural gas.

One other thing I want to mention is our development capability as a company.

The utilities are not only interested in our products, but they're interested in the entire package, which includes the site, where it's located, the connection with transmission and over the past couple of years we've built an incredible development team to secure excellent sites in California and other locations and we believe that's also contributing to our success now and into the future.

Julie?

With regard to natural gas, whether you look at a long-term strip at $6 or $5 net on BTU, when you think about solar competing against a peak power facility with a 10% capacity factor we're still going to beat it.

Michael, a follow up or are we all set?

No, that's great.

Thank you.

Thanks, Michael.

Thanks.

A next question comes from Jesse Pichel.

Your line is open, state your company, please.

Hi, Jesse Pichel from Jefferies.

Congratulations, also, on the strong execution.First question is, referring to the EUR195 million bond that was floated to the Italian project, do you think that given the uncertainty in that market that it's repeatable?

And how has the progress been in using a similar financial instrument in other markets?

And my second question is, more demand than supply again, can you describe the price declines that you expect in R&C and how that will affect your gross margin there, which is on somewhat of a downward trend the last few quarters?

Thank you.

Okay, let me comment on a few things and then Dennis and then maybe Jim.

We'll see how we do.

You asked about the bond and then a comment on -- I think meant more supply than demand.

There immanently more -- or at some point in the future more supply than demand and I'll comment on both.

On -- first, I'll just comment briefly on the Euro bond, the almost EUR200 million bond.

What I would say broadly is that you need large projects for that facility to work best and so the correlation between size of project and the ability to use a bond is very high.

It is fair to say that if your future payment strings are more or less risky that will affect the bond, but Dennis is the expert and I'll let him comment on that in just a moment.

In terms of more supply than demand, let me say a few things.

One, that two-thirds of our business this year is booked and spoken for, and actually as we go into '12, the statistics look good, as well.

That has been a long-term strategy of the Company.

We think our strategy and the structure of our Company makes us strategically best position in the solar industry for, what I would call a normal market, where you actually have to sell your product.

And we are quite confident that we've got years of investment in our three channels that we're going to be quite successful.

I think you'll find actually on our gross margin in R&C that it's not declining and it is fair, however, to compare what you expect to happen in pricing to our cost.

And we did give you a sense of what's happening in cost, I'll just briefly comment on the ASP's.

And what I would tell you is, what we said at analyst day, which we have in front of us, if anybody would like us to repeat, we could, we're still comfortable with what we said at analyst day.

Dennis, do you mind expanding on the bond and we'll see if Jim, if you want to add anything?

Sure.

Jesse, yes, as you said and as Tom mentioned, the bond went very well.

You do need scale when you're putting together these types of projects so you can't go out and do an infrastructure bond like that for a $50 million project.

So as we're looking at the portfolio of projects that we have in Europe this year, it's probably unlikely that we're going to be to do a bond.

I guess the other thing that I'd say is, we started working on that, or our team did, when the overall banking and project financing market was not as strong and what we've really seen over the last six to nine months is more and more banks have come back into the market and are being much more aggressive.

So both in the United States, as well in Europe, we're working with a lot of banks that are very interested in doing these types of projects.

The last thing I'd say is, in addition to helping us finance the Montalto project, I think getting this bond completed did a couple other things for us.

Number one, it exposed the credit rating agencies even more to our technology and our development expertise, which will help us substantially when we do these types of financings in the United States.

And as we've announced with our CVSR project with the NRG and with the 711-megawatt deal with Edison, that's where I think this type of structure is going to be -- we're going to be able to replicate it here in the United States more.

Great, thank you.

The next question is from Timothy Arcuri.

Your line is open, state your company, please.

Hi, Citigroup, couple things.

First of all, you had said previously that your UPP pipeline was 2.4 gigawatts.

If I add up what you have on slide eight it comes to 1.5 gigs, so can you update on what the UPP pipeline is?

And then I also want to ask if you look at some recent transactions of pipelines it's in the $0.50 a watt range.

If there was a market value of that pipeline it seems somewhere in the $0.50 per watt range.

Is there any reason to believe that your pipeline should be worth more or less than what the transactions we've seen so far are?

Thanks.

Sure.

Let me comment really quickly and then I'm to turn both of them over to Howard.

I would just say on the second question, as we build out projects and we prove the methods of getting projects constructed, then the certainty or the probability of projects being built and generating margins as projected becomes clearer.

And that would say to me that there's less risk and therefore the pipeline is worth more.

On the flip side it would be fair to say that things change rapidly in markets and to the degree that markets -- or the dynamics in end markets change that would be a factor that would go the other way.

I think on balance, though, the certainty that we create by executing our projects should give the -- somebody who would be doing evaluation more comfort and therefore a higher value.

Howard, if you could speak to probably both?

Sure.

First of all on the pipeline, what you see before you on slide eight is around 1.5 megawatt -- sorry, gigawatts AC.

The intent of this slide is to give you a look into our 2011 visibility and consists mostly of projects that we have been public about.

We are listing some projects that we have not discussed publicly heretofore, for Italy to give more detail on what's happening in Italy because it's been in the news so much of late.

So this picture gives you a good snapshot of the projects that are material to 2011 in our plan.

We have a five gigawatt pipeline AC that we have amassed globally and that pipeline is defined as a pipeline where we have land positions and so we actually are in control of the sites.

So five gigawatts worldwide and then the 1.5 gigawatts you see on 2011 that we've been public with for visibility.

As to the value, I really -- I don't what to speculate or comment on that but I would say that, one quick comment relates to -- we believe that our pipeline and what you see, especially for the 1.5 gigawatts before you, is of substantial value and of the highest quality.

We have every confidence that we are going to execute on this pipeline.

So if the market is $0.50 per watt, we believe it's at or above market and, of course, we've got another 3.5 gigawatts behind it where, as I mentioned before, we have land positions on.

And so it's also of excellent quality and you'll be hearing more about that pipeline or that portion of the pipeline in the future.

Thanks, guys.

Okay, great.

Thanks.

Thank you.

Next question will come from Vishal Shah.

Your line is open, state your company, please.

Yes, hi, thanks.

Barclays Capital.

A couple of quick questions.

On the pipeline, in Italy, particularly, are all of these projects -- are any of these projects going to get affected by the new provision on agricultural land that's been discussed in the Parliament?

And can you also comment on your pipeline in other European regions that you acquired as part of SunRay?

Given the recent changes that we've seen in some of the other markets, such as the UK and France, do you think there's some risk to that pipeline?

And then a follow-up question on your margins, why are your margins in the UPP business declining, especially if you're constructing and recognizing revenues and high ASPs, as you said earlier?

Thank you.

Okay, so we've got changes in Italy affecting pipelines, other countries impact in EMEA UPP, and then comments on margin.

I think I'll just quickly turn it to Howard on all three.

Okay, sure.

For Italy for 2011, certainly we do not feel that we're in any danger there.

Think we're in good shape with respect to the policy and our pipeline and executing and delivering the plan.

We are watching the provisions, of course, on a going-forward basis and we'll adjust accordingly.

With respect to risk and balancing UK and France, we do not have any UPP megawatts in our plan for the UK and France in 2011, so that should put that to rest.

And then with respect to margin pressure of the overall business, we have, as we mentioned in Tom's remarks, we're balancing more and more our UPP business between North America and international business.

As that mix shifts in 2011 and beyond, there is a different ASP profile and a different margin profile, especially in 2011.

And you'll note that in 2012 and beyond that's when our self-developed projects kick in and we believe -- or we are planning for improved margins going forward, as we discussed in analyst day, for that portion of the pipeline, which would become a larger and larger fraction of our overall business.

So, Vishal, on the last question, as the key points near term ship to more North American projects longer-term margins improve because they're self-developed whereas a percentage of the projects this year are not self-developed.

And we get the benefit of Oasis kicking and completely step reduced in high conversion-efficiency panel and the balance of our cost reduction roadmap coming to bear.

So fair enough in '11 but they return.

Great, thank you.

Next question please.

Next question comes from Kelly Dougherty.

Your line is open, state your company.

Hi, Macquarie.

Hi, everybody, thanks for taking the question.

Congratulations on a great year.Your previous guidance broke out 2011 by quarter and I know you give us the shipment numbers but wondering if you can help us think about how revenue and EPS tracks through the quarter as you may be deferring some of that with the UPP business?

Yes, Kelly, this is Dennis.

We gave you the numbers for the first quarter and what we laid out at our analyst conference, the overall proportions by quarter haven't changed much.

If you look at what we increased on the revenue side for the full year you can see that a portion of it is in Q1 but the majority of the -- the rest of the increase is in the second half.

But if you -- like I said, if you take a look at what we provided at analyst conference, everything on a pro rata basis pretty much stays the same.

Okay, great, so no significant changes there.

And then I'm just wondering, I know there's a lot of moving parts, but what are the key drivers in the range of the guidance for 4Q and full year?Do the stars have to align to hit the high end, or are you pretty comfortable with that and you're just being conservative given the visibility in the market overall for the second half?

Oh, come on, Kelly, we always put up the best information that we have.

Whenever we put together a plan we're looking at all the moving pieces.

We do probabilities on what can happen, what can move in and move out, whether it's on a quarterly basis or for the full year and I think that to -- we feel confident that if everything works out right we can be at the top end of the range.

Obviously, it depends upon what's going on with ASPs, how quickly we can continue to accelerate our cost reduction, what's going on with FX and interest rates and obviously, policy issues.

But all in all, the plan we have put out there and the guidance we've improved upon, we feel really good about.

Great.

Yes.

So in summary, Kelly, I think we would probably put it in the order of policy/ASPs, they go kind of hand-in-hand, and FX costs is a big driver, so we upped our guidance with our eyes wide open.

We're comfortable with our new guidance.

Thanks everybody.

Next question will come from Satya Kumar.

Your line is open, state your company name, please.

Yes, hi, thanks for taking my question.

I think if I heard you correct that you said that you do not believe there is any policy risk in Italy in 2011.

Obviously the data that came out three-weeks ago from the GSP surprised a lot of people.

I was wondering if you could add some color as to what gives you the confidence given the data was quite a bit higher than what policymakers might have been expecting?

Hi, Satya, it's Julie.

Yes, we've seen a lot of the commentary between analysts and recognize that Italy is in a position where it has established a plan for adding renewables consistent with their national action plan and certainly will continue to do that.

I think the activity that we've seen currently in their Parliament suggests that we will continue to see adjustments to their policy over time, but we do not have data that suggests that we're going to see an imminent change that would affect our near-term outlook.

We have taken into consideration in areas during 2011 in our guidance provided today.

Yes, so from a business -- a pure business perspective I don't -- I think we want to be careful with no policy risk.

I think what we want to say, as Julie just finished, we've interpreted the policy situation in Italy and we're comfortable with our guidance.

I want to also emphasize that Italy plays a less significant role for us this year than last year and that's on purpose, as well, and you see the US ramping up.So we see it as managed risk is what I'd say.

Julie's team completely plugged into the policy side, then Howard's and Jim's team building that into their plan for the year.

Okay.

I was wondering if you could give megawatt exposure to Italy or a revenue exposure to Italy that we can look at?

Yes, let me see if the team's got that handy, if now we'll take another question.

Looks like -- why don't take another question and we'll come right back to that.

Okay, and my second question is on commodities.

There's been a recent increase in commodity prices for several metals.

I know you guys probably don't use much silver and as a higher efficiency player you should be less exposed to commodity costs, but I was wondering how you thought about your general exposure to commodity prices and the way you think about your 2011 cost reduction?

Our first thing is to use less and, of course, everybody's trying to do that but as you point out we don't use silver, which is a big deal, and we don't use any rare earth elements, so it puts us in a position where we don't have any direct, obvious challenges.

But we've had great success in modifying our processes so that we use less chems and gases.

That'd be point one.

Point two, there are, of course we make a module and a system like anyone else and we use steel and aluminum, and to the extent that metals go up we have commodity managers that are pre-planning not only this year but the next years because they have the benefit of the pipeline and they can look out over several years.

Having said that, that would be the area where we would have commodity risk.

We don't have anything to indicate to you that was of particular concern for us for 2011 currently.

And I think we're ready on your other question.

Yes, this is Dennis.

On the megawatts that we had in 2010 for Italy, roughly both with UPP and R&C, was about a third of the overall Company and in 2011 it'll be below 25% .

Thank you.

Okay.

Next question comes from Steve Milunovich.

Your line is open, state your company.

Thank you.

Banc of America-Merrill Lynch.

Could you talk a bit about the commercial and residential business, particularly in the US?On the commercial side are you seeing a lot of corporate interest and how much growth do you see in that business?

And on the residential side, what are you seeing in terms of state support?

It seems like New Jersey, which has been a pretty good solar state, may be pushing back.

On the other hand Texas looks like they might do something.

What are the puts and takes there?

Thanks for the question, this is Jim Pape.

Commercial business, I think what was in the deck says it all.

That backlog, a tremendous crescendo in that business in 2010.

We opened the year with over 2X the backlog that business had a year previously and so really, really healthy.

Those are, as Tom mentioned in the intro, a lot of public sector clients but a lot of corporate clients, as you mentioned.

So that business is going well.

We have a really nice portfolio of Fortune 500 who continue to come back to us over and over again, and appreciate the value of our experience, our product, the team and the repeatability of what we're doing there.

So that -- we see our share continuing to grow there and thank you for the question.

That public sector is not the only place where success is happening in that, what we call the large commercial market.

In the residential world state by state it's exciting everywhere.

The news -- the recent newsflash on New Jersey we think is a [bit of revenue area] and that New Jersey market is, by our accounts, going to continue to go well.

New York, California, Colorado, New Mexico, Arizona, nothing but progress in all of those states with plenty of other states coming on.

Texas is a fun one because they are indeed going to -- we're confident that working together with the industry and in our behalf that, that market's going to open up a bit in the coming year and get increasingly exciting over the next few years.

And is probably best demonstrated by our commitment to make our third site in North America in Austin, Texas, and that wasn't a coincidence.

We believe pretty strongly in that Texas market.

So you're right to be excited about that market.

Over the next two to four that market's going to be a lot of fun.

Great, thanks.

Next question is from Rob Stone.

Your line is open, state your company, please.

Cowen and Co.

Tom, could you provide a little more color, you mentioned the good results on the beta test on the low-concentrator utility system and interest from customers, when might that be and what size might be the initial deployments?

Thanks.

Yes, thanks, Rob, for your question.

I'll say a few things and then I'm going to turn it to Howard specifically for the customer piece.

Our LCPD team is doing an incredibly good job.

Frankly, we'd expect that.

We were founded by the expert on concentrated PV and that being Professor Swanson, and we've been at this arguably for 25 years, 26 now.

And we're able to leverage that and, of course, we have a unique advantage because we have cell because of that works particularly well in a LCPD system that is now mass produced so you can get -- cell is really good for that market that is low cost.

So in fact, we fielded two systems so far.

We had an alpha system nearby, our facilities here and we have a beta system in New Mexico, and results on those systems that we've been able to track over -- in one case over a year and the case over multiple months give us data.

Of course, on the things that you know well.

That primarily is energy production but also the O&M forecast, and we've also been able to improve design features.

So when we talk about results it is -- I would say the bottom line is it gives us confidence as we sell these things of how to deal with performance guarantee, which is the bottom line.

The team's done an incredibly job -- an incredibly good job on both sides because the results have come in better than what they committed to.

So we're feeling stronger and stronger about this product.

In terms of customers, I'll turn it to Howard.

Thanks, Tom.

We're really excited about this product on the demand creation side of the line because what it does is you can take 80-megawatts of our production and convert it into a 500-megawatt system, so the capacity leverage at six -- seven to one is really very exciting for us.

We feel we're uniquely qualified to get this product into a bankable state because, as I mentioned before, we feel that we've got the most bankable product right now today and we've got the team to deliver it in a pipeline through which we can port in the CPD system right away.

And so we are talking with and negotiating with customers right now to purchase this system.

We expect low single-digit megawatt deployment this year in 2011, and as you look out at you can expect tens of megawatts in 2012, hundreds in 2013, 2014, and thousands 2015 and beyond.

But may be getting a little ahead of ourselves here.

We've got to walk before we can run but so far we're walking at a good steam right now.

But at this point the ability to pull in some of those projects that stretch out to 2016.

Then my follow-up question was for Julie.

On the CBSR permitting process, I guess all you have to do is satisfy that one commissioner wants you to put the whole system underground?

All right.

I want to take the bullet on 2016 and then Julie can comment.

Sure.

So the -- I believe you're referring to the CBSR project with PG&E, and the 711-megawatt projects with Edison.

We can pull those in, there's nothing in the contract to prevent us from doing that.

I can't give you a lot more detail on that because it's confidential, but we can pull those forward, even with the 2012 start, which Tom included in his remarks.

Yes, what I meant was the concentrator would give you enough capacity to pull them forward.

Yes, thank you for the point, Rob.

Roughly speaking the CapEx is divided by the level of concentration and it's a little less than that, as you can imagine.

It's not perfectly correlated, there are other costs.

So it's a massive lever for capacity and reduction of capital intensity, massive.

And it's a very good point and as you can tell by my comments it's very much on our minds.

Julie, want to --?

Yes, with regard to the California Valley solar ranch permit, we are well through the process with the planning commission and expect a vote relatively quickly here.

The issue at hand, which is an interesting one, is how to trade off BC priorities versus aesthetics priorities.

And interestingly, underground transmission has the potential to be disruptive to habitat or endangered species, so we are working closely with the county to ensure that the optima -- to optimize the outcome environmentally for the project.

You know --

Thank you, Rob.

Thank you very much.

Thank you.

I'm going to have to, unfortunately, limit this to one more question.

And to those we did not into question -- into the queue, we apologize for that.

There's really insightful people that didn't get to ask questions and we'll try to make sure you do next time.

Last question, please.

Last question comes from Pavel Molchavnov.

Your line is open, state your company, please.

With Raymond James, just a quick one.

You mentioned at the analyst day you're adding smart grid functionality into your systems, can you give us an update on that?

Sure.

We're going to let Howard do that and then I'll wrap up.

Howard?

Sure.

Hi, Pavel, this is Howard.

Yes, we're adding smart grid features into our Oasis product.

Those include such features as voltage control, ramp rate control and, of course, we have a very robust R&D team that is developing other features for the future, so that's very much on our mind for the large-scale systems.

There is one utility that we're doing some demonstration project at work with, as well, and it's an area that we're investing in that I think will develop over the next few years.

Thank you, Pavel, unless you had a quick follow up.

Thanks very much.

Okay, great.

Well, we appreciate everybody's time and we thank you very much for joining our call.

We leave 2010 very proud of what we accomplished and feel very strong about our results.

And likewise for 2011, we feel really good about the strategy of our Company and how 2011 looks.

So thank you all and we look forward to our next call.

At this time that concludes today's conference.

You may disconnect and thank you for your attendance.