Suntech Reports Third Quarter 2008 Financial Results

SAN FRANCISCO and WUXI, China, NOV 20, 2008 /PRNewswire via COMTEX/ -- Suntech Power Holdings Co., Ltd. the world's largest photovoltaic (PV) module manufacturer, today announced financial results for the third quarter ended September 30, 2008.

Third Quarter Highlights(1)
-- Third quarter 2008 total net revenues grew 53.7% year-over-year to $594.4 million.
-- On a consolidated basis, GAAP gross margin increased to 21.6% for the third quarter 2008 compared to 20.7% for the third quarter 2007. Non-GAAP(2) gross margin reached 21.8% for the third quarter 2008, compared to 21.4% for the third quarter 2007.
-- GAAP net income for the third quarter was $55.9 million or $0.33 per diluted American Depository Share (ADS). On a non-GAAP basis, Suntech's net income for the third quarter was $60.3 million or $0.35 per diluted ADS. Each ADS represents one ordinary share.
-- Suntech's PV cell production capacity was 750MW at the end of the third quarter 2008.
-- Due to the depreciation of the Euro versus the U.S. dollar combined with the impact of tighter credit markets, Suntech has revised its full year 2008 revenue guidance from a range of $2.05 billion to $2.15 billion to a new expected range of $1.85 billion to $1.87 billion. Suntech has revised its full year 2008 PV product shipment target from 550MW to approximately 490MW.

"Our third quarter performance was driven by healthy demand for our solar products, resulting in strong top-line growth that exceeded the high end of our guidance," said Dr. Zhengrong Shi, Suntech's Chairman and CEO. "However, the rapid weakening of the Euro relative to the USD over the past two months combined with the unstable credit markets has created a challenging environment in the fourth quarter of 2008. This has resulted in a faster than expected sequential decline in sales prices and the deferment of some customer orders, which will significantly impact our profitability in the fourth quarter of 2008."

"Due to these near-term challenges, we have been implementing a range of measures to prudently manage this temporary downturn. These include the minimization of cash outlays, renegotiation of high priced, short-term silicon contracts, optimization of our supply chain and production, and the enhancement of currency risk management. We believe that these steps will enable us to weather the short term market disturbances and we expect our profitability will steadily improve in 2009 as multiple long term, low cost silicon contracts initiate delivery."

''In addition, we believe that the industry recalibration will benefit Suntech as we expect a flight to quality solar companies that are positioned to be long-term leaders in the solar industry," continued Dr. Shi. ''Suntech's exceptional project history, dedication to innovation and focus on producing premium quality solar products differentiate Suntech's products and brand. Moreover, our localized customer service, broad product range and manufacturing scale provide a stable base to serve our customers' long-term needs. We are confident that our customers recognize the value in partnering with Suntech, and we expect to improve our market position in 2009.''

"Suntech's goal is to drive down the cost of solar to grid parity, and these macroeconomic changes should accelerate the reduction in silicon costs and sales prices and stimulate demand. In addition, the outlook for 2009 demand is encouraging. Although customers have deferred some orders in the fourth quarter, many are committing to increased volumes for 2009 indicative of customers' confidence that the financing environment will improve. We have already received orders for over 600MW of PV products for 2009 from our European customers and are pursuing a growing pipeline of additional orders."

Recent Business Highlights

Acquisitions and Joint Venture Agreements
-- Suntech acquired EI Solutions, a leading California-based commercial solar system integration company, to provide complete solar solutions to commercial, utility and government customers in the U.S.. Renamed Suntech Energy Solutions, it has designed and implemented solar
projects for many leading US companies, including Google, Disney, Sony Pictures, The North Face, and Puget Sound Energy.
-- Suntech established a joint venture with MMA Renewable Resources to create Gemini Solar Development Company (Gemini Solar), to develop and finance photovoltaic projects 10MW and larger. Gemini Solar will provide an end-to-end solution to address the growing demand for large-scale solar projects.

Suntech Energy Solutions Projects
-- Suntech Energy Solutions recently substantially completed numerous installations including:
-- A distribution center for The North Face in Visalia, CA which included a 1MW installation of Suntech modules on tracking systems in a 5 acre retention pond abutting the facility.
-- A 250kW rooftop installation for a carport at Caltech in Pasadena CA.
-- A 250kW ground mounted tracking system for the luxury eco-resort Post Ranch Inn, in Big Sur, CA.
-- A 100kW carport installation for The Venetian Hotel in Las Vegas, NV.

Capital and Credit Facilities
-- Suntech had cash and cash equivalents of $394.6 million, restricted cash of $124.1 million and short term investments of $145.6 million as of September 30, 2008. In addition, Suntech had value-added tax recoverable of $201.8 million at the end of September 30, 2008 of which approximately $126 million has been approved for refund by the P.R.C. government.
-- Suntech had approximately $1.7 billion of approved credit lines to be used for fixed asset purchase, working capital or trade financing as of September 30, 2008. Of these credit facilities approximately $1.1 billion had been drawn down as of September 30, 2008. During the fourth
quarter, Suntech has secured a further $600 million of credit facilities, which can be utilized for fixed asset purchase, working capital or trade financing. Suntech expects that its capital will be
sufficient to cover its capital expenditures in 2008 and 2009, while maintaining adequate working capital to support its operations.

Technology
-- Suntech is on track to expand Pluto PV cell production capacity from 10MW to 30MW by the end of 2008. During the temporary period of downturn, Suntech intends to accelerate retrofitting of existing lines to Pluto technology and achieve 100MW of Pluto PV cell
capacity by the end of the first quarter 2009.

Collaboration on Climate Change
-- Suntech joined The Climate Group, a global independent organization dedicated to accelerating action on climate change. Suntech is the first and only energy company to join The Climate Group. The Climate Group is an independent, nonprofit organization that works
with government and business leaders to accelerate the transition to a low-carbon economy.

Third Quarter 2008 Results
Non-GAAP Non-GAAP
Net Revenues Gross Profit Gross Margin
(in $ millions) % of Net Revenues (in $millions) (%)
Standard PV Modules $523.1 88.0% $122.2 23.4%
Others $71.3 12.0% $7.5 10.5%
Total Net Revenues $594.4 100% $129.7 21.8%

Total net revenues for the third quarter of 2008 were $594.4 million, representing an increase of 53.7% from the corresponding period in 2007.

Non-GAAP gross profit for the third quarter of 2008 was $129.7 million, an increase of 56.6% year-over-year. Non-GAAP gross margin for the Company's standard PV module business was 23.4% and non-GAAP consolidated gross margin was 21.8%. Gross margin decreased from the second quarter of 2008 primarily due to a decrease in the average selling price resulting from the depreciation of the Euro versus the U.S. dollar and a slight increase in silicon wafer costs.

Non-GAAP operating expenses in the third quarter of 2008 totaled $37.1 million or 6.2% of total net revenues. The sequential increase in operating expenses was primarily due to increased spending on research and development of the Pluto technology.

Non-GAAP income from operations for the third quarter of 2008 was $92.6 million, an increase of 43.1% year-over-year. Non-GAAP operating margin was 15.6%.

Net interest expense was $7.9 million in the third quarter of 2008 compared to net interest expense of $5.2 million in the second quarter of 2008. The sequential increase in net interest expenses was primarily due to increased bank borrowing balances.

Foreign currency exchange loss was $16.6 million in the third quarter of 2008 compared to a foreign currency exchange gain of $2.5 million in the second quarter of 2008. The foreign currency exchange loss in the third quarter of 2008 was primarily due to the revaluation of some assets, which were impacted by the depreciation of the Euro against the U.S. dollar, and the revaluation of some liabilities, which were impacted by the appreciation of the CNY against the U.S. dollar.

Net other expenses decreased from $6.3 million in the second quarter of 2008 to $3.2 million in the third quarter of 2008. The decrease was mainly due to the reduced mark-to-market valuation losses associated with foreign currency derivative instruments.

Non-GAAP net income for the third quarter of 2008 was $60.3 million, or $0.35 per non-GAAP diluted ADS, compared to non-GAAP net income of $61.2 million, or $0.36 per non-GAAP diluted ADS in the third quarter of 2007.

On a GAAP basis, for the third quarter of 2008 gross profit was $128.3 million, an increase of 60.4% year-over-year. Gross margin for the standard PV module business was 23.1% and consolidated gross margin was 21.6% for the third quarter of 2008.

On a GAAP basis, operating expenses for the third quarter of 2008 were $41.3 million or 6.9% of total net revenues. Income from operations was $87.1 million for the third quarter of 2008, an increase of 52.0% year-over-year. Operating margin was 14.6%. Net income increased 5.0% year-over-year to $55.9 million, or $0.33 per diluted ADS.

In the third quarter of 2008, capital expenditures, which were primarily related to production capacity expansion and the construction of Suntech's new production facilities, totaled $102.4 million and depreciation and amortization expenses totaled $10.2 million.

As of September 30, 2008, Suntech had cash and cash equivalents of $394.6 million, compared to $605.2 million as of June 30, 2008. The decrease in cash and cash equivalents was mainly due to capital expenditures related to capacity expansions and prepayments to suppliers. This was partially offset by an increase of bank borrowings.

Value-added tax recoverable totaled $201.8 million as of September 30, 2008, compared to $143.0 million as of June 30, 2008. The increase was mainly due to the long clearance process required by local regulation. Approximately $126 million value-added tax recoverable has been approved for refund by the P.R.C. government of which approximately $15 million is expected to be refunded in the fourth quarter of 2008.

Inventory totaled $247.9 million as of September 30, 2008 compared to $182.6 million as of June 30, 2008. The increase in inventory was partially due to the late receipt of raw materials from some silicon suppliers due to storm weather in the U.S. at the end of the third quarter.

Accounts receivable increased from $218.9 million as of June 30, 2008 to $232.8 million as of September 30, 2008. Days sales outstanding were 36 days in the third quarter of 2008 compared to 41 days in the second quarter of 2008.

Business Outlook

During the quarter ended September 30, 2008 the average value of the U.S. dollar was $1.50 to the Euro. Assuming an exchange rate of $1.28 U.S. dollars to the Euro in the fourth quarter of 2008, the Euro will have depreciated approximately 15% against the U.S. dollar sequentially resulting in an approximate $45 million impact on fourth quarter 2008 gross profit and approximately 12 percentage point impact on gross margin.

Based on current operating conditions and assuming an exchange rate of $1.28 U.S. dollars to the Euro for the fourth quarter, Suntech expects revenues for the fourth quarter of 2008 to be in the range of $345 million to $360 million. The sequential decline in revenues primarily reflects the depreciation of the Euro versus the U.S. dollar, the deferment of some customer orders due to delays in project financing and the seasonality impact due to winter in Northern Europe.

Assuming an exchange rate of $1.28 U.S. dollars to the Euro for the fourth quarter, GAAP consolidated gross margin for the fourth quarter 2008 is expected to be marginally positive or breakeven. The sequential decline in gross margin primarily reflects the decline in product sales prices due to the rapid depreciation of the Euro versus the U.S. dollar, the negative impact of high cost inventories from the third quarter of 2008, and the high cost of raw materials purchased in October 2008.

Due to the abnormal depreciation of the Euro versus the U.S. dollar and the tighter credit markets, Suntech has reduced full year 2008 revenue guidance from a range of $2.05 billion to $2.15 billion to a range of $1.85 billion to $1.87 billion. Suntech has revised its full year 2008 PV product shipment target from 550MW to approximately 490MW. Suntech remains on target to reach 1GW of installed PV cell production capacity by year-end 2008.

Suntech expects full-year 2009 shipments of more than 800MW. Suntech intends to hold PV cell production capacity at 1GW in 2009 until credit market visibility has improved. Suntech expects to reduce capital expenditures to approximately $80 million in 2009 from approximately $300 million in 2008. The majority of 2009 capital expenditures will be utilized to retrofit existing production capacity to the high efficiency, Pluto technology.

New Senior Management Hires and Promotions

Mr. Steven Chan, Suntech's Chief Strategy Officer, has assumed the additional role of President, Global Sales/Marketing. Mr. Chan, who is also responsible for the Company's business development and investor relations functions, joined Suntech in 2006. Originally based in the Company's Wuxi, China headquarters, Mr. Chan moved to San Francisco last year to open its U.S. headquarters and to focus on expanding its global sales and marketing initiatives.

Mr. Roger Ye, Suntech's Sales Director, has been promoted to Vice President of Global Sales. Mr. Ye joined Suntech in 2006 and has since led Suntech's global sales efforts. Prior to joining Suntech, Mr. Ye spent eight years with Siemens Limited China where he progressed through a number of sales management roles, ultimately being promoted to Sales Director. He earned a Masters degree from Shanghai Jiaotong University majoring in Photovoltaics.

Mr. Mauro Sgherri joined Suntech to assume the role of Managing Director, Italy, based in Milan, with responsibility for all sales and business development activities in Italy. Prior to joining Suntech, Mr. Sgherri was a consultant to the Board of Directors of Sharp Italy for the establishment of their solar division, and in establishing relationships with leading systems integrators and customers. He brings more than 30 years of business experience in sales management, product management and marketing strategy. Mr. Sgherri holds a degree in Business Management.

Mr. Thilo Kinkel has joined Suntech to assume the role of Director of Sales, Central Europe. Mr. Kinkel will be based in Frankfurt, Germany. Prior to joining Suntech, Mr. Kinkel was Sales Coordinator and Key Account Manager for Schott Solar GmbH, a photovoltaic manufacturer in Germany. He brings over 9 years of experience in the sales and development of markets for photovoltaics and glass. Mr. Kinkel attended the University of Applied Science in Giessen-Friedberg where he studied Industrial Engineering.

Mr. Bert van Kampen has joined Suntech in the role of Financial Controller, Suntech Europe, based in Suntech's recently opened office in Switzerland. Mr. Van Kampen was most recently Financial Director of Makhteshim-Agan Industries in Switzerland, where he had responsibility for accounting, reporting, budgeting, cash management, treasury and tax, as well as human resources, legal and IT. He brings more than 20 years of experience in financial management to Suntech, as well as implementation of internal control procedures. Mr. van Kampen attended the Economic College (HEAO-BE).

Corporate Governance
In November 2007, the Company revised its Corporate Governance Guidelines to reduce the minimum size of the Audit Committee from three members to two members. Currently, Mr. Julian Worley and Mr. Jason Maynard, both independent directors, serve on the Audit Committee.