Earnings note for Q4 FY08 - Suntech Power Holdings (STP)

STP reported EPS decline of 71 cents y/y to $(0.42)
Factors impacting earnings:
Ø Rapid deceleration in revenue growth due to a decrease in shipments and the ASP of PV products. Revenues were up 4% y/y to $414 M compared to an average quarterly year-on-year growth of 55% during the past three quarters.
Ø Shipment for FY08 stood at 497.5 MW compared to 364 MW in FY07. Average selling price dropped about 8% q/q in USD terms.
Ø Gross margin dropped to 1% from 21% in the year-ago quarter primarily due to a decline in ASP and a provision for inventory and purchase commitments of $50.7 M. The provision for inventory and purchase commitments had a 12.2% negative impact on margins
Ø Operating expenses rose to 11% of sales from 6% in the year-ago quarter primarily due to an increase in provisions for doubtful debts and additional compensation expenses attributable to employees at Suntech Energy Solutions, which was acquired during the fourth quarter. Operating loss was $44 M compared to a profit of $57 M in the year-ago quarter
Ø Non-operating loss was $31 M compared to a loss of $1M in the year-ago quarter. Loss was higher due to an investment impairment of $48.8 M for Suntech's investments in Hoku and Nitol, and higher interest expenses

Guidance-the company expects:
For FY09
Ø Shipments of more than 800MW; this includes atleast 50 MW of the low cost Pluto modules
Ø PV cell production capacity to remain at 1GW until credit market visibility improves
Ø Silicon cost to reduce by more than 30% in FY09
Ø Capital expenditures of approximately $100 M; the majority of capital expenditures will be utilized to retrofit existing production capacity to the high efficiency Pluto technology and the completion of the thin film facility
For Q1 FY09
Ø Revenues to be in the range of $340-380 M, assuming an exchange rate of $1.28 USD dollars to the Euro
Ø Average selling price to decline by 10% sequentially in dollar terms
Ø GAAP gross margin to be in the range of 12-15%

Other significant events
Ø STP acquired minority stake in Asia Silicon for $8.1 M. Suntech previously entered into an agreement to purchase high purity polysilicon from Asia Silicon with a total value of up to $1.5 billion over a seven-year period.
Ø STP amended a 10-year supply agreement with MEMC to increase the volume at a lower price

Data source: Gridstone Research