LDK Solar dogged by high polysilicon costs: higher wafer prices imposed on sell-out capacity

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Impacted by high polysilicon contract prices that were significantly above current spot prices and major competitors reported costs, LDK Solar reported fourth quarter, 2009 revenue below market expectations. Net sales for the fourth quarter of fiscal 2009 were US$304.6 million, compared to US$281.9 million for the third quarter of fiscal 2009, and US$426.6 million for the fourth quarter of fiscal 2008. Wafer ASPs declined faster than expected in the quarter. The company generated a small loss of US$3.5 million due to a US$10 million settlement of a class action lawsuit.

The average cost of polysilicon LDK consumed in the quarter was US$69 per kg, well above spot market prices of between US$50 and US$55/kg and only a US$5.0/kg decline from the previous quarter. This was partially due to the lower than expected polysilicon production levels from its 1,000MT polysilicon plant, which had a cost of  US$55/kg. The company is still being impacted from comparatively high contract prices and inventory for polysilicon and guided costs to decline through the year.

LDK noted that it expects that it will achieve the target of US$35/kg in-house polysilicon cost by the end of 2010 when they reach 11,000MT production run rate.

Wafer shipments, including its tolling business, increased 6.2% sequentially to 340.4MW, up from 320.5MW in the third quarter of 2009. OEM shipments were 52.3MW in the fourth quarter. Wafer conversion cost was US$0.32 per watt while wafer ASP for the quarter was US$0.83 per watt, down from US$0.91 in the third quarter.

However, due to wafer capacity constraints on the back of strong demand through the third quarter of 2010, LDK noted that wafer ASPs had started to rise again in March and would further increase in the second quarter as demand almost outpaced supply by 2:1. LDK expects wafer ASPs to hold firm in the third quarter.

Module shipments reported by the company were 23.2MW in the fourth quarter, up from 9.4MW in the third quarter 2009. However, with the acquisition of Best Solar and increasingly strong demand for OEM modules, LDK Solar expects significant module shipment increases in 2010.

“During the fourth quarter, we continued to see strengthening wafer demand and improvement in the operating environment for the solar industry,” stated Xiaofeng Peng, Chairman and CEO of LDK Solar. “We reached a number of important milestones and took steps to further strengthen our business. We expanded our wafer capacity to 1.8 GW at the end of the quarter, further extending our market leadership in wafer capacity.”

Due to strong demand seen through the third quarter of 2010, LDK is expanding wafer capacity to 2.2GW and module capacity to 1.5GW. Significant demand for OEM modules rather than own branded was the reason for the significant capacity increase.

Capital expenditures were US$121.7 million in the fourth quarter, of which US$35.5 million was for wafers and the remaining on its polysilicon plant.In 2010, spending will be within the range of US$200 million and US$300 million, with approximately US$200 devoted to polysilicon plant build-out.

The company expects the next quarter wafer shipments to be in the range of 370MW and 400MW. Module shipments are expected to be in the range of 250MW and 300MW.

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