LDK Solar to expand wafer capacity to 4GW in 2011

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In 2010, LDK Solar was one of the largest solar wafer producers, reaching nominal capacity of 3GW. A combination of strong demand and stable pricing is supporting the company’s efforts to expand wafer capacity to 4GW by the end of 2011. Greater economies of scale, technology improvements to processes, and debottlenecking were said by management to be key developments this year, as it expects wafer processing costs to fall from US$0.31 per watt in the fourth quarter to US$0.25 per watt by year-end, on minimal capital expenditure. Overall cost reduction programs are targeting cost savings of between 15 -20% in 2011.

Following an integrated business model, LDK Solar said that it expected capex of approximately US$100 million to US$150 million in the first quarter of 2011 and US$450 million to US$550 million in fiscal year 2011, which will be enable the company to expand polysilicon, wafer, cell, and module production capacities.

Management noted that polysilicon production reached full capacity of 11,000MT per annum in the fourth quarter of 2010. A further 5,000MT is expected to come online during the second quarter. Debottlenecking and process improvements will also enable the company to push polysilicon production to 25,000MT by year-end at a cost of only about US$150 million, noted Yuepeng Wan, CTO of LDK Solar, in a conference call with financial analysts to discuss fourth-quarter results.

“We started implementation of a new, advanced conversion technology to produce tricholorosilane from silicon tetrachloride. The application of this technology will enhance greatly our current capacity of polysilicon production and the reduced overall production costs,” explained Wan.

“We have been successful in the commercialization of several of our proprietary technologies. The conversion of 95 sets of old DSS 240 furnaces into DSS 450 furnaces led to an increase of ingot capacity of about 140MW. The implementation of the newly developed [ASP] process resulted in an increase of about 500MW in the ingot production capacity without capital expenditure,” he added.

Wan also said that new technology has been developed and implemented which has improved the ingot quality and reduced consumption of argon gas. R&D projects included an innovative charging and acoustical technology that is claimed to produce polysilicon ingots of more than 500kg with standard DSS 450 furnaces and crucibles, with a much improved cost structure. New processes for high-quality N-type monocrystalline wafers that could significantly increase crystal yield have also been successfully developed.

“We are confident of our technology path toward the lowest cost of production, and we are aiming at a production cost below $0.90 per watt in our R&D integration efforts in this year,” he said.

Management noted that the extra 1GW of wafer capacity being added at its facility in Hefei, China, would account for approximately US$300 million of the capex budget.

Another US$100 million will be used for module capacity expansion and for other improvements to existing production lines.

Management also discussed solar cell capacity expansion. Xiaofeng Peng, chairman/CEO of LDK Solar, noted that its cell production was ramping up well, with production capacity at 180MW at its Shenzen manufacturing sites and the next-phase expansion slated for 240MW. In the second quarter, cell production would start at its plant in Hefei.

By the end of the year, Peng said that the target for in-house cell production would be between 500MW and 600MW, with nominal capacity reaching 1,260MW.

As for its financial results, LDK Solar reported net sales for the fourth quarter reached US$920.9 million, a new record and up 36.3% from US$675.6 million in the third quarter.

Wafer sales increased to US$563.2 million from US$426.0 million. Module sales increased to US$284.4 million from US$164.7 million. However, polysilicon sales decreased to US$12.5 million from US$29.0 million.

OEM sales for wafers decreased to US$17.9 million from US$41.7 million, and OEM sales for modules decreased to US$1.8 million from US$3.3 million, compared to the previous quarter.

Management noted that strong in-house demand meant the majority of poly produced was used for internal wafering rather than having 30-50% of production sold via contract or on the spot market.  Polysilicon production costs were close to US$50/kg. Peng said that costs of US$30 to US$32 per kilogram were being targeted for the end of this year.

Operating margin in the fourth quarter was 22.0%, compared to 17.7% in the third quarter of fiscal 2010 and negative 5.3% in the fourth quarter of fiscal 2009.

Net income for the fourth quarter was US$145.2 million. Gross profit for the quarter was US$251.4 million, compared to US$150.0 million in the third quarter and US$30.2 million for the fourth quarter of fiscal 2009.

Wafer shipments increased 10.2% to 627.8MW, up from 569.5MW in the third quarter. Wafer shipments, which exclude the OEM business, increased to 596.4MW, up from 487MW in the third quarter. The average selling price for wafers was US$0.94 per watt during the latest quarter.

Solar wafer conversion cost was US$0.31 per watt and the average cost of polysilicon consumed was US$50.5 per kilogram in the fourth quarter.

Capital expenditures in the fourth quarter were US$148.1 million, which included US$129.8 million for wafers, cells, and modules and US$70.9 million for polysilicon operations.

OEM shipments decreased 61.8% sequentially to 31.5MW from 82.5MW in the third quarter of 2010. Management noted that strong demand from a new customer for solar wafers meant that it was forced to reduce manufacturing capacity for its OEM business during the quarter.

Module shipments were 157.2MW in the fourth quarter, up from 94.1MW in the previous quarter.

Guidance

LDK Solar gave guidance for the first quarter of fiscal 2011 of US$800 million to US$850 million in revenues, with wafer shipments forecast to be between 610MW and 660MW.

Module shipments were expected to be between 120MW and 140MW. In-house polysilicon production should be between 2,300MT and 2,400 MT, while in-house cell production will reach 45-50MW.

For fiscal 2011, LDK Solar expects revenue in the range of US$3.5 billion to US$3.7 billion. Wafer shipments of 2.7 to 2.9GW are expected for the year, while module shipments are expected to reach 800MW-900MW.

LDK Solar will include full-year 2010 financial results in its upcoming 20-F filing with the SEC.

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