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Guest Uncle Chang

Trina Solar (TSL)

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Guest solarfun

Good news!!! ..."The ITC today also made negative findings with regard to critical circumstances in this investigation. This means that there will be no retroactive duties imposed on Trina Solar. " So TSL should report positive earnings this quarter :)http://www.marketwatch.com/story/trina-solar-statement-on-the-international-trade-commissions-determination-of-antidumping-and-countervailing-duties-in-the-united-states-2012-11-07

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It is apparent that the company had very little business in China. They woke up too late with recent changes to project development

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20% drop in value of the stock. I wish there was something to say positive. I confirmed lower shipments in October, thna in September. They have a 50MW project in Gansu, but nothing has been started. It seems like they have lost purpose. The problem is always the same 13% short interest increase in last 30 days. So everyone knew but the retail markets. How is Fanklin Resources feeling about it?

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Guest solarfun

I can understand the drop in shipments, well it doesn't make sense to ship more if you can't make profit on it, but margins in between 0-1.5 %, with the fact that they should get back at least 26m in tariffs, I don't know something must have had happened . Probably, they couldn't collect again, who knows, we will see on Tuesday.

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I am not sure how the reversal applied to Q3, with info just announced about no special circumstances? The stock went to hell in a hand basket, they show no difference than anyone else. Some B Chinese companies are getting projects yet Trina is sleeping at the wheel. I think that Yingli is in the same boat going over the cliff. Unless they get 45% business in China in Q3, their quarter will be worse.

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Guest solarfun

I don't know either, but that what they said in the press release:

..."the Company estimates that overall gross margin, including the impact of a provision for a non-cash inventory write-down and a reversal of prior provisions for anti-dumping and countervailing duties (ADCVD) in the United States, to be between 0% and 1.5%,"...

http://www.marketwatch.com/story/trina-solar-announces-updates-to-third-quarter-2012-guidance-2012-11-12

I don't know about China, maybe they don't want to sell below some minimum price to get the projects, who knows,

That is from the same release: ..."Our third quarter sales were adversely impacted by a continued supply-demand imbalance in the global PV industry, high inventory levels and irrational pricing practices by some competitors in the market,"

They think they have a premium product and won't sell below some minimum price.

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If they are not selling, why not to say it? Also as you said, why such a low GM, if the product is at the premium and only "good" ASP is being used? I think they had all capacity off and idling added to costs from Q1 and Q2 production. We should remember if they were selling the inventory it would be produced at Q2 or even at Q1 prices. I hate to hear they have still a lot of inventory. If this is the case they stink. Solarzoom is saying that inventories are down across the country, so Trina having it is just plain wrong, but let's see what Canadian shows tomorrow

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The depreciation cost is fixed. Once you cannot utilize all your capacity due to inability to sell products your per unit cost increases and thus drags gross margin down. If you can sell all your capacity at say above negative 10% gross margin (above cash cost), you are adding operating cash flow for each sold unit, helping you to cover your shipment independent interest and admin expenses. This is why I've been looking for companies that can still offset their products in this market. They can slow down the equity and cash bleed. Good example is SOL, bad example is LDK. The utilization also affects equity bleed from invetory writedown, if you can sell your produced inventory quickly before it lose too much value you don't risk to take big write down charges. Again bad example is LDK that lost a billion without any fixed asset charges.

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In October Trina signed with Jiangsu Yancheng a deal for 100MW solar plant for the next 5 years it is a start.

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Guest spinvestor

Hi, Tried posting on the Yahoo message board but received no intelligent feedback. Figure this may be a better forum to learn from others about solar investing . Interested to get people's thoughts on where they see operating cash flow for this quarter. Seems that they could potentially be cash flow positive for the quarter with 0% - 1.5% gross margins. I am using very rough assumptions here: $25mm-$35mm in non cash inventory costs, $15mm-$20mm depreciation expense, and another $15mm-$20mm for working capital (assuming Trina is able to follow through on improving AR collections and inventory reductions). Additionally, seems that TSL had some ways to go to reduce their poly costs. I am assuming that they have been able to further reduce poly costs and take advantage of the drastic drop in spot prices. With non-si costs at or below $0.50, does it seem reasonable to assume Trina can get all in costs to $0.60 or below this year? Given the lower capacity utilization this quarter, curious what others think their inventory reduction will be as well as what their blended inventory costs would look like. Do you see gross margin expansion from here? Assuming Q4 ASPs around $0.65-$0.67 - I would think Q4 gross margins would fall somewhere between 0%-5% for Q4. Lastly, do you think Trina's business model transitions more quickly to downstream? I believe that they guided around 50% of their revenue stream to come from systems by 2015. After hearing Canadian Solar guide for 50% in 2013, I would think that the timetable for Trina may be sooner. Looking forward to hearing others thoughts on this.

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Provision impact includes the reversal for AD/CVD of 26m, so there's a negative 26m impact on the cash flow to add to the net profit that might be around 75m. So say cash flow = 100m - inv prov - depr before working capital changes. Working capital changes might not have positive effect on cash flow, since they missed shipment expectation significantly, on the other hand the utilization should have been low since inventory was already too high end of q2.

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Guest spinvestor

While the earnings forecast was dissapointing, I am positively surprised by the company's balance sheet improvements over the quarter. They seem to be ahead of competitors with respect to deleveraging, and at 50% utilization over Q4, I would expect that trend to continue. Another $150mm in combined inventory reductions and account rec deductions is not out of the question for the next quarter. With Q4 margins close to 0% again, I would expect cash bleed to be less than $50mm over the quarter.

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Guest Klothilde

It was very interesting to hear that they are now heavily prioritizing cash conservation over market share expansion. Seems like this is a new trend among Chinese companies. Also Canadian was very explicit about their cash conservation efforts.

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I agree on the bs improvements. However I am struggling about the reversal. Reversal should have the positive, lowering cost impact, this means that costs were a lot higher from processing. They stated inventory provisions were 13M, If we add 25M to 295M this is 320M, this is around 0.84 per watt. ASP at 0.78 seems, Jinko ASP at 0.72, all-in processing costs at 0.67 for TSL and 0.59 for JKS. So TSL costs are from 0.84 to 0.67 is .17 per watt more or 65M, I can get the 13M from inventory, what is the other 52M for ? processing costs were only 0.03 so what is the other stuff? Anyone sees this differently?

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Guest spinvestor

I think you also have to factor in depreciation into their costs. Given under-utilization for this quarter, fixed costs per watt are going to be higher on a per watt basis as compared to previous quarters. $52mm does seem high though.

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Guest spinvestor

I would think that under-utilization is adding 4 to 5 cents per watt in costs. Thoughts?

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I would think that under-utilization is adding 4 to 5 cents per watt in costs. Thoughts?

Module equipment has little depreciation, so we can ignore that. Wafer and cell together is 4-5 cents. Poly is 1.5-6 cents. So end to end is 6-10 cents. But Trina has only 25% upstream (poly and wafer) capacity and 100% mid stream (cell and module) so they're full utilization depreciation per watt looks like this: Poly 0% * 4 cents Wafer 50% * 2.5 cents Cell 100% * 2 cents At 50% cell utilization due to low module demand they still in theory can utilize all their wafer equipment as a rough approximation. So cell depreciation per doubles to 4 cents (1 * 2 / 0.5), but wafer depreciation stays the same (0.5 * 2.5 / 0.5). So at 2 cents per watt are lost now on underutilization.

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I have a silly question.

They quoted 0.67 per watt for Q3, stating that 0.52 became 0.54 due to lower utilization. Is the 0.67 include the amortization costs? If this is the case taking the reversal and inventory provision out costs per watt was 0.81, I am still struggling with this figure. this is quoted from AR 2011:

Silicon

raw materials. Our silicon

raw materials, which

consist of primarily polysilicon,

comprise

the

majority of our cost of revenues.

We

purchase polysilicon from various suppliers,

including silicon distributors, silicon manufacturers, semiconductor manufacturers and

silicon

processing companies.

Other direct materials. Such

materials include direct materials for the production

of PV modules

such as plastic, metallic pastes, tempered glass, laminate material,

connecting systems and aluminum

frames.

Sourcing

costs. We fulfill some of our wafer requirements by sourcing from strategic partners. We

will continue to source wafers through

long-term supply agreements in order to fill the gap between

our PV cell and module manufacturing capacity and our wafer manufacturing capacity.

Toll manufacturing. Prior to 2008, we entered

into

toll manufacturing arrangements by providing wafers to toll manufacturers for processing

and receiving solar cells from them in return. The toll

manufacturing cost is capitalized as inventory, and

recorded as a part of our cost of revenues when

our finished PV modules are sold. Starting from 2010,

we were able to meet nearly all of our solar

cell needs with our in-house production

capabilities and

we

discontinued our reliance on

toll

manufacturers for processing solar cells. In

2009, 2010 and 2011, we fulfilled

some of our ingot and wafer requirements by obtaining toll services from our strategic partners.

Overhead. Overhead

costs include equipment maintenance and

utilities such as electricity and water

used in manufacturing.

Direct labor. Direct labor costs include salaries and benefits for our manufacturing personnel.

Depreciation

of facilities and equipment. Depreciation of manufacturing facilities and related improvements is provided on a

straight-line basis over the estimated useful life of 10 to

20 years and

commences from the date the facility is ready for its intended

use. Depreciation of manufacturing

equipment is provided on a

straight-line basis over the estimated

useful life of five to ten years, commencing from the date that the equipment is placed

into

productive use.

Our cost of revenues is affected

by our ability to control raw material costs,

to achieve economi es of scale in our operations,

and to

efficiently manage our supply chain, including our successful execution

of our vertical

integration strategy and

our judicious use of toll manufacturers or third-party

wafer suppliers to fill potential shortfalls

in production

capability along the supply chain.

How does this differ from processing costs of 0.67?

I am getting confused seeing Jinko at 0.59 including amo/depreciation and the company having the same COGS per watt. Not the same for CSIQ.

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There is something strange with the cost TSL reported, but i have not looked into it yet. I'll get back on this later.

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Hi explo, I am actually getting those numbers discussed with Trina. I am researching it as part of my article prep. The article should appear at one point on PVM, so I do not want to spoil it. I am rechecking numbers at this point.

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Sounds good. I'll give you my quick suspicions. In a market of falling component prices. The actual cost of goods sold (COGS) is always worse then cost of goods produced (COGS) due to the inventory carrying cost. Not only do you have to write down the high cost inventory left at end of quarter to market level and add as a cost to COGS (although this inventory was not sold it ends up on this line and reduces gross profit), in the inventory you sold you also had high cost, much higher than your COGP for the quarter. CSIQ has been one that has been confusing market here by stating their cost for a quarter as their COGP at the END of the quarter (i.e. something that will impact gross margin much later depending on at what level in the value-chain the cost was stated for, i.e. poly reach sold modules later than cell inventory). Now Trina has up until now been very good to actually state COGS as their cost for the quarter. My feeling is that now that their carrying cost has exploded they are caving to communicate their cost like CSIQ and then the stated production costs and gross margin for a quarter don't add up. But I have not looked at their Q3 numbers more than at headline level to verify this suspicion. YGE's Q3 accounting will also be interesting to see. They suggested they would move under utilization cost to from COGS to designated OPEX line. That will polish their gross margin. That's the first time I see this. As I've said before YGE is one of those companies that have paid a lot for their production assets and thus less confortable idling it due to the high under utilization cost.

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Yes, it would be inventory and the carrying cost from one end of the Q to another. The problem here is that they do not have clarity, they explained this as the analysts a fairly easily able to understand this component. I am not sure where did they get this idea? I did analysis of the figures upon initial conversation. It was disliked. So I am trying to present facts and willing to comply with their views as long as they are factual instead of interpretation, to benefit TSL. I suppose the key point is that their inventory is presented as lower of cost or market, so what was it last quarter? How many modules they sold off the inventory and how this affects their "accurate" under utilization number, because 50% does not sound right? . I think this is where the bone of discontent was located , but I will wait. The benefit to get this right is outweigh the speed to push this to public.

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>> They suggested they would move under utilization cost to from COGS to designated OPEX line. Sloppy of me. It's in their GM pre non-cash charges that they give, that they've not just excluded provision for write downs, but also some of the standard fixed asset depreciation for asstets that were not utilized.

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Guest spiritcraft
http://www.solarpowerportal.co.uk/news/trina_to_supply_55mw_of_modules_for_eight_uk_projects Manufacturer Trina Solar is to supply 55MW of PV modules to renewable energy provider Anseco for solar eight projects in southern England. The modules will be delivered to site over the next four months.Anesco has chosen Trina’s PC14 module, which has been designed specifically for large-scale installations. Richard Rushin, Trina Solar’s UK Sales Manager, said the UK was witnessing an upsurge in large-scale projects. “Where previously residential installations were the bedrock of the solar PV industry in the UK, adjustments to the feed-in tariff system have seen commercial and large-scale installations take precedence. “We anticipate 2013 being the year of the solar farm, and the substantial pipeline of projects on which we will be working closely with Anesco is testament to the growth of this market.”

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Guest spiritcraft

That is about the most blatant slam by a short I have yet seen. Anyone care to discuss the merit?

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Guest spiritcraft

Further note... That seems almost criminal or at least immoral being so blatant. Note: it just went positive.

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Guest
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