JA Solar Holdings Earnings Call Nuggets: Manufacturing Costs and Strategy Shift

On Tuesday, JA Solar Holdings Co. (NASDAQ:JASO) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Manufacturing Costs Update

Jesse Pichel – Jefferies: Can you give us an outlook for your manufacturing costs in 2012? Specifically, what were your wafer costs and cell processing costs in Q4 and how should that trend for the first quarter and through 2012?

Min Cao – CFO: So, in terms of manufacturing costs, we expect that to reduce significantly for 2012. In terms of the actual wafer processing costs, I believe that’s what you were looking for. I think our own production of wafer as a percent of what we use is now fairly insignificant. It’s probably less than 20% of our overall shipment mix. So, in terms of wafer processing costs, we’re probably in the high-teens cents range, which I believe is competitive for the scale that we have. In terms of cell processing, I think what we’ve disclosed is somewhere in the $0.20-ish range. So, I believe that’s where we are in terms of Q4. Looking out to 2012, we believe that can be reduced to 20% to 25%, and in fact, we are already seeing very significant progress on that in Q1. Does that answer your question?

Jesse Pichel – Jefferies: Not wafer processing costs. If I could be more specific, wafer costs not necessary wafer processing costs.

Min Cao – CFO: So, with that you mean is the specifics, okay. So, Q4 average wafer cost was down approximately 35% from Q3 levels. Then in Q1, we saw another about 20% to 25% drop in Q1; that’s our expectation and we expect it to trend slightly down throughout the year based on (poly) price trends.

Peng Fang – CEO: So our wafer supply majority of that is from the market, as you know. Our internal wafer manufacturing is a small portion of that. So we are taking advantage of low wafer costing in the market in (run up).

Strategy Shift

Karen Tai – Piper Jaffray: This is Karen calling on behalf of Ahmar. I noticed that your shift in strategy is to expand more modules rather than cells. Can you talk about the breakdown for CapEx? I didn’t hear you clearly for your CapEx in 2011 as well as 2012.

Min Cao – CFO: For 2011 we spent about $350 million in CapEx, of which approximately $49 million was in Q4, and then we did not break out specific as to how much of that is related to modules.

Peng Fang – CEO: In general as you know the module CapEx is much less than the solar cell is of per watt basis is about 20% of solar cells (indiscernible). So I think in the 2011 we have some ramp up from the previously payment to our cell capacity and our expansion in 2011 is mainly forecast on the module capacity. However, the module CapEx is not that heavy, and in 2012 we’re continuously expanding our module capacity. So currently, we have about 1.2 gigawatt module capacity operational and by middle of this year, we’ll have 1.7 gigawatt module. So looking forward through this year we probably have over 2 gigawatt of module capacity to respond to our customer demand.

Karen Tai – Piper Jaffray: Given your successful launch of your higher power and higher efficiency products, what is your expectation in percentage of megawatt shipments of these type of products to be sold in 2012?

Peng Fang – CEO: Breakdown by percentages, we probably will have 50% of our module product whereas the high powered product from the mono and also the multi.

Karen Tai – Piper Jaffray: So 50% of your module shipments in 2012 will be the higher powered and higher efficiency Maple and SECIUM based modules?

Peng Fang – CEO: Yes.

Karen Tai – Piper Jaffray: One last question for me, how much additional processing cost does it require for you to manufacture these higher efficiency or higher power products?

Peng Fang – CEO: It’s very minimum. Most likely it’s compatible with our currently (equipment effect) and with very minimum (indiscernible) process or equipment.

Karen Tai – Piper Jaffray: Can you give a sense of a couple of cents per watt increase or some guidance around how should we think about it?

Peng Fang – CEO: From a solar cell point of view, probably it’s less than $0.01 to $0.02 per watt.

Karen Tai – Piper Jaffray: So $0.01 to $0.02 additional cost for processing these higher efficiencies cells?

Peng Fang – CEO: Yes, roughly.

Min Cao – CFO: That’s correct.

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