SunPower Inc. (SPWR) Q2 2008 Earnings Report, Transcript and Summary

Good afternoon and thank you for standing by, and welcome to SunPower's Second Quarter Earnings Release Conference Call. Today's conference is being recorded. If you have any objections you may disconnect at this time. Your lines have been placed on a listen-only mode until and question-and-answer segment of today's call. [Operator Instructions]. I would now like to turn the call over to Mr. Tom Werner, CEO of SunPower. Sir, you may begin.

Thank you for joining us today. Today we will report on our second quarter 2008 financial results and update you on our outlook and approach to our global markets, review the progress of our strategy, provide guidance for the second half of 2008, and update full year 2009 forecast. Lets start with our results from the second quarter, we experienced very strong operational and financial performance. Our record second quarter once again exceeded our top and bottom-line guidance and we increased margins consistent with better than expected execution of our cost reduction roadmap. Our Q2 2008 revenue was $383 million, up a 120% year-over-year primarily due to our ability to pull in Spanish projects which assures us of beating tariff expiration. And as for workers non GAAP EPS of $0.61 per share. For system segment with 71% of revenue, our component segment was 29% of revenue. Both systems and components saw a substantial progress on our cost reduction roadmaps as reflected by our margins this quarter. Let me highlight that we achieved incredible results in our systems group as we installed more than 40 megawatts solar power plants in Spain in the first half of this year. While accomplishing these systems we further developed products and installation methods so, that we can now install more than 1 megawatt per week per crew. Let me next comment on what we know will be a key area of interest to our investors, the evaluation of a solar power market and our confidence in our guidance for this year and next year We believe that our vertical integration and participation in all market segments, in all meaningful regions puts us in the best position of any solar company to respond to new opportunities as well as market risk. Andy, will describe in detail how we are raising revenue guidance for 2008 to $1.39 billion to $1.44 billion and updating our revenue for 2009 to $2.1 billion in non-GAAP EPS of $3.50 or more. We are very confident about both our second-half 2008 guidance to 2009 guidance because we have built the company, designed to flexibly respond to market opportunities and rest. The policy driven business like Solar is today we will inevitably face new markets that emerge rapidly. And we are poised to respond to emerging market segments as demonstrated by the Florida Power & Light announcement which takes power plants to utilities scale. As well as new policy opportunities like those we see in the Asia Pacific region. We will also face market uncertainty as we do today in Spain in the United States commercial market. We have diligently committed to building the infrastructure to serve customers in four continents across four market segments. These segments are residential retrofit, new homes, commercial roof tops, and power plants. With the scale we have achieved, we have built and are now operating sales channels around the world across dozens of markets. When an adjacent market emerges, we can leverage our core sales channels in that region. When a market exhibits risk, we will reduce our product allocations and redirect our sales efforts to other market and segments. Let's look at Spain as an example. We have set up our European dealer network hub in Madrid. We expect to do a very strong business in the rooftop market in Spain in 2009 based on the feed interior proposals today. The U.S. market is another proof point, without an ITC expansion, the commercial market will be challenged, However we expect strong residential sales and other opportunities like Florida Power & Light to support our business in the U.S. and we have prudently set up a portfolio of market opportunities, manage our risk to any single policy outcome. While we have proven that we can move between markets and channels, market disruption in any market has several consequences, one will be more competition in other market operating markets which can lead to more rapidly decline in average selling prices compared to base line assumptions. Having said that, we have confidence that our model for 2009 can sustain market disruption in a Spanish Power Plant market as well as a delay in the extension of the United States investment tax credit. Another consequence of market disruption will be the redeployment of company resources in order to create new markets by feeding un-served demand. Given the visibility the Spanish and ITC risk I am sure that SunPower is not alone, and working on opening new market opportunities outside of our current markets. Overall, global demand for SunPower's high performance solar system remains very strong. We have visibility in the end dynamics by directly taking orders from system owners in our dealer network. Therefore, the basis of our guidance is from direct customer interactions around the globe. We remain supply constrained with customer demand substantially exceeding our production levels. Now, let's review regional dynamics. In Europe, Germany is a core market for SunPower and offers great opportunity for us to gain share in next 12 to 18 months as we drive our brand in the residential and small commercial market through our dealer network. Spain will be a growing rooftop market for SunPower regardless of how the power plant market is developed under the new feed in tariff. Italy offers strong growth potential as evidenced by our announced 25-megawatt framework agreement with Enfinity. We are also seeing strong demand from our dealer network as we have more than doubled our dealer network across Germany, Spain, and Italy to the serve the residential and small commercial rooftop markets. In Asia, we further penetrated the Korean market during the quarter and in Japan we have teamed with Toshiba on their newly introduced residential product line based on SunPower's solar panels. We believe that this partnership could result in significant incremental demand for our product in Japan, since that country has historically been one of the largest solar markets. We have been working for three years with Toshiba to develop this program. We believe that Japan is once again poised for accelerated growth and that SunPower's product attributes have high efficiency and superior aesthetics would resonate with Japanese consumers. In the United States, we announced that Florida Power & Light has selected us to build the largest photovoltaic power plant in the United States i.e. a 25 megawatt plant in DeSoto County, in addition to a 10 megawatt plant at the Kennedy Space Center. We are very happy to be a partnered with Florida Power & Light, a worldwide leader in renewable energy with world class expertise in utility scale wind and solar thermal electric power plants. And we continue to see strong event in the residential retrofit market as we increased our dealer networks. The ITC uncertainty will contribute to a strong finish with a commercial business in the second half of 2008. And so our global sales channels, we expect any ITC driven softening of demand in the U.S. commercial market to be an opportunity for us to better serve our other U.S. market segments as well as other global markets. Around the world, we're also seeing significant opportunities in the emerging markets, such as Greece, France, Australia, Canada, Belgium, and other markets. We also start shipping our products in the countries in the Middle East in the third quarter. In summary, we are well positioned, given this demand environment as our flexible model, geographic diversities enables us to respond rapidly to new opportunities and minimize risk such as that is posed by the continued policy uncertainty in both Spain and United States. Turning to our internal execution, SunPower continues to deliver on our long-term strategic focus of brand, technology, cost, and people. In the quarter, we developed our brand and leveraged our marketing channel integration, supported this positioning by inventing the best technology in the world, reduced cost consistent with our plan to drive cost down by 50% in 2006 levels by 2012, and recruited and retained the best people in the industry. I will elaborate on how we successfully executed on each of these efforts in the second quarter. Let me start with brand and channel. Our vertical integration strategy and focus on improving the customer experience continued to pay dividends in the second quarter as I have detailed in my earlier comments. Let me emphasize again, our global footprint and diversified market position puts us in a unique position. With direct access to our customers, we are constantly optimizing our position to maximize our opportunities, minimize our risk. Our channel and brand strategy is built on our differentiated technology as we continue to invest in our cell, module, and systems technology. We are on track with our cell technology across our product lines. The ramp of our Generation 2 technology continued during the quarter as we now have five lines producing our Generation 2 solar cells. We also announced a world record cell efficiency of 23.4% using our Generation 3 technology continuing to expand our efficiency rate, a key component to our cost reduction initiatives. In systems, our extensive T20 Tracker deployments in Spain allowed us to reduce cost and make improvements in the design throughout for more rapid installation. These technology developments directly result in cost reductions. Our plan to reduce total systems cost by 50% by 2012 as compared to 2006 remains on track and we are well positioned to reach two thirds of this initiative by 2010. Reducing cost by 50% enables us to compete with the retail and wholesale rates in much of the developed world on a levelized cost of energy basis. By reducing system installation costs while increasing our energy clutching and conversion efficiency, we are driving the competitive retail and wholesale electric grades on a sense per kilowatt hour basis. In terms of silicon cost reduction, our portfolio approached polysilicon, utilizing established suppliers along with new entrants will enable us to reduce our polysilicon cost by at least 10% this year. M.Setek and DC Chemical, production ramps are going well, deliveries are on track. On the manufacturing side, we continue to make material progress on our cost initiatives. We expect silicon usage to decrease throughout the year... the rest of this year as we deployed thinner wafers and as we ramp, we are benefiting from economies and scale. And lastly with our JV Partner for silica, we inaugurated our wafer processing plant. This facility is shifting ahead of schedule and is a key element in reducing our wafer cost. Finally, we continue to reduce our balance of system costs through our vertical integration strategy, by further scaling of services we offer through our dealer network, standardizing systems technology products that are factory assembled which reduces installed costs in the field for commercial systems, utility power plant. Driving adoption of our T20 tracking product which collects up to 30% more energy and further ramp of our industry leading Generation 2 cell technology which not only improves the version efficiency but significantly reduces field cost as higher efficiency means less modules, less racking, less wires, less inverters, less labor, and less plant. Combining near-term cost reduction initiatives faster than our ASP reduction forecast in the second half of 2008 will allow us to attain our 30-10-20 model 30% gross margin, 10% operating expense, 20% bottom-line on a non-GAAP basis by the first quarter of 2009 or sooner. Finally, our team is growing. We added approximately 100 people in addition to our manufacturing hiring during the quarter including the appointment of Marty Neese as our new Chief Operating Officer. We continue to attract top quality people to our company and I want to thank them for their hard work in the second quarter. In summary, we're executing on our strategy to focus on brand, technology, cost, and people. Now, let me end with some news, it is with mixed emotions that I announce that Manny Hernandez has decided to retire as SunPower's CFO. He has agreed to remain fully engaged in his current role until our new CFO is on board to ensure an orderly transition. Manny's commitment provides us with a long runway in the next year if needed for a careful search for his successor while he continues to help us grow and develop. Our search firm is engaged in actively interviewing candidates. Manny has given 15 years of service in Cypress in SunPower during our formative years as a company and I will note that during those 15 years he has worked T.J. Rodgers as CEO and T.J. Rodgers is Chairman of SunPowers. So, that 15 years is a rough equivalent of 60 normal years. During these times, Manny instilled the team, the systems, and the integration processes for acquisition which will position us for a clean hand off to his successor. I would like to thank Manny for all his extraordinary contributions to SunPower over the years and I can't wait to see him on the bike race circuit some distance behind me. On that note, I would like to turn the call over the Manny, who will report details of our 2008 Q2 results, provide initial guidance for third quarter of 2008, update our previous guidance for fiscal year 2008, and update our preliminary 2009 revenue growth, Manny?

Thanks Tom, good morning everyone and thank you for joining the SunPower earnings conference for the second quarter of 2008. We turned at June 29. As far as the bike race circuit, I think I could do that, but I don't think I am adding Iron Man anytime soon on my list of post retirement activities. Just a serious note, Tom and I have had this discussion quite a while and we just decided, I decided its time. All I want you folks to understand or remember is, we are not going to put the company in harms way, we are going to do this right however long it takes, and I will be around to make sure that happens. So let's go on with our earnings. I would like to remind everyone again that during the conference management will be making and has made certain statements that are not historical in nature. Please consider these statements as forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. Those statements are based on our current expectations and are subject to certain risks. Please refer to our press release and our SEC filing for a more detailed discussion of those risks. Also, please note that we have posted a supplemental data sheet related to our historical performance on the events and presentations page of our Investor Relations website. So, please feel free to look at that table for more information. Let me now give you a summary of our 2008 second quarter results for the combined company and our segments. Total SunPower revenue for 2008 second quarter was a record $382.8 million that's up 40% from the prior quarter revenue of $273.7 million and approximately 2.2 times that of our year ago second quarter revenue of $173.8 million. The second quarter revenue performance was aided by a very strong performance in our Systems segment as Tom alluded to which accounted for 71% of our revenue in the quarter versus 65% in Q1. Our component segment accounted for a $112.2 million of our second quarter revenue, representing an 18% increase from the prior quarter revenue of $94.9 million, and approximately 1.6 times that of the year ago second quarter revenue of $69.7 million. Our component segment benefited from strong demand in our dealer channel in both the United States and Europe where we have significantly increased our dealer network footprint. Our Systems segment accounted for $270.6 million of our quarter's revenue, representing a 51% increase from the prior quarter revenue of $178.9 million, and approximately 2.6 times that of the year ago second quarter revenue of a $104 million. Our Systems segment benefited from strong power plant scale demand in Europe which as some noted, we were able to pull in for delivery in the quarter in order to ensure availment of the higher feed in tariff, in Spain. Please note that the ultimate sale of the SunPower manufactured panel, which are allocated by the company through the Systems segment is reflected as revenue of the Systems segment. In the 2008 second quarter, approximately 61% of panels installed by our Systems segment where SunPower manufactured solar panels, and that's up from 38% just last quarter. We expect this allocation to remain at or above these levels for the remainder of 2008. Now, let's cover earnings. On a GAAP basis, SunPower reported operating income of $45 million, which translated to diluted net income per share of $0.34. This figures include, non-cash charges for amortization of purchase accounting and tangible assets of $4 million, and non-cash stock-based compensation expense of $18.6 million. On a non-GAAP basis, adjusted to exclude non-cash charges for amortization of intangible assets, stock-based compensation, and their related tax effects, SunPower reported a total operating income of $67.6 million and diluted net income of $0.61 per share. This compares with the prior quarter operating income of $39.1 million and $0.39 diluted net income per share. The company's overall GAAP gross margins for the second quarter was 24.3%, whereas our non-GAAP gross margin improved to 26.4%. This represents a 240 basis points improvement from last quarter's non-GAAP gross margins of 34%. In the second quarter, our Systems segment posted a non GAAP gross margin of 24.2%, an improvement over last quarter's margin of 23.3%, benefiting from higher percentage of SunPower panels used in these projects as well as cost savings we realized in the field implementation of our Trackers. Our component segment posted gross margin of 31.7%, a 630 basis point improvement over last quarter's margin of 25.4%, benefiting from lower silicon cost, sequential growth in volumes and also modestly higher average selling prices during the quarter. Briefly on the balance sheet, we ended the second quarter with cash, which includes short and long-term investments and restricted cash of approximately $336 million. Our day sales outstanding was 59 days, while our net inventory ended at 65 days. The growth in our accounts receivable that you see in our balance sheet represents timing of project billings within the quarter, mostly for systems we installed in Europe. As over the first two weeks of July, we have already collected approximately $85 million of those receivables. Our total capital expenditure for the quarter was $44 million and we estimate our total capital expenditure for the year at approximately $300 million, which is the higher end of our prior range. And thus being driven by the acceleration of two more lines that we are purchasing for 2009 implementation and we also availed of our options to purchase our fab buildings that was previously owned by Cypress. During the quarter, depreciation was $12 million and we expect total depreciation for the year to be approximately $50 million. Now, I want to shift to guidance and there is going to be a lot of numbers here folks so bear with us. But, before that let me reiterate as we have in the past that our business results may reflect quarterly shift in mix within Systems and Components segment revenues. Also, from quarter-to-quarter, we expect shift even within the Systems segment due to the size and type of projects and percent completion factors that could lead to non-sequential or marginal growth in revenue, margins or earnings. Our margin mix between segments can also be influenced by the allocation of SunPower product panels or produce panels through the Systems segments. So as we progress towards 2008 these factors will continue. The following is our non-GAAP guidance for the 2008 third quarter. Revenue of approximately of $340 million to $355 million, which is comprised of component segment revenue of $155 million to $160 million and Systems segment revenue of a $185 million to $195 million. Recall that the last earnings call for Q1; we noted that the Q3 '08 revenue could be inline with Q2. This guidance for Q3 remains consistent with our plans despite our having delivered a much higher Q2 and better financial results. I think one way you should look at that if you just summed up our actual Q2 and the guidance for Q3 those two quarters are essentially up $40 million. The segment mix for Q3 represents the strong demand for component sale both direct and through our dealer channel while reflecting significant completion of Spanish based projects in the second quarter just ended. Gross margin for the third quarter of 2008 is projected to improve to 26.5% to 27.5% influenced by higher component segment mix than the prior quarter and our continued progress in our cost reduction programs. Component segment gross margin is projected to improve to 33.5% to 34.5%, approximately 200 basis point improvements from Q2 benefiting from combined... continued cost reduction and also higher manufacturing volume. Our Systems segment gross margin is projected at 21.5% to 22% reflecting the project mix in that segment for the quarter. The non-GAAP earnings per share for 2008 third quarter is estimated at $0.53 to $0.57 per share. Now, since we're going to give you an updated 2008 guidance from which you can drive effectively the Q4 '08 numbers, we would like to help you with that and just provide you the following guidance. Our revenue in Q4 is approximately... is projected at $395 million to $425 million comprised of component segment revenue of $200 million to $210 million and Systems segment revenue of a $195 million to $215 million. The segment mix for Q4 also represents strong demand from component sales, both direct and through our dealer channel. Gross margin for the 2008 fourth quarter is projected to improve to 29% to 30% allowing us to potentially achieve our model of 30% one quarter sooner than our target. Higher Components segment mix and continued progress on cost reduction programs are the drivers of this gross margin improvement. Component segment gross margin in Q4 is projected at 35% to 36% while system segment gross margin is projected at 23% to 23.5%. The non-GAAP earnings per share for the fourth quarter of 2008 is estimated at $0.73 to $0.80 per share. Now, for the fiscal year 2008 totals, we are once again raising our guidance for our non-GAAP results as follows. Revenue of approximately $1.39 billion to $1.44 billion estimated to be comprised of component segment revenue of $560 million to $580 million, and Systems segment revenue of $830 million to $860 million. Total company average gross margin is estimated to average 26.5% to 27.5% comprised of component segment gross margins of 32.5% to 33% and Systems segment gross margin of 23% to 23.5%. The non-GAAP earnings per share for all of 2008 is now being increased to $2.26 to $2.36 per share. We estimate the non-GAAP tax rate for the second half of 2008 will remain at 24.5%. Lastly, we are providing early guidance for 2009. We expect revenue in the $2 billion to $2.1 billion range with a non-GAAP EPS in excess of $3.50. So now let me turn it over to Tom to lead us through the Q&A session.

Thanks Manny, don't sell yourself short, I see you doing an Iron Man sometime in the near future. Well may be. I will call the questions now. With me I also have a group of people, I have Howard Wenger, our Senior VP of Global Business Units; Peter Aschenbrenner, our VP of Corporate Strategy; Julie Blunden, our VP of Public Policy and Corporate Communications; Mike Armsby, our VP of Finance; Robert Okunski, our Senior Vice President and our Senior Director of Investor Relations; and Brad Davis our Chief Marketing Officer. What I would like to do is take likely we normally do at SunPower is take questions and one question and we would actually like to minimize follow-up and ask you to get back in queue. We do have quite a few people here. And we don't want to hold you too long. So, Michelle we will take questions. Question And Answer

: Thank you Sir. [Operator Instructions]. Steve O'Rourke, you may ask your question and please state your company name.

Hi, this is Steve O'Rourke, from Deutsche Bank, good afternoon. Question on ASPs, you commented that increased competition could have some impact on ASPs, you have also talked about an abundant supply of silicon emerging maybe next year, what is your outlook for ASPs in '09 at the module in the system level and if ASPs are coming down how do you manage ASPs from modules with your dealer network?

Wow! Steve you remember, this is Tom, you remember our comments well. So, what we'll do is we'll take that in two parts. I'll answer half of with regards to your question and Howard Wenger will answer the part about dealers and pricing with the dealers. So, broadly speaking, the way we thought about pricing is consistent with our previous earnings calls. However, for 2009, since its 18 months away, we have a range of prices... of price declines that we've modeled and obviously, we have a range of costs reductions and it's fair to say that the range of cost reductions and the range of price reductions are consistent with the guidance that we've given for '09. And that range is about 10 percentage points. So, we... it's very hard to predict in that timeframe but we see our cost reduction programs having a significant range as well because of the timeframe that we're talking about. So we contemplated that. In short we've contemplated that in our 2009 guidance. In terms of how we priced modules through our dealer channel and the dynamics, we are... I'll turn that over to Howard.

Thanks Tom. We greatly extended our dealer network primarily in Europe. Our closing of 300 dealers worldwide and that enables us to manage a demand and as key across geographies. So in Spain, Italy, Germany, and of course the U.S., where our dealer network is most robust. We have a policy of uniformed pricing across our dealer network, so we are very systematic and vigorous on how we set pricing. And we've modeled in potential price declines consistent with what we observe across the different channels and geographies and incentive support.

Thank you.

You bet.

Thank you. Vishal Shah, you may ask your question. Please state your company name.

Thanks, Lehman Brothers. So Tom, question on speed intent and exposure to expand the 2009 guidance, I believe there is a lot of talk about incentives being 300 megawatts or 400 to 500 megawatts. What are your thoughts about that and in your guidance what are you incorporating?

Okay. Again, I'll split this with Howard in terms of the regional guidance here. Interesting, what's happening in Spain, there is... we don't quite know where the capital are invested, it's actually moving towards more of a rooftop market. And what could be a better proof point of what our strategy has been, the transition period across each of the market segments in each of the regions. So, we specifically in Spain have a rooftop market, both commercial and residential energy. All know very well, we have the power plant market in Spain. So as Spain develops next year and perhaps as it looks today, moves to more of a rooftop market. It's not like we have to quick run and set up a bunch of dealers and setup a whole new program. We just shift emphasis of that program. So, our guidance is consistent with that and Howard can give you the numbers. But, as I said in my remarks, we shift business from where policy has become less favorable. And that obviously means that you are going to have a lower percentage of sales from those regions. So, maybe Howard, you can give a sense of specific percentages in those two regions.

Sure. So, for the second half of the year, we do not anticipate any or almost no power plant segment, Systems segment revenue from Spain in the second half for the year. We are... we do have a large program where the policy there does allow for that programs to drive and we will get revenue in Spain from that program. And that we're selling into the residential and primarily small commercial markets. And going into 2009, we are anticipating that the feed in tariff will resolve itself. But as Tom said we can handle either a rooftop emphasis or a power plant emphasis in Spain. And overall for the year, because of the uncertainty, we've actually modeled not nearly significant revenue in 2007 in Spain, I'm sorry in 2008. Our plan in 2009 is a much slower revenue from Spain than in 2008.

Great, thank you very much.

On a percentage basis actually.

Thank you Sanjay Shrestha you may ask your question and please state your company name.

: It's Lazard Capital markets, good afternoon guys. Congratulations on a good quarter. First, question is a on the FPL side, can you guys go a little bit into detail as to what was the selection process like there and how did they ended up sort of you know, looking at SunPower systems like the vendor of choice and it seems like it's even going to get the public service commission approval for putting it in the weight case dynamics, is this the beginning of a trend in the utility market here, because that will be pretty significant if that's how things are going to start to unfold. So can you guys go into some more detail as to some of these dynamics there?

I wish I would have taken notes as you are asking the questions Sanjay and I talk to show you are going to say great quarter, we thought it was a great quarter. But, thank you, nonetheless. So, first of all Florida Power & Light is expert of renewable energy. They've done over 5 gigawatts of win, they are expert in solar electric as well and these people know what they are doing so, they had a very competitive process and in the end you have to compete. And as we said in numerous investor meetings, the bottom line metric gives the levelized cost of energy. Now, that's not only metric. Obviously, credibility to execute strength of balance sheet, future technology, best technology, all matter and incredible utilities like Florida Power & Light want the system to work and they want it on time. And so, there was some depth in terms of that part of the relationship and that part of how we did business or do business with them. I am going to make one more comment and hand it over to Howard who is the person who worked with the people at Florida Power & Light, so he can add a little color. The last thing, I would say is it is just an indicator of future utility business on... I think many of you on the phone are aware that there is renewable portfolio standards in almost 30 states, those are the real deal and that the dynamics with utilities is a significantly different opinion which region of the country so it is hard to make it broad, spread the peanut butter state that, if I were to make such a statement I believe that this is the beginning of a business in the utility sector and very much so. And we believe that [indiscernible] specifically SunPower is the best solution because we know how it works and can be installed over time, doesn't require utilities, and you get levelized cost of energy numbers that aren't economically compatible. Howard, do you want to add anything?

Sure, only what you already said Tom, and that is Florida Power & Light is definitely one of the most sophisticated purchaser of our scale solar power. They own 300 megawatts of solar thermal electric in the Southern California, they also own and operate 5.5 gigawatts of wind, they have added about 1.5 gigawatts per year over last three years. So they really understand the full equation, it is not just about capital cost, it is not... it is about the cost of energy supply. So its the cost and the energy delivery and as you know in our industry there is a whole range of technologies, of efficiencies, of tracking, non-tracking, a range of capability in terms of track record and delivering large scale projects on time where the company stand behind the performance of those systems that we certainly do and I think that Florida Power & Light understands that well and that really helped us in the business.

Got it. So if I understand you guys correctly here then it was really your lower levelized cost of electricity for this particular application and long-term reliability led you guys to be the vendor of choice here?

Yes, see there is two primary factors absolutely.

And is there any exclusivity with FPLC you guys going forward?

No there is no exclusivity.

Okay. Terrific, thanks a lot a guys.

That's on partnership.

: Thank you. And our next question comes from Satya Kumar. You may ask your question, please state your company name.

Yes, hi. Thanks, from Credit Suisse. So a question on silicon availability as it pertains to Q3 guidance and this overall DC Chemicals and M.Setek, a few parts of the question, did you reconfirm your 255 megawatts silicon production guidance for this year. The grams per watt decline if you could add a little bit of color on that? And also if I look at your component gross margins, for the full year its pretty good at 32.8 is what I calculate based on your second half, but its still about a couple of 100 basis points lower, than what it was a quarter ago, and maybe 300 basis points from what you thought in January. So if you could give me a sense of what's happening on silicon availability pricing would be very helpful? Thanks.

Sure, Satya thank you for forewarning me that it would be multipart, I took notes. So first, we are comfortable with 255 megawatts for the year. And the reason why we took the table out of our press release is we're starting to decide do we have table that has sales models and systems and start giving some sense of capacities and capital investments. They have got too complicated so we pulled the table. That is also why we have a supplemental operating performance and actually ramp information sheet that we put out on the web. Grams per watt, its an excellent question, we decided to be more aggressive with Generation 2 ramp and thinner wafer implementation and experimenting with thinner wafers and we'll accrue the benefits of that in future quarters. Its only 0.1 gram per watt that it went up and it is strictly driven by that, in other words you take a yield during the early stages of testing thinner wafers and planting the new efficiency. By the way we're doing that in the new fab but it was a very, very small yield at hand, we're projecting Q3 and Q4 to be significantly better. Our components gross margins, when you look at, I am going to have Manny answer that question but I can't help but respond a little bit. If you look at our components gross margin, it's almost 32% gross margin. We thought it was an exceptionally strong quarter and great performance coming off of our Q1 or significant improvements from our Q1. We are materially on or above our guidance for the year and one other thing we said about our 50% cost down roadmap, is that we are building it into our guidance. You can watch our progress and in fact we've guided that way. However Manny will clarify the specific numbers so, Manny go ahead.

Okay, thank you. Yes, your observation is correct and I think the point to make however is as Tom noted, 630 basis points improvements from Q1, it's quite substantial. We're racing it again in Q3 to up to 34.5% and projecting to end the year at 36%. So a point or two in previous estimates is representative of our looking at our line ramps and the introduction of Gen C into the mix. So I think ending the year on average at 33% for component is quiet a performance. More importantly, the exit rate of 36% is we think very healthy.

Okay, thank you.

: Thank you. Our next question comes from Al Kaschalk. You may go ahead, please state your company name?

Tom, I was wondering given the concerns out there in the market place both the Street and the industry, can you talk a little bit about what your customers are saying in terms of locking in price on over the next 12 to 18 months and business for that matter and then the follow up to that or in addition, what mix is assumed in the '09 guidance between systems and components? Thanks and Manny, good luck.

Thanks Al.

I hope you will be able to say that to Manny for several more calls but, he will start his training soon I think. So let me just comment on... well actually why don't you go ahead and take the next question Howard and then I will follow up.

Sure. So going-forward we anticipate our planning for more balanced mix between Systems and Components going-forward. So, still majority on systems but much concerned to a balance point there.

Okay. And then in terms of the next 12 to 8 months of our customer receptivity or desire to lock in pricing as you would estimate our guess is that it varies by channel. We very much have a dynamic in our residential or power network where we have been unable to serve demand into the power dealers on the phone. We apologize for that and we are ramping as fast as we can. In the systems business, it depends on the region of the world, we in fact have many customers in almost every region in the world that would desire to lock in 12 to 18 months for that matter multi-year agreements on pricing. And so it's more a rule not the exception. The exception is in America, on commercial business, and even in America and commercial business, there are ways to do agreement over a 12 to 18 months timeframe that have contingencies built into them. So, I would say to you that in the power business, we need to increase supply systems business. We do have some and many more customers who would block in on 12 to 18 months of pricing.

Would you like to go to the next question?

Please.

Timothy Arcuri, you may ask your question. Please state your company name.

Citi... thanks. A couple of things, first of all, can you give us what the production number was number one, and also, I'm wondering, if you can talk little bit about what the utilization was? I know you were kind of... it looked like you were in the mid 70% in March. And I'm wondering if you are kind of up into that 80% target range? And then I also wanted to know if you can give us what the delta is, you know, you have kind of talked in the past about what the difference is between your price of your components relative to what the market price is. So, can you talk about that and kind of how it has changed?

Hi Tim. Let me pick-up the first, two items. First, production volume for the quarter, we... our factories produced 49.8 probably 50 megawatts of products, that's up 29% from the prior. And even if we don't give guidance for the next, for this quarter's output, you could count on significant improvement in output there, given that lines 7 and 8 that were only partially ramping in Q2 will now be fully ramped. And we're also introducing or ramping flying sign and then. So, that leads today utilization question, the way we look at that is as far as the mature lines like lines 1 to 4 that's being operating for a while, those lines are operating at 90%. Henceforth, the lines that are being turned on in the quarter they are operating at about 55%.

Interms of the premium question on it varies by... the markets are very irrational. So where you are more space constraint strength there is a higher premium for some power product that varies between 5% and 15%.

And Tom, I guess I'm wondering what the trend has been there?

I would say either stable or increasing.

Thanks.

You bet.

Thank you. Jesse Pichel, you may ask your question. Please state your company name.

Hi. Jesse Pichel from Piper Jaffray. Congratulations on a great quarter. I had a question about seasonality; Q4, the components is going to very strong. Is that because of ITC pull-ins, and thus would you expect that Q1 will be a down quarter?

Howard?

Hey Jesse. Thanks for the comment on the quarter. On... so the components channel serves dealers. And so that would be a reflection of predominately on outside in North America frankly and to the extent that these North America would we small business, so our residential. So, to the extent that... well obviously, you have the numbers. As components ramps up, it's a more an indication of the strength of our dealer network that has increased over 300 dealers. That's what's driving that trend. Now as a follow-up, I'll pretty guess a follow-up question by somebody that what about the ITC affected business, that would be the commercial business in United States. We would see the ambiguity over the ITC to be a stimulus for business during the back half of this year. We do model that there will be a continuation of business in the commercial sector in the first quarter but we don't model in the same way as Q1. That commercial business, I would point out that, for example, let me just say that there are segments that don't rely on the ITC... within the commercial business it will focus more on and then we'll do more things like Florida Power & Light.

So, if I'm hearing you right, you don't really anticipate that Q1 '09 will be necessarily down significantly quarter-on-quarter but probably more in the flattish area?

I'm sorry. If you are asking about the overall revenue...

Q1 '09 relative to Q4 '08.

On revenue basis, up.

Up, great. And maybe just a follow up on Sanjay's question on FPL. Can you comment on the coding activity from other U.S. utilities in RPS states?

This is Howard Wenger. Good question. We are literally talking of dozens of utilities now and what's happening is and by the way in this channel it's exceeding even our expectations in terms of interest and definitive action that the utilities are taking. We are seeing many, many RPS coming out from utilities and in parallel we are talking to them. So, there's a lot of action there.

Can the Systems business maintain it's historical margin rate or run-rate with U.S. programs being more of the mix?

Yes, this is Julie, I was going to emphasize that not only do we think that the Systems business has a great run rate in the U.S. but I think it will happen is if the U.S. success in the utility business that we're seeing going on a pike is going to end up informing the rest of the world. What's happening in the U.S. right now is that utilities are recognizing that solar actually comprising with the gas fired peaking plant. That's a function of three things, one, capital cost going up dramatically over the last couple of years by a factor of 2 to 3 and gas fuel prices going up by about double in the last year. And thirdly, our ability now with any utility RFP or procurement cycle timeframe to offer pricing that meets wholesale prices. So, we are at the point where the crossover has begun at the large scale of utility levels. That's incredibly important because most of the rest of the world hasn't gotten there yet. They are still looking around at programs that are based on prior views of where pricing was going to be. As it becomes clear what's possible today, we think that will end up being viewed by the rest of world didn't have people reconsider how they are organizing the solar market.

That sounds great, but is the margin in the U.S. do you think it's comparable to the historical margins you have seen, in the System business say the low 20% range?

Jess we need to go with the next call to answer your questions, yet.

Great, thank you very much.

: Thank you. Stuart Bush you may ask your question. Please state your company name.

Yes, RBC Capital Markets. So, Tom, you have generally commented on the ASP outlook for 2009 with Spain and the U.S. is uncertain and it weighs off, but, three months ago on the Q1 call you threw out a forecast of low single digit ASP declines in second half '08 and low double-digits in '09, should I read your statement now that you are forecasting the decline as more in 2009 and as a follow up to that if you are seeing more rapid ASP declines, you could argue that that maybe driven by excess capacity coming to market versus demand, so how does that match with, your decision to accelerate your line additions by two lines? Thanks.

It's very good question. First, we see stable or increasing prices in Q2, slightly increasing. I am sure that's very important.

In Q3?

I'm sorry Q2. I will speak to Q3 and 2009 in a second. We see more demand than we can supply, yet we are paranoid. So, when we looked forward, we want to be prepared for what we see our boundary scenarios. So we continue to think on same price single digit price declines in the second half of this year despite the fact that we have more demand than we can supply and despite the fact that we have yet to see a price decline on our products, since we went public. In 2009, you should have driven my questions or my answer or my statement, has modeled a wider range of price reduction so, in fact there would be an applet [ph] that say that it includes a higher price reduction and that our cost reduction plants internally cover that range of price reductions plus our guidance.

Okay. And did you accelerate your line additions by 2 line?

Stuart it's Manny, yes we have made a decision to pull in the lines 9 and 10 the procurement of it any way so, that we could realize earlier production in '09 from those lines. The driving factor for that, is the vertical integrations strategy, margins packing, we want to be able to allocate as much product our systems group that's currently starving for SunPower produced panels and in return produce better results.

And as we more fully utilize our second fab our cost come down as well so we have cost decrease and compound rate with the higher vertical integration so it improves our cost positions rather significantly.

Great, thanks guys.

: Thank you, Michael Molnar you may ask your question. Please state your company name.

. Sure, Goldman Sachs, Good afternoon everyone?

Good afternoon.

If you had to a pick from, if I give choice of these markets France, Italy, Greece, Japan or Korea, which would be the top one or two markets that you think could surprise the consensus view if there is such a bank to be upside for 2008/9 and I guess I could sum it up by saying, in 2009, who is going to be essentially the Spain of 2008?

Okay, I will introduce Peter Aschenbrenner, our VP of Corporate Strategy who will answer to that question.

Mike I am going to pick three France, Italy and Japan.

: And could you just elaborate a bit on why?

Well, Italy has been relatively well discussed within the industry press, a good feed in tariff, lots of sun, some momentum high cap, and we are quite active on the ground. So we have a good feeling for it. France, I think that's a market that's been developing a little bit under the radar screen. We've been spending an increased amount of time there recently and I like what we see there. So, I will say that, I think that could be one of the surprise candidates in Japan. Japan has been one of the top markets historically, among the top two markets until last year, for a very long time, extremely mature, and now through our relationships with Toshiba, we think we have a great entry there. So, we think we can... we expect accelerating growth in Japan as a new set of incentives that are currently being discussed, starts to take place, to take hold.

Okay, great. And GAAP tax-rate, is the guidance there still the same going forward on GAAP taxes?

GAAP tax, yes no change please.

Okay great, thanks Manny.

Thank you. Nick Allen, you may your question. Please state your company name.

Nick Allen with Morgan Stanley. Two questions, first, can you talk about your percentage exposure to Spain in the first half on the Systems side and then also can you explain the dynamic between the Systems business and the components business and that the gross margin, on the component side appears to be going at 36% roughly, while the System's business is maintaining a more stable gross margin, while the mix between SunPower panels and other panels in the systems business is also staying stable?

So, Howard will take Spain, Manny will take gross margin and Tom will clarify the statement he made earlier to Stuart and that is on second half, price decrease is low single digits, I said high, I apologize for that, low single at a high, I apologize for that, low single. Howard, Spain percentage.

So for the next fourth quarter's our exposure on the system side in Spain is zero. We've planned around it, we've got bookings for the second half of this year, fully allocated and in to next year.

But what was it, I am sorry the first half of this year?

Just briefly I pointed to the information sheet that we put on the website and you can get a lot of mix... historical mix and we do give it for all of Europe and that was 61%. I am sorry it was 82% for all of Europe and Q2 of '08 and Spain was a significant part of that.

Okay, Nick its Manny. Let me take your second question on margin difference within component and systems and trends. The components side is heavily influenced by the fact that SunPower manufactured products and we sell them either directly to customers or through our dealer network. And the model initially for the company there was to achieve 30% gross margins with the cost reduction programs, reduction in silicon costs and also greater volume we are actually able to achieve better than 30%, in this case 36% exiting '08. That also has to do with the premium discussion earlier that Tom answered. Our products do command a premium anywhere from 5% to 15% where it is specifically then sold to those channels. On the systems side, the gross margin of systems is highly influenced by the allocation of SunPower modules to that group as I noted in Q2, 61% of the systems used SunPower panels. In our specking [ph], margin specking modules, when you start approaching 75% to 80% mix, you radically achieve 30% gross margin. So, what's... usually taking that down is a mix of third party modules which we have to buy in the open market and as you can imagine that does not result in as a high a margin as our own product. The other factor that's often influenced system margin trends, is the regional mix as well in terms of whether you are implementing it in North America or Europe, as well as the size of the project itself. There is very different margin profile which is a 10 megawatt implementation over ten 1 megawatt implementations.

Great, thank you.

: Thank you. Rob Stone, you may ask your question. Please state your company name. Robert Stone - Cowen & Co.: Its Cowen and Co. Congratulations on an excellent quarter. A two part questions, Tom if I may, first of all the industry has it's over hanging anxiety about the supply demand balance next year, you referred to modeling, to paranoia. When do you think we might reach a point, where this greater confidence across the industry and investors and the supply demand outlook for next year. And then related to that, I noted that you mentioned the Middle-East, can you just talk about how you see that market evolving? How it might compare in relative significance to other emerging new markets? Thanks.

Okay. So supply demand when will be they will be more covered in Middle-East, Peter will take the second part on Middle-East. Supply and demand has the dynamic of how fast will supply increase which is both Crystalline products as well as thin film products. Like many of the people on the phone, we probably await that and that creates a range of when that supply is going to come online and of course we do that by groups of suppliers. And of course of the demand side, we look at probable ramp rates of different countries and then one of the things that was really important on the call today as we talked about making markets, markets that have been un-served and that is sort of a wild card because of course they have been un-served so try to predict those and Japan's largely been un-served as an example of utility market and emerging market and when the target predict. And so specifically to your question Rob, I think when you get towards the end this year, you are going to see... get a much better sense of those emerging demand drivers. And I think you are going to be able nail down some of the supply numbers here. I will admit that I thought that there would be more silicon supplied by this time. Fortunately, our commodities management team was able to manage through this very capably and we have a 100% of our silicon per day. I thought that the supply side would happen sooner than it actually has. So that's a long winded end of this year probably would be my best guess. Howard, I'm sorry Peter.

So, in terms in the Middle East markets, our view is that those are still in early stages of development. We see genuine interest from the number of countries there, which is a combination of their desire to invest strategically in the next cycle of energy beyond fossil fuels and to a certain extent competition between the counties. So both those things are driving interest. The policy processes and the decision processes are relatively compact down there, I would say compared to what we see in Europe and United States. So, decisions can happen very quickly. And so net-net, I think we're looking at something between one and two years before we see volumes out of that region that start to become market driving in terms of volumes on the scale of the some of the pitching European markets for instance. Robert Stone - Cowen & Co.: Great. And as a follow-up to this concept about this broadening portfolio of markets, would you say it's fair to conclude that during this period where Spain has such exceptional returns that it has actually resulted in unmet demand or pent up demand in other market?

Yes, absolutely. Robert Stone - Cowen & Co.: Great, thanks.

: Thank you. Bryan Gabel [ph] you may ask your question and please state your company name.

This is Simmons & Company. Multi part if I do it real quick. When you mentioned the 61% of panels roaming into the systems segment but then you also mentioned that the system is... system segment still starving for your components. Wondering what that looks like for '09? You mentioned it would be flat for back half for the year. Additionally, looking at the supplement headcount, significantly increased quarter-on-quarter, wondering a) how do you maintain quality and standardization of insulations there and then also what the cost trends for '09 looks like? And then lastly, when discussing RFP's and the utilities, Howard and Julie, mentioned it earlier, but wondering other than cost, kind of what the sticking points are during those discussions and how short-term utilities you're thinking versus this is kind of end of 2009, looking for 2010 type of this? Thank you?

Okay. Howard Wenger will take that question... those questions.

On the systems versus components mix question, 61%, talk about 2009, we will be roughly the same in our model, maybe even more of a balance. And just wanted to make the point that we manage our company in a portfolio format. So we're not going to necessarily overemphasize one channel or another. It's true that our systems segment is starved for some power product, but we're going to be very deliberate and continue to manage our channels, our geographies in a portfolio approach and so, more of a measured approach. So, we could skew it while we are going towards a more balanced approach going into next year. With respect to CRP's utility and so forth, they are looking out beyond 2009. And it looks like about 2010, 2011, 2012, staying about very significant projects on a scale that has... we have not seen before in our industry's history. And so there is an exercise that's going... taking place with respect to technology development and cost reductions. And we feel like we're in the best position to take advantage of that market, given our cost roadmap and our technology roadmap.

Hi Bryan, it's Manny. Let me just... I think clarify your first question, you were asking about percentage of systems that you sent our products, it was 61% in Q2. Your question is '09 profile. The way we've modeled guidance for '09, essentially puts us in a 70% to 80% SunPower modules or panels in systems implementation. And that, as you could deduce from earlier comments, you'd reconcile our 30-10-20 model which is incidentally comprehended in our guidance also.

Thank you very much, that's great.

Thank you, Steven Kenny [ph], you may ask your question. Please state your company name.

Hi, this is [indiscernible] calling for Steven Ken. Just a quick question with a quick follow-up. So, on a linearity for 2009 sales guidance, how should we think about modeling the sales, we modeled 2009 sales to be more backend loaded for the second half was similar to what we are seeing in 2008, is that mostly due to lower sales in Spain?

Okay, I am going to let the modeling guys answer that question, the finance team, I will just note on that we are not prepared to guide by quarter so we will just make some general comments, since we are 6 months away from the start of the year.

This is Manny. Steve, as Tom said we are not prepared to guidance at this time at the quarter granularity for '09. However, the way we've modeled the guidance we have given you as a linear or sequential growth quarter-on-quarter as modeled. Let me just caution you that using 2008 as an example for that, where we have over delivered and over performed, even within 2008 we've had non-sequential orders just the way the projects line up. So, for modeling purposes reasonable to assume linear sequential, but please always be cautious of our statements that because of our business we are in the systems and project business we could have lumpy quarters.

Thanks. And thenone quick follow up if I may. For silicon cost savings in '09, is it reasonable to assume another 10% reduction?

I am not prepared to. Everybody's wincing in the room to see if I'll give the number. I am not prepared to give guidance on cost reductions and so we can next year but it continues and I'll make a commitment to do that on next quarter call, but it does continue.

Thanks.

Next question please.

Thank you. Christopher Blansett, you may ask your question. Please state your company name.

Hi, from J. P. Morgan. I had, just you're not giving any absolute guidance on cost reduction for next year, but if you could may be prioritize where the most cost reductions is really going come from tops down and how should we look at that next year?

Absolutely. So our cost reductions, let me just overview it really quickly and I'll answer your question very fast after that. Silicon, is lower price silicon and less silicon utilization. The modules in cell benefits from scale and in the systems area we benefit from factory assembly and faster install in the field. And I'll update drivers channel efficiency by scaling elements through the channel and moving them in to our business. And lastly conversion efficiency which if you can do that without adding costs it's a direct cost reduction. So top three are going to be silicon conversion efficiency and channel, channel efficiencies by scaling the channel, and by the way that last piece varies by channel so for power it is scaling the channel per systems. It's value engineering the product, so there can be factory assembled and have less cost. So it is sort of very close between those three things.

Last thing I would like to note about that is all three of those things there are things we're doing this year and implementing this year, so it's not things we're committing to doing some research on, this is all implementation.

On the transition of more internally sourced modules from SunPower your own system's business, how does that rank up there as far as, either cost reduction or margin improvement, how we're going to look at it?

Is your question how much of system margin improvement is determined by cost reduction versus more module utilization?

No, I was just looking at the artifact that you assume due progress to more internally sourced modules. From a systems point of view, you can almost view it as cost reduction as much as you can view it as margin expansion. And I just want to understand the magnitude of that next year, in the context of my initial question?

Hi Chris, Manny. Bit early to really be talking about that for modeling or just analytic sake. You could assume that it's going to transition us from say the low 20s to transitioning more towards the 30% for systems, as we use more and more SunPower products. So mid-20s approaching 30s.

Okay, thank you.

Thank you. Pavel Molchanov you may ask your question. Please state your company name.

Raymond James. A question about your utility scale TV projects. We've seen a lot of solar thermal projects particularly in California that are topping the 100 megawatt range, do you anticipate having more participating in TV projects off that scale in the near feature?

Okay. On, and let me just comment on the call management here, we're going to go to 12 or slightly before 12, we saw a quite a few questions. And we'll answer the questions as quickly as possible and do as many as we can. As Howard talked... spoke earlier about the number of RFP's and then they are a piece, they have a very broad range and yes they are RFP's that are larger than 100 megawatts.

And specifically in the U.S. or in some of your overseas markets?

I would say yes.

Sounds good, thanks.

Next question please.

: Thank you. Michael Horwitz, you may go ahead. And please state your company name.

Sanford Group. Hi, everyone. May be a little follow-up on what Rob Stone was saying, when you talk about pent up demand possibly being in other markets because everybody was so focused on Spain, as you move your product into some other markets and focus on other markets, is it possible that you will taking share from other players in those markets because some of that demand that you are unable to fulfill and wanted your product and so now that they can get your product they are going to take more of it?

Question I absolutely we pointed to Germany earlier, and then the second point is that you open markets through various ways obviously one is supply and the other one is you lower the cost, you lower your price, and that opens markets up.

So following on when you model out those price declines, how do you view elasticity?

That difficult question to answer quickly, and that's one of the reasons why we are vertically integrated towards the customer so that we can influence the elasticity. In other words we can test pricing and demand response and so it varies dramatically by part of the world because utilities are regulated completely differently all over the world. In the bar [ph] channels, the residential channels more straight forward, and what we found is as electricity prices go up in the bar channel residential demand has gone up rather dramatically and the utility channel would be far too complex to cover here.

And the only other thing, this is Julie, I will just add, on the price elasticity question there is two things to take into consideration, one is the absolute level of the alternative rates that customers pay and the second is the pace at which change is happening and the thing that I think is really relevant to the current situation is if you just looked around the world and you looked at how fuel prices have gone up, and you look at where rates are, you would have that kind of universally raised rates by multiple times the average rate increases that we have seen historically given the way fuel prices have increased. So, that is having a major psychological effect on peoples willingness to pay to hedge their prices going forward, but, the rest of residential customer or commercial customer or utility customer.

Okay, Peter is going to make one comment and then we need to go to the next caller.

: Okay from SunPower perspective we see that price elasticity demand for our products is extremely high if you just think about our market share around 5% and the premium that Howard mentioned between 5% and 15% that gives you pretty steep price elasticity right there.

Okay, thank you for the question. We do need to move.

Thank you. Corey Tobin You may go ahead. Please state your company name.

Hi, Corey Tobin from William Blair good afternoon everyone. Quick question, the Toshiba contract, could you provide any additional details particularly with respect to inflation of margins on that arrangement, and also what's the potential for other agreements of this nature in different geographies? Thanks.

Peter Aschenbrenner will take that.

So we are not prepared to offer any details on the agreement with Toshiba, that is something that we do need to work with them. I think the prospects of similar arrangements in other countries are good and we are working on a number of them.

Okay. Could you expand it on in terms of which geographies or at this point, is it wait and see?

Well, I think we are very active across Europe, so I would look, Europe as a place where we would be crafting these kinds of incremental arrangements. Japan is a unique case because its been very difficult for non-Japanese suppliers to crack that market and it's been a market that frankly hasn't been the focus of most of the industry for the last couple of years. So we have been working on that as Tom said for three years now and we are starting to bear the fruits of that.

Okay, great. Thank you.

: Thank you, Adam Krop, you may go ahead. And please state your company name.

Hi, Ardour Capital, quick question on your 2009... your guidance do you have a capital raise modeled into that 2009 guidance of $3.50 or can you make comments on that and if I missed it can you just drive a little bit more detail on what you are expecting for your capital need for 2009? Thanks.

Hi, Adam, answer to your question is no, the 2009 guidance does not assume a capital raise, we have noted in prior calls that were expecting to be free cash flow positive early '09 and that is still on track. The only qualification we have made to that statement is subject to us not doing a material transaction; sets us an acquisition for cash that would obviously have different dynamic or a radical change in our business model that might also require different kind of financing. But for 2009, no capital raised. We... why don't we take that as a homework as far as 2009 CapEx? We're not ready to provide that answer at this point.

Okay, thanks.

Thanks for the question, if we can take the next one. And we have about 8 minutes left and then we will wrap up.

Jonathan Hoopes, you may go ahead. Please state your company name.

The company is ThinkEquity. Thank you for taking my question. Tom, during your prepared remarks and during the Q&A, you were clear on about at least two things with regard to Spain. That there is a shift in Spain to the rooftop market where you planned the leverage in your dealer networking; number two, it sounds like you have zero power plant business exposure in your business model until the feed in tariff thing gets worked out. My question is about how your system's business in Spain will be affected by these dynamics, specifically when you have idle systems employees in Spain in the fourth quarter and early part of '09 until the new role that pre arrives. And, if so how will the business model absorb the cost of the underutilized employees, and is there a way for you to take underutilized systems employees and maybe temporarily move them to other parts of the EU, where you can put them and keep them working?

Yes. We believe that there is small loop to the rooftop. Yes, we said it's virtually nowhere zero systems business. When we entered the year, we talked about participating across geographies and across segments because if policy can change or policy uncertainty, we knew that in September that there would be a new feed in tariff in Spain. So, we are very careful about how many people we added to our payroll in Spain. And we leveraged subcontractors rather dramatically. So, we are talking about less than 20 employees. And the answer to your question is, yes, we can utilize them elsewhere.

Thank you very much.

Thank you. Jeff Osborne, you may go ahead. Please state your company name.

It's Thomas Weisel. Just two quick ones. Toms, at $5 total installed cost per watt per kilowatt assuming no trackers, can you make over 20s gross margin?

Depends on the timeframe. The answer to your question is, yes, and in a very foreseeable timeframe.

Very good, and then just to gauge your paranoid on pricing, you mentioned range several times, that didn't hear the high and low of the range. So I was just wondering, if you could comment on that?

Almostmade it through the call. Range that we've modeled goes from a price and therefore, you can cover that cost production 10 to 20.

Very good. Thank you.

Thank you. Michael Carboy, you may go ahead. Please state your company name.

Good afternoon, Signal Hill. Tom, you've talked a lot about potential disruptions and demand coming out of Spain. And we're also happy with the ITC issued here in U.S. Thinking about the fact that disruptions to the business plan or to the overall solar TV business has impacts on the sub-component supply chain. Do you see any potential bottlenecks unfolding in the first part of the year, once we have greater clarity on ITC and on the Spanish degrees?

I think there is two perspectives on that one is the overall solar sector which, I won't comment on a lot other than there has been discussions about some module components like class or some of the other plastics components. And then there is, of course, SunPower coverage. And the answer to last question is yes, we have a commodity strategy for not only silicon, but the other large components. And we plan through 2009 and we have our, what we need to cover demand. We are also on the macro question that we are attempting the model overall global capacity and perhaps we can talk more about that in our next call.

Okay, and with regard to any contingent exposure Manny on pricing, any price guarantees on ITC?

So, I think I will take that question. As I said earlier that on the 12 to 18 month question that yes, there is business around the world that works on that time frame. And then I alluded to in the United States with commercial ITC business that there is good contingencies built in so the word contingency is the key.

Thank you.

: Paul Clegg you may go ahead. Please state your company name.

Hi, Jefferies, question about the residential financing market and developments there, are you seeing efforts to develop residential PPA is taking off, and then kind of ancillary to that, what about the abilities to create and monetize racks [ph] in the residential market?

Okay. Hopefully Peter or Howard can help me here. The answer is at a high level the PPA's are very early stage and they are not a material part of the residential business yet. Racks obviously a significant part important part of majority business, having said that Howard do you want to add anything.

Just a little that we do have a number of financing options for our residential customers through our dealer network. And we are evolving new financing vehicles but as Tom mentioned not a significant part of the business at this time, but see it increasing over time.

Okay, we are going to take may be two more questions because we're basically at noon.

: Thank you. Colin Rusch, you may go ahead. And please state your company name.

Good afternoon Colin Rusch from Broadpoint Capital. In the utility coding process are you seeing any particular thresholds for go-no-go decisions based on summer-winter peak ratios, the effective load taking capacity or total percentage of complete or total capacity, for the entire asset base?

Okay, I'll let Howard answer that question, a deep question, go ahead.

Yes. Having worked at specific gas electric company for over five years I understand what you're getting at. The utilities do look at the production profile from systems. So we do evaluate whether it's flat on the roof, or its tracking, non-tracking and we're making decision on the effective peak capacity from the systems. And that's integral part of the equation. But the other factors that we mentioned, we think are more dominant which is around cost of energy and then capability, and mitigating their risk and giving them assurance of delivery and performance.

Okay. And just to clarify the effective peak capacity, can you put some parameters around that about where its coming out?

There has been a number of studies that depends on the utility of the geography. The load shape, but for summer peaking utilities the effective load carrying capability is between probably 60% and 80% of an equivalent gas fired dispatchable peaking of generator and so horse-tracking gets you towards the upper end of the range and that's what we provide.

Alright, thanks so much and congratulations on the execution.

: Thank you. And our last question comes from Sam Dubinsky, you may ask your question. Please state your company name. Sam Dubinsky - Oppenheimer & Co.: Sam Dubinsky from Oppenheimer. Just a couple of quick questions, not too much on the pricing front. The question number one, it seems like your pricing today is below the industry average when I compare it to lets say Chinese module manufacturers. So, do you think you are pricing at the fall, do you think pricing can fall less than the industry average number one? And a housekeeping question just in terms of percentage of internal modules, I know that you gave that panel number. Can you give just on a megawatt shipment basis what percentage was internal? Thank you.

Okay, so I apologize everybody in queue that we didn't answer your question. We do call backs and we can do a call back on this question as well. The answer is that our pricing is actually at a premium to the market between 5% and 15%. And we expect to maintain that premium because we're increasing the efficiency of our product therefore we'll watch per panel. And so we don't expect to fall below the market in terms of megawatts moving to the systems channels. That's not a metric that we have included in our data sheet. Perhaps we can help you in some other way in a follow up call. Okay, thank you very much, and thank you everybody that you stayed all the way through the hour and a half. We really appreciate your support, we're looking forward to talking to you in October. I can assure you this team is dedicated on delivering the guidance that we've communicated to you today. Thank you very much.

Thank you. This does conclude today's SunPower conference call. Have a nice day.