LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

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Reduction or elimination of government subsidies and economic incentives for the solar power industry could cause demand for our products to decline, thus adversely affecting our business prospects and results of operations. Growth of the solar power market, particularly for on-grid applications, depends largely on the availability and size of government subsidies and economic incentives. At present, the cost of solar power substantially exceeds the cost of conventional power provided by electric utility grids in many locations around the world. Various governments have used different policy initiatives to encourage or accelerate the development and adoption of solar power and other renewable energy sources. Renewable energy policies are in place in the European Union, most notably Germany and Spain, certain countries in Asia, including China, Japan and South Korea, and many of the states in Australia and the United States. Examples of government-sponsored financial incentives include capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar power in both on-grid and off-grid applications and to reduce dependency on other forms of energy. Governments may decide to reduce or eliminate these economic incentives for political, financial or other reasons. Reductions in, or eliminations of, government subsidies and economic incentives before the solar power industry reaches a sufficient scale to be cost-effective in a non-subsidized marketplace could reduce demand for our products and adversely affect our business prospects and results of operations. We operate in a competitive market against players with greater resources and more advanced technologies and we may not be able to compete successfully. The multicrystalline solar wafer manufacturing market is competitive. Our competitors include international players such as affiliates of BP plc, or BP Solar, Deutsche Solar AG, or Deutsche Solar, Evergreen Solar Inc., or Evergreen Solar, Green Energy Technology, Inc., or Green Energy, JFE Steel Corporation, or JFE, Kyocera Corporation, or Kyocera, M.SETEK Co. Ltd., or M.SETEK, PV Crystalox Solar AG, or PV Crystalox, and Renewable Energy Corporation ASA, or REC, and MEMC Electronic Materials, Inc., or MEMC, which has announced plans to manufacture multicrystalline solar wafers. Our competitors also include companies located in China such as Jiangsu Shunda PV-Tech Co., Ltd., or Shunda, Jinggong P-D Shaoxing Solar Energy Technology Co., Ltd., or Jinggong P-D, and Tianwei Yingli New Energy Resources Co., Ltd., or Tianwei Yingli. Many of our current and potential competitors have a longer operating history, better name recognition, greater resources, larger customer base, better access to polysilicon feedstock and greater economies of scale than we do. In addition, most of our competitors are integrated players in the solar industry that also engage in the production of virgin polysilicon, photovoltaic cells and/or modules. Their business models may give them competitive advantages as these integrated players place less reliance on the upstream suppliers and/or downstream customers in the value chain. We currently have no plans to expand into the production of photovoltaic cells or modules, and we have entered into non-competition agreements with some of our customers, pursuant to which we have agreed not to engage in the production of solar cells or modules based on current wafer technology for the next 10 years. Furthermore, due to the perceived growth in demand for multicrystalline wafers, we expect an increase in the number of competitors over the next few years. The key barriers to entry into our industry at present consist of access to supplies of solar-grade polysilicon, availability of financing and availability of various production equipment, such as ingot-producing DSS furnaces and wafering equipment. If these barriers disappear or become more easily surmountable, new competitors may successfully enter our industry, resulting in loss of our market share and increased price competition. Within the crystalline wafer industry, we also compete with monocrystalline wafer manufacturers. According to Solarbuzz, monocrystalline wafers in 2006 represented approximately 42% of the global photovoltaic cell production while multicrystalline wafers constituted approximately 49%. Certain monocrystalline wafer manufacturers have begun or intend to manufacture multicrystalline wafers, and they currently supply multicrystalline wafers to multicrystalline photovoltaic cell manufacturers, including some of our customers. Manufacturers of monocrystalline wafers that compete with us include Ersol Solar Energy AG, or Ersol, M.SETEK, ReneSola Ltd., or Renesola, Sumitomo Mitsubishi Silicon Corporation, or SUMCO, and Sino-American Silicon Products Inc., or Sino-American Silicon, and Trina Solar Limited. 12
We also compete with alternative solar technologies. Some companies have spent significant resources in the research and development of proprietary solar technologies that may eventually produce photovoltaic products at costs similar to, or lower than, those of multicrystalline wafers without compromising product quality. For example, they are developing or currently producing photovoltaic products based on thin film photovoltaic materials, which require significantly less polysilicon to produce than multicrystalline solar products. These alternative photovoltaic products may cost less than those based on multicrystalline technologies while achieving the same level of conversion efficiency. The solar power market in general also competes with other sources of renewable energy and conventional power generation. If prices for conventional and other renewable energy sources decline, or if these sources enjoy greater policy support than solar power, the solar power market could suffer and our business and results of operations may be adversely affected. We may not be able to significantly increase our production capacity or output in order to increase our sales and gain additional market share. We need to significantly increase our production capacity and output to be able to meet the growing demand of our customers. As of March 31, 2007, we had an annual production capacity of approximately 215 MW. All of our production facilities are operating at full or close to full capacity. Our strategy includes a rapid expansion of our production capacity. To accommodate our business expansion plan, we have acquired additional land adjacent to our current production site at Xinyu Hi-Tech Industrial Park and are constructing additional manufacturing facilities on the acquired land. Our expansion plan requires a substantial increase in our production and ancillary equipment. We have entered into contracts to purchase additional equipment that is expected to be sufficient for our planned expansion to approximately 400 MW by the end of 2007 and approximately 600 MW by mid-2008. We currently do not have contractual commitments for all the equipment necessary for the expansion of our production capacity beyond 600 MW to approximately 800 MW by the end of 2008. If we are unable to enter into additional equipment purchase contracts at reasonable costs, or at all, or if any of our equipment manufacturers fails to deliver, or delays its delivery of, our equipment for any reason, the implementation of our expansion plan may be adversely affected. In addition, there is a limited supply in the world of the principal manufacturing equipment we use and we may not be able to replace our providers for the required equipment at reasonable costs and on a timely basis to implement our expansion plan. We cannot assure you that we will be able to implement our business expansion plan on a timely basis or at all. Our ability to successfully implement our business expansion plan to establish additional manufacturing capacity and to increase our output and sales is subject to various risks and uncertainties, including: ‚ the need to procure additional equipment at reasonable costs and on a timely basis; ‚ the need to procure sufficient supplies of polysilicon feedstock at reasonable costs and on a timely basis; ‚ the need to raise additional funds to finance our purchase of additional polysilicon feedstock and equipment and the construction of additional manufacturing facilities, which we may be unable to obtain on reasonable terms or at all; ‚ construction delays and cost overruns; ‚ difficulties in recruitment and training of additional skilled employees, including technicians and managers at different levels; ‚ diversion of significant management attention and other resources; and ‚ delays or denials of required approvals for our land acquisition and plant construction by relevant government authorities. Our expansion plan contemplates a substantial increase in production capacity and we cannot assure you that we can successfully implement our expansion plan or manage such an expanded capacity. If we fail, or encounter significant delays in our efforts, to establish or successfully utilize additional manufacturing 13
Page 1: PROSPECTUS 17,384,000 American Depo
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Page 6 and 7: We were incorporated in the Cayman
Page 8 and 9: percentage of light energy from the
Page 10 and 11: Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Page 12 and 13: (1) Gross profit for the year ended
Page 14 and 15: RISK FACTORS Investment in our ADSs
Page 18 and 19: capacity or to increase our manufac
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Page 24 and 25: Compliance with environmental regul
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Page 34 and 35: outside the United States. As a res
Page 36 and 37: The forward-looking statements cont
Page 38 and 39: CAPITALIZATION The following table
Page 40 and 41: DILUTION If you invest in our ADSs,
Page 42 and 43: DIVIDEND POLICY We have never decla
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Page 46 and 47: MANAGEMENT'S DISCUSSION AND ANALYSI
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Page 50 and 51: listed public company in the United
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For additional information relating
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The non-cancelable purchase obligat
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previously deemed material, but are
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module production will increase fro
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The following diagram illustrates t
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Because we are a pure-play solar wa
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Wafering. After passing inspection,
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our revenue and customer base to ta
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‚ Our agreement with E'mei Semi-c
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photovoltaic cell or modules, and w
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A breakdown of our employees by are
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tax treatments to foreign-invested
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On September 21, 2006, the CSRC pub
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Gang Wang is a non-executive direct
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directors on our audit committee wi
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monies of or belonging to us may be
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(10) Vests on July 31, 2007. Brilli
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Securities (USA) LLC, which is a re
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interest-bearing loans directly to
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person, by its duly authorized repr
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History of Securities Issuances The
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persuasive authority in the Cayman
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making any sale by public or privat
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Reports and Other Communications Wi
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Amendment and Termination How may t
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‚ deliver distributions on any AD
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SHARES ELIGIBLE FOR FUTURE SALE Upo
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TAXATION The following summary of m
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individual, up to $3,000 of capital
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person and on sales of ordinary sha
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The estimated offering expenses pay
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Pricing of the Offering Prior to th
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ADS with a view to selling it to th
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EXPENSES RELATING TO THIS OFFERING
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‚ no new admissible evidence rele
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WHERE YOU CAN FIND ADDITIONAL INFOR
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REPORT OF INDEPENDENT REGISTERED PU
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LDK SOLAR CO., LTD. AND SUBSIDIARIE
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