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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations
in conjunction with the section entitled ""Selected Consolidated Financial and Operating Data'' and our audited
consolidated financial statements and unaudited condensed consolidated interim financial statements included
elsewhere in this prospectus. The following discussion and analysis contain forward-looking statements that
involve risks and uncertainties. Our actual results and the timing of selected events could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those set
forth under ""Risk Factors'' and elsewhere in this prospectus.
Overview
We produce and sell multicrystalline solar wafers to manufacturers of photovoltaic products, including
solar cells and solar modules, both in and outside China. The multicrystalline wafers we produce and sell are
between 180 and 240 microns in thickness. In addition, we provide wafer processing services to monocrystalline
and multicrystalline solar cell and module manufacturers. We also sell polysilicon materials, which
include ingots and polysilicon scraps.
As of March 31, 2007, we had an annual multicrystalline wafer production capacity of approximately
215 MW. According to our current expansion plan, we intend to continue to increase our annual production
capacity, which we expect to reach approximately 400 MW by the end of 2007 and approximately 800 MW by
the end of 2008. Despite the current industry-wide shortage of polysilicon, we believe that our polysilicon
feedstock inventory and commitments from suppliers are sufficient to satisfy over 90% of our estimated
requirements for 2007 and approximately 50% of our estimated requirements for 2008. Many of our polysilicon
supply agreements are subject to fluctuating market prices or price negotiations with our suppliers. The
majority of our polysilicon feedstock consists of polysilicon scraps and recyclable polysilicon. We source a
portion of polysilicon feedstock from the spot market from time to time depending on the price and our
requirements. For the year ended December 31, 2006, we derived approximately 75.5% of our net sales from
sales to PRC manufacturers of photovoltaic products and approximately 24.5% from exports. For the three
months ended March 31, 2007, we derived approximately 50.0% of our net sales from sales to PRC
manufacturers and approximately 50.0% from exports.
Since we made our first commercial sales of multicrystalline wafers in April 2006, we have experienced
significant growth. Our net sales increased from $12.1 million for the three months ended June 30, 2006 to
$31.5 million for the three months ended September 30, 2006, $61.9 million for the three months ended
December 31, 2006 and $73.4 million for the three months ended March 31, 2007. Our net income increased
from $1.3 million for the three months ended June 30, 2006 to $5.0 million for the three months ended
September 30, 2006, $24.3 million for the three months ended December 31, 2006 and $24.5 million for the
three months ended March 31, 2007.
Key Factors Affecting Our Results of Operations
The following are key factors that affect our financial condition and results of operations. They are
important for understanding our business:
‚ demand for our solar power products, including government incentives to promote the usage of solar
energy;
‚ our production capacity and its utilization;
‚ the availability, cost, quality and mix of our polysilicon feedstock;
‚ our manufacturing costs; and
‚ the pricing of our products.
Demand for our solar products
Our business and revenue growth is, in part, a function of the demand for solar power products. Although the
solar power market remains at a relatively early stage of development and it is uncertain whether solar energy will
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