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

65 squarers. Pursuant to the contract, we are required to make 15% advance payment, to pay an additional
75% of the purchase price by a letter of credit prior to each shipment and to pay the remaining 15% within
10 days after the installation and acceptance of the machine. We have also entered into a framework
equipment purchase contract with Meyer Burger in January 2006 for 40 wire saws and the purchase price is
subject to negotiation according to the market conditions at the time of supply. We are required to make a
25% advance payment nine months before each shipment, to pay an additional 65% by a letter of credit issued
60 days prior to the shipment and to pay the remaining 10% within 30 days after the acceptance of the
equipment. We make prepayments to our equipment suppliers without receiving any collateral prior to the
shipment of the equipment. If our equipment suppliers fail to deliver the equipment we have ordered and do
not return our prepayments, our results of operations would be adversely affected.
Research and Development
We have a dedicated research and development team at our manufacturing facility in Xinyu Hi-Tech
Industrial Park. Its primary objectives are to enhance our product quality and to achieve a more efficient
production process by improving yield and lowering production costs. Our current initiatives include:
‚ optimizing our solidification process to achieve the highest conversion efficiency;
‚ improving our solidification purification process to allow us to use low-cost polysilicon materials
without losing wafer efficiency and quality;
‚ reducing polysilicon kerf losses and improving polysilicon recoveries;
‚ improving our crucible and coating technology to achieve re-usability of our crucibles;
‚ optimizing our ingot and wafer sizes, including making larger ingots and larger and thinner wafers;
‚ localizing the production of additional consumables in China; and
‚ localizing the production of some of our auxiliary equipment in China.
In addition, we established the LDK Laboratory with Shanghai Jiaotong University in October 2005.
This laboratory currently focuses on developing quality consumables and supplemental equipment to be
produced in China. Under our arrangement with Shanghai Jiaotong University, we and the university will
jointly own all research results of the laboratory and we will have the priority right to utilize these research
results. We and the university are entitled to 40% and 30% of all economic benefits derived from these
research results, respectively, and the remaining 30% of the economic benefits will be reinvested in the
laboratory. We plan to continue to expand our research and development efforts by establishing additional
research ventures, both in China and overseas, to improve our production technologies and processes.
Competition
The multicrystalline wafer manufacturing industry is competitive. According to Photon Consulting, the
five largest wafer manufacturers accounted for approximately 60% of global production in 2005. We believe
that the supply of polysilicon feedstock will significantly increase in the next few years, thus easing supply
constraints to solar wafer manufacturers. Although we expect demand for solar wafers to grow in response to
higher demand for photovoltaic cells and modules, the international solar wafer market will become more
competitive. Like us, other solar wafer manufacturers are also engaged in aggressive expansion programs. In
addition, new entrants are reported to be making significant investments in our industry. We expect to face
increased competition, which may result in price reductions, reduced margins or loss of market share. We
compete with international players such as BP Solar, Deutsche Solar, Ersol, Evergreen Solar, Green Energy,
JFE, Kyocera, M.SETEK, PV Crystalox, REC and MEMC, which has recently announced its plans to
manufacture solar wafers. We also compete with players in China such as Jinggong P-D, Shunda and Tianwei
Yingli. Many of our current and potential competitors have a longer operating history, wider name recognition,
greater resources, larger customer base, better access to polysilicon feedstock and greater economies of scale
than us. In addition, most of these competitors are integrated players in our 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 competitors 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
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