November 21, 2008

Jiangsu, China: Canadian Solar Reports Third Quarter 2008 Results

Chinese manufacturer, Canadian Solar Inc. today reported financial information for the third quarter 2008.

Net revenues for the quarter were $252.4 million, compared to net revenues of $97.4 million for the third quarter of 2007 and $212.6 million for the second quarter of 2008.

Net income for the quarter on a GAAP basis was $11.1 million, or $0.31 per diluted share, compared to $0.5 million, or $0.02 per diluted share, for the third quarter of 2007 and $10.5 million, or $0.36 per diluted share, for the second quarter of 2008. The non-GAAP net income for the quarter was $0.41 per diluted share and excludes stock based compensation.

Dr. Shawn Qu, Chairman and CEO of CSI, commented: "We are pleased with our top line, gross margin and operating income results for the quarter. These results directly reflected our conservative approach to the business and our balanced financial management. This marks our sixth consecutive quarter of sequential top-line growth. We have successfully ramped up the production of our proprietary low-cost e-Modules products, which helped us to maintain our gross margin in the quarter. We are, however, operating in a challenging macroeconomic environment with a very volatile foreign exchange situation, which continues to impact our bottom line. In July, we took measures to hedge against our currency risk, which we believe will help to offset the impact of Euro against US Dollar foreign exchange fluctuations in Q4 and in Q1 2009."

Outlook
-- On the basis of Q4 expectations the Company is reverting to May guidance for FY 2008 of $650-750 million in revenue.
-- Guiding down Q4 expectations for shipments, margins and earnings.
-- Conditionally re-iterating 2009 shipment and margin guidance of 500 to 550 MW with margins of 13-15%.
-- E-Module average conversion efficiency is now 14.2% with improved production yield. Further improvements are expected.
-- Capacity expansions will be slowed or delayed pending further evaluation of supply and demand environment.

Given the uncertainty of project and customers' financing coupled with softening solar market demand in Europe and USA at the year-end, the Company has shifted its short-term operational emphasis to preserving cash and minimizing risk from the credit environment. Based on this adjustment, Q4 shipments are estimated to be approximately 20 - 25 MW. This will result in revenues of approximately $70 million to $85 million. Accordingly, the Company is returning to its previously stated May annual revenue estimate of $650-750 million.

The Company continues to achieve significant progress on its proprietary low-price e-Modules with average UMG e-cell conversation efficiency increasing to 14.2% in recent weeks. The yield also continues to improve and raw materials cost per watt has declined. We expect these improvements to continue in the coming quarters. While the Company has secured sufficient UMG feedstock to produce at least 25 MW of e-Modules in Q4, market and credit conditions may lead the Company to implement a more conservative production plan and ship only 6~8 MW.

The Company's ingot and wafer plant will be completed to support the e-Module program, but on a more modest schedule. Canadian Solar has postponed further expansions of our cell plant past the current capacity of approximately 270 MW. The company will revisit capital expenditures in the coming months, depending on the market demand, margins and supply prices.

For 2009, The Company is maintaining its guidance of 500-550 MW. Based on discussions with its long-term customers and suppliers it believes that it can price both its traditional high-efficiency modules and the low-price e-Modules competitively while maintaining gross margins of 13 - 15%. These estimates are contingent on the following factors: First, wafer and silicon prices decline to a realistic level, consistent with the Company's expectations; and second, the availability and the cost of project financing. PV projects are a highly creditworthy asset class, and customers have to date been able to finance their 2009 projects under reasonable terms. However, a substantial increase in the cost of capital could put further pressure on module prices, while a decline in availability of debt or equity would impact demand. It is anticipated that the PV market will recover starting in Q2 or Q3 of 2009 with fewer but stronger players. The Company believes that the decline in average selling prices of solar modules has already prompted rapid pricing adjustments across the entire supply chain. This is a healthy development for the industry in the longer term. Canadian Soar, as one of the major world-wide solar cell and module producer we expect to benefit from this development and further solidify our industry position.

Shawn Qu CEO, remarked: "Canadian Solar is the first and probably the only major solar company to adopt and maintain a flexible vertical integration business model. This model is an important component of our strategy and has proven to be a key advantage in a volatile environment as it allows us to quickly adjust our expenditures and to take advantage of cost declines at any point in the supply chain. Our unique product mix is another component of our strategy and a key differentiator in the industry for Canadian Solar. Our e- Modules are a lower priced and higher margin product line, even with significantly lower poly-silicon costs. Third, our modest capital plant and low fixed costs enables us to quickly turn operational cash positive in a market downturn. These three components together allow us to rapidly change our purchasing mix, our product mix and our total output depending on the market conditions. We will use this flexibility to protect our margins and preserve cash so that we can capitalize on opportunities to capture market share once the market resumes growing."

Arthur Chien, CFO of CSI, noted: "We have delayed our capital expenditures temporarily in order to conserve cash as the Company currently has both ample capacity and wafer supply to match the current market demand. We do not foresee the need for additional capital expenditures until the first or second quarter of next year. We will revisit capital expenditures as the market conditions warrant it. We currently have a sound cash position with more than $100 M cash in hand, positive cash flow and additional lines of credit with local banks. We established an active hedge against the Euro in July, with a current hedge of more than 100 M Euro for Q4 cash flow, which will be settled November through January. We will continue our hedging policy going forward, which will provide visibility and some mitigation of foreign exchange risks."

Further details about: Canadian Solar Inc. (CSI)