Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from the line of Bill Lu with Morgan Stanley. Please proceed sir.
Bill Lu – Morgan Stanley
Yes, hi. Excuse me, good morning. I have got a couple of questions. One is if I was just looking at the overall pricing and margin trend, I think Nan has said that expectation is for pricing to drop by 20% to 30% by 2009, but if I look at your margin guidance in the first quarter alone, it seems like pricing has already dropped that much in 1Q. Is that the right math and can you just talk about that a little more? I mean do you expect the pricing to be more front end loaded when you are looking out and beyond 1Q?
Patricia Chou
Hi, Bill. This is Patricia. I'm sorry, I'm losing my voice. As far the ASPs, your analysis is very much realistic in the current situation, because in the fourth quarter we have adjusted our ASP to keep competitive and secure our market share under the economic crisis. So in the first quarter, we do not expect to continue to further adjust our ASPs too significantly.
Bill Lu – Morgan Stanley
Okay. I guess I'm not real clear because gross margin is going to drop from 45% to about 30% to 35% in 1Q, what is causing that?
Patricia Chou
The fourth quarter ASP is at an average selling price, so the further drop, say in the first quarter against December’s selling price is not significant compared with say the October's selling price which is right before the sudden frozen market in December. That could illustrate the big difference.
Bill Lu – Morgan Stanley
Okay, got it. That is very clear. So I guess the question is, you know, given how much it dropped recently, can you give me some confidence that that 20% to 30% drop for the full-year is realistic?
Patricia Chou
During 2008, in fact it’s before the financial crisis, we had kept our ASPs quite stable. For example, in the first three quarters, each quarter, we tried to keep the ASPs within 3% to 5% reduction. Unfortunately in the fourth quarter, to be competitive in the financial crisis and also leading to the lack of consumer confidence, we had adjusted our price very dramatically. But overall, the ASP erosion for the whole of 2008 was still within the range of 20% to 30%. So for 2009 based on our experience in the past several years, we believe that 20% to 30% reduction should still work. And also when we were in the price range of say $5 to $6 (inaudible) it was relatively easy to drop the price by say 10% in a year or 20% in a year. But now since we're talking about much less than $2 ASP, it would be getting harder and harder to cut off another 20% to 30% a year. So we believe this range will be realistic.
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