Second Quarter Revenues of US$111.6 million, up 44.9% from the Previous Quarter; Shipments Amounting to 35.0MW; Net income US$3.1million; Net Operating Cash Inflow of US$27.4 million

China Sunergy Co., Ltd. (Nasdaq: CSUN), ("China Sunergy" or the "Company") a specialized solar cell manufacturer based in Nanjing, China, announced today its financial results for the second quarter of 2008.

Second Quarter Financial Results

• Revenues were US$111.6 million, representing a 98.6% and 44.9% increase compared to the second quarter of 2007 and the first quarter of 2008, respectively; revenues generated from solar cell sales were US$104.4 million, representing a 160.2% and 39.3% increase compared to the second quarter of 2007 and the first quarter of 2008, respectively.
• Gross profit was US$11.6 million compared to US$2.8 million and US$7.1 million during the second quarter of 2007 and the first quarter of 2008, respectively. Gross margin was 10.4%, compared to 4.9% and 9.2% during the second quarter of 2007 and the first quarter of 2008, respectively.
• Quarterly net income was US$3.1 million, compared to net loss of US$3.5 million and a net income of US$0.5 million in the second quarter of 2007 and the first quarter of 2008, respectively.
• Basic and diluted net earnings attributable to holders of ordinary shares were US$0.08 per ADS compared to a net loss of US$0.14 and a net income of US$0.01 per ADS in the second quarter of 2007 and the first quarter of 2008, respectively.

Commenting on the financial results, Dr. Allen Wang, CEO of China Sunergy, said: "I am pleased to report another quarter during which we have grown revenues, improved margins and strengthened our balance sheet. The important steps we have taken over the past year to improve operational efficiency and develop market leading products are beginning to show genuine improvements to our bottom line and this gives me confidence that we are better positioned than ever for future growth."

Second Quarter and Recent Operational Highlights

• Quarterly production of 32.8 megawatts ("MW") of solar cells represented a 62.7% increase on a year-over-year basis and a 44.7% increase sequentially. Production returned to normal in Q2 without any interruption like the snow storm in Q1.
• Shipments of solar power products amounted to approximately 35.0 MW, representing a 121.5% increase on a year-over-year basis and a 45.8% increase sequentially.
• Shipments of high efficiency cells during the second quarter of 2008 amounted to 11.4MW, or 36.8% of total core cell shipments, up from 9.1 MW, or 39% of total core cell shipments, during the first quarter of 2008.
• Average selective emitter (SE) cell conversion efficiency was 17.2% in the second quarter 2008 and the maximum conversion efficiency achieved during the quarter was 18.8%.
• Successfully completed the conversion of the remaining two P-type lines to high efficiency ("HP") lines in the middle of June, taking the total number of HP lines to four. Cells produced on these HP lines achieved an average conversion efficiency rate of around 16.7%.
• The Company entered into a supply agreement with a European wafer provider "REC Wafer" for a high quality supply of mono-crystalline 156-millimeter wafers for seven years from 2009 through to 2015. This contract will cover approximately 20% of 2009 production requirements at a price that is a heavy discount to the Q3 2008 spot price.
• Operating cash flow continued to be positive. The inflow in Q2 was US$27.4 million as a result of continuous enforcement of restrictive cash management policies.
• The Company raised gross proceeds of US$54.5 million through issuance of senior convertible notes on July 1, 2008.

"Although we managed to improve margins during the first half of the year, we still face a number of potential challenges in the second half, in particular wafer costs and wafer quality." added Dr. Wang. "Despite these challenges I am confident that our improving supply pipeline, declining wafer costs, and higher conversion efficiencies, will strengthen our gross margin from the end of this year and into 2009.

Technological Developments

During the quarter the Company continued to make progress with the production and development of its high-efficiency cells.

The Company completed the upgrade of its current P-type cell production facilities and converted all existing mono-crystalline P-type lines to HP lines. China Sunergy now has a total of four HP lines in operation and maintains one multi-crystalline P type line to cater to current client requirements.

The installation of new selective emitter ("SE") cell production lines is scheduled to be completed sometime during the fourth quarter which will bring the total number of SE lines in production to five by the end of 2008. It should be noted that given any specific quality of wafer not only do SE cells generally achieve higher conversion efficiencies than P and HP-type cells, but they also display greater wafer quality tolerance and are therefore able to do so when poorer quality wafers are used during production.

Steady progress continues to be made towards the development of new forms of high efficiency cells, in particular, N-type cells, and the planned R&D center in Shanghai remains scheduled to be completed some time during the first half of 2009.

Second Quarter 2008 Financial and Business Review

Revenues, shipment and production

During the second quarter of 2008, revenues increased 98.6% on a year- over-year basis, and 44.9% sequentially to US$111.6 million.

Sales from solar cells, modules and processed cells under OEM arrangements and other sales accounted for 93.5%, 3.8%, 1.9% and 0.8% of total revenues, respectively. Shipments, including 1.0MW for module sales and 3.0MW of solar cells processed under OEM arrangements, amounted to approximately 35.0 MW, compared to 15.8 MW during the second quarter of 2007 and 24.0 MW during the first quarter of 2008.

During the second quarter of 2008, the Company increased its quarter-on- quarter sales of solar cell products by 39.3% as compared to the previous quarter. The percentage of solar cell sales in overseas markets of total solar cell sales was 39.5% in the second quarter of 2008 compared to 29.4% and 37.4% in the second quarter of 2007 and the first quarter of 2008, respectively.

Of the 31.0 MW of solar cells shipped during the second quarter, 11.4 MW were in the form of high efficiency cells (which we define as any cells with a conversion efficiency rate of 17% and above).

Gross profit, gross margins and average selling price ("ASP")

Gross profit for the quarter was US$11.6 million, which led to a blended gross margin of 10.4%, up from 9.2% in the previous quarter, as a result of the gross margin contribution from higher ASP resulting from the shipment of a greater volume of high efficiency cell products. Despite lower overall wafer quality dragging down average conversion efficiency, sequential increase in gross margin on solar cell sales from 8.8% to 9.2% was mainly attributable to higher ASP as a result of increased shipments of high efficiency cells and stronger product demand from customers.

Blended ASP for the second quarter of 2008 rose from US$3.23 per watt in the previous quarter to US$3.37 per watt due to a greater portion of high efficiency cells, strong product demand and particularly the strengthening of the Renminbi against U.S. dollar. The blended ASP for the second quarter of 2007 was US$2.82.

Wafer costs

Wafer costs continued to account for a large proportion of overall manufacturing costs. In the second quarter of 2008, wafer costs rose to US$2.79 per watt compared to US$2.35 and US$2.64 per watt in the second quarter of 2007 and the first quarter of 2008, mainly due to the strengthening of the Renminbi against the U.S. dollar and an increase in the average cost per wafer in Renminbi terms.

Wafer costs per watt as a percentage of total production costs per watt increased from 88.4% in the second quarter of 2007 and 90.3% in the first quarter of 2008 to 91.2% in the second quarter of 2008. Other production costs, which mainly consisted of other raw materials, labor, depreciation and utilities, were US$0.27 per watt compared to US$0.28 in the first quarter of 2008 as a result of economies of scale achieved through higher production levels during the second.

SG&A, operating profit and net income

Our SG&A expenses in the second quarter of 2008 were US$5.1 million, compared to US$3.0 million in the second quarter of 2007 and US$4.4 million sequentially mainly as a result of an increase in share based compensation charges, salary and depreciation in the US dollar against the Renminbi.

Due primarily to higher gross margin, the Company made an operating profit of US$6.0 million. This compares to an operating loss of US$1.6 million and an operating profit of US$2.2 million for the second quarter of 2007 and the first quarter of 2008, respectively.

With a higher gross margin, the Company improved its net income to US$3.1 million in the second quarter of 2008 compared to a net income of US$0.5 million in the previous quarter and a net loss of US$3.5 million in the second quarter of 2007.

Balance sheet and cash flow

As of June 30, 2008, the Company had cash and cash equivalents of US$124.1 million. Net operating cash inflow for the second quarter was US$27.4 million, mainly due to continuous enforcement of restrictive cash management policies. In the second quarter of 2008, depreciation was US$1.3 million and capital expenditures were US$14.5 million. The capital expenditures were related to prepayments made for equipment relating to the expansion of our selective emitter cell lines.

Commenting on the financial results, Kenneth Luk, CFO of China Sunergy, said:

"We are now in a far more stable financial position and are better placed to secure long-term supply agreements, to expand production, and to fund R&D enhancement in a cost effective manner. Our contract with REC will help us to reduce overall wafer costs from 2009, we remain cautious about the overall market outlook for wafer prices in the second half of this year. However, the expected increase in high efficiency cell production will enable us to at least partially offset any increase in wafer cost".

Outlook

All of the four new production lines are expected to be in mass production sometime in the fourth quarter of 2008 despite some possible delays in electricity supply and equipment delivery. This will bring our total capacity to 320 MW by the end of the year assuming the use of 156-millimeter mono- crystalline silicon wafers.

The Company maintains its full year 2008 production target at 125-145 MW, with approximately 55 to 75 MW expected to come from high efficiency cell products.

Taking into account the increased wafer costs for Q3 as well as the uncertainties in terms of wafer quality and foreign exchange fluctuation, the Company believes its gross margin for the third quarter will be between 9.0% and 11.0%, and production volume in the range of 35-37MW. Blended ASP is expected to be approximately US$3.40 - US$3.50 per/watt.

For 2009, the Company is working on a plan to support a production target of 220-250MW including 20-25% from OEM business. Gross margin should strengthen from early 2009 as a result of better terms from suppliers, improved operational and production efficiencies, and the expected decline in wafer costs more than offsetting any potential ASP weakness.

Recent Management Updates

During the quarter, China Sunergy announced a further addition to the Company's board of directors. Ms. Merry Tang joined as a new independent director and brings 15 years of accounting and finance experience. Ms. Tang succeeded Mr. Alan Smith as Chairman of the Audit Committee effective July 1. Ms. Jian Li, 55, has become Chairman of the Compensation Committee and Mr. Wenze Weng, 66, is now Chairman of the Nominating Committee.

Quarterly Earnings Conference Call Details

China Sunergy's management team will host a conference call to discuss results for the second quarter ended June 30, 2008 on Friday 22nd August at 5:00 am (US Pacific Time)/8:00 am (US Eastern Time)/8:00 pm (Beijing/Hong Kong Time). A live audio webcast of the conference call will be available on China Sunergy's website at http://www.chinasunergy.com.

About China Sunergy Co., Ltd.:

China Sunergy Co., Ltd. (Nasdaq: CSUN) ("China Sunergy") is a leading manufacturer of solar cell products in China as measured by production capacity. China Sunergy manufactures solar cells from silicon wafers utilizing crystalline silicon solar cell technology to convert sunlight directly into electricity through a process known as the photovoltaic effect. China Sunergy sells solar cell products to Chinese and overseas module manufacturers and system integrators, who assemble solar cells into solar modules and solar power systems for use in various markets.

Source: China Sunergy