Shares in American Superconductor Corp. (NASDAQ: AMSC) have been taking a beating since early April. The company’s largest customer, China’s Sinovel, has refused to pay for $56 million in wind turbine parts it received in 2010 and has refused to accept any more shipments from American Superconductor. The company missed the filing deadline and an extension for its 2010 Form 10-K, which has led the Nasdaq to send the company a de-listing warning. How big a problem does American Superconductor really face?
Among a group of ten large wind power companies, Sinovel ranks tenth in installed megawatts, but significantly higher in market share. General Electric Co. (NYSE: GE), Siemens AG (NYSE: SI), Vestas Wind Systems A/S (OTC: VWDRY), Gamesa Corp. (OTC: GCTAF), and Nordex SE (OTC: NRDXF) all have larger installed bases than Sinovel, but due to Sinovel’s presence in China its market share was second only to Vestas’s, and ahead of GE.
Among US utilities, NextEra Energy, Inc. (NYSE: NEE) claims the largest installed base of wind generation, with 85 wind farms and about 8,300 megawatts of generation. The AES Corp. (NYSE: AES) operates about 1,700 megawatts of wind generation globally. Utility-scale wind is on most US utilities’ radar screens for more development.
American Superconductor depended on Sinovel for about 70% of its 2010 revenues. Many of the rest of the company’s wind systems customers also came from Asia, particularly China. The US company put a lot of eggs into a single basket, and that decision has come back to haunt them.
At one time, it didn’t seem like such a bad decision. China installed more wind turbines in 2010 than any other country and has plans to install many more. And to top off the good news, Sinovel held a Shanghai IPO in March of this year and raised $1.4 billion. The company out to be able to pay a bill for $56 million.
But the issue probably revolves around technology. As a condition of doing business in China, alt-energy companies must have a Chinese partner and must share their technology with those partners. The trade-off appeals to companies like American Superconductor because it opens up a huge market at a cost that will only have to be paid sometime in the future. For American Superconductor, payday may have arrived.
One might look at the company’s current troubles and decide that this will be a good test of management’s talent and skill. So far, management has not done a very good job. Sure, they’ve lost $56 million in revenue and have lowered their revenue expectations for 2011 by a quarter. That’s no longer news, nor should a possible de-listing be news.
Is there anyone at company headquarters who knows how to play this game? The company’s wind power systems division was destined to fall behind Chinese competitors eventually. It happens all the time when US companies try to compete with Chinese companies. Nothing new here either.
Management should have been ahead of the curve though, and managed that decline. American Superconductor’s cable division has a virtual stranglehold on high-performance superconducting cable. This is the stuff that every major grid operator in the world will be ordering thousands of miles of in the not-too-distant future. This is American Superconductor’s future, not wind turbines.
The First Trust ISE Global Wind Energy ETF (NYSE: FAN) is up about 1.25% today, to $10.35, in a 52-week range of $9.30-$12.38. American Superconductor is one of the smallest holdings in this fund.
American Superconductor’s shares have risen today, by about 2.5%, to $7.79, in the first hour or so of trading. The stock’s 52-week range is $7.40-$38.88. The stock’s trailing P/E ratio is around 9, and its forward P/E is nearly 19, but these are way down from earlier this year. Results for 2011 are not likely to push those ratios up, but this is a better stock than that. Provided of course that the company’s managment stops looking in the rear-view mirror.