American Superconductor to Sue Sinovel - Analyst Blog

Global power technologies company, American Superconductor Corporation (AMSC) announced that it is taking a series of legal actions against Sinovel Wind Group Co. Ltd. which includes payments for past shipments, and compensation for infringement of intellectual property rights. American Superconductor alleges that Sinovel illegally obtained and used its proprietary technology to upgrade its 1.5 megawatt wind turbines to meet proposed Chinese grid codes.

It can be termed as payback time for American Superconductor whose performance was impacted by business and contractual issues with its largest customer in China -- Sinovel. Earlier, American Superconductor's revenue growth largely depended on its customer Sinovel, China's largest and the world's third largest wind turbine manufacturer.

However, since April 2011, Sinovel bogged down by high inventory levels refused to accept further shipments from the company. Sinovel also was unable to pay for past shipments worth $56 million.

As a result over the past six months, American Superconductor has lost almost three-fourths of its market capitalization due to excessive dependence on its largest customer. Sinovel represented approximately 75% of American Superconductor's total revenue for the nine month period ending December 31, 2010.

In addition, American Superconductor's practice of recording sales to a section of its Chinese customer base on an accrual basis may further blot its financial performance for the quarters ending September and December 2010. The aforementioned quarterly numbers would be restated to reflect sales on a cash basis. The company is yet to report its financial results for the quarters ending March and June 2011.

As a result, American Superconductor since March 31, 2011, cut 150 jobs or 30% of its global workforce to better align costs with its revenue expectations. The company also indicated that it expects to report a significant net loss on revenue of less than $10 million for the quarter ended June 30, 2011.

American Superconductor offers an array of proprietary technologies and solutions spanning the electric power infrastructure -- from generation to delivery to end-use. American Superconductor is a lead player in megawatt-scale wind turbine designs and electrical control systems.

American Superconductor also offers a host of smart-grid technologies for power grid operators that enhance the reliability, efficiency and capacity of the grid, and seamlessly integrate renewable energy sources into the power infrastructure. These include superconductor power cable systems, grid-level surge protectors and power electronics-based voltage stabilization systems.

Consequently, we advise investors not to take any new position over the Neutral rated American Superconductor stock. In the near-term the Zacks #3 Rank (Hold) for the stock suggests a wait-and-watch stance. As of now American Superconductor's Zacks #2 Rank (Buy) peers, like Rogers Corporation (ROG) and Advanced Battery Technologies Inc. (ABAT) look attractive.