American Superconductor Energizing Korea - Analyst Blog

Global power technologies company, American Superconductor Corporation (AMSC) teamed up with Korea Electric Power Corporation (KEP), and LS Cable & System and installed the world's longest distribution-voltage superconductor cable system at the I'cheon substation located near Seoul, South Korea.

The cable system is powered by American Superconductor's proprietary Amperium superconductor wire. The wire can be used to increase efficiency and reduce the size and weight of a wide variety of applications, including power cables, motors, generators and defense systems.

The substation is part of the electricity grid managed by Korea Electric Power. The 22.9 kV alternating current (AC) cable system is capable of carrying approximately 50 megawatts of power. This is the longest high temperature superconductor cable system in the world to be used utilizing second generation superconductor wire and is also currently the longest distribution voltage superconductor power cable system in operation.

Korea Electric Power is South Korea's sole power distributor, serving 13 million households. It also generates approximately 90% of Korea's power supply and is one of the world's top 10 electric utilities, with an installed capacity of nearly 64,000 MW (primarily from thermal and nuclear plants).

Earlier in October 2010, LS Cable & System and American Superconductor entered into a large-scale commercial superconductor wire supply agreement. AMSC recently made its initial wire shipment to LS Cable & System under this agreement.

LS Group is South Korea's 15th-largest conglomerate and the 3rd-largest power cable maker in the world, is leading the energy and telecommunications systems industry. LS Cable & System, the flagship company of the conglomerate, is a global provider of cables and systems for the power and telecommunications industry. The company has 35 factories, 45 sales offices and subsidiaries and 4 R&D centers in 23 countries.

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.

American Superconductor's performance was impacted by business and contractual issues with its largest customer in China -- Sinovel Wind Group Co. Ltd. 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.

American Superconductor is currently suing Sinovel for 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.

Consequently, we advise investors not to take any new position over the Neutral-rated American Superconductor stock. In the near-term the Zacks #4 Rank (Sell) for the stock suggests a wait-and-watch stance. However, American Superconductor's Zacks #2 Rank (Buy) peers, like Rogers Corporation (ROG) and Advanced Battery Technologies Inc. (ABAT) look attractive.