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American Superconductor (AMSC) Burns – Why has largest Chinese Wind Company Sinovel refused payments of Receivables,canceled contracted shipments – Switch Acquisition in Jeopardy,Shareholder Lawsuit

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American Superconductor (AMSC) which is one of the top rated wind stock in the US crashed by more than 40% as its largest customer AMSC is mainly a seller wind turbine core electrical components and full wind turbine electrical control systems (ECS).It has also made pilot sales of high capacity super conducting equipment to some customer like TresAmigas .Sinovel which is also the 2nd biggest Wind Power Company in the world refused to take contracted shipments of wind turbine core electrical components and spare parts.The reason given was high inventory levels but the company failed to explain why Sinovel which is a multi billion dollar company has refused  to pay AMSC for certain contracted shipments made in fiscal year 2010.Note $56 million in payments related to Fiscal 2010 quarters have been not paid to AMSC ( which would have been recognized as revenue).None of this was disclosed till now leading to a class action shareholder lawsuit against the company.It is quite perplexing why your largest customer will not pay you for past shipments and then cancel shipments as well.Is it because of some acrimony or is just Sinovel using its massive size to squash a small supplier.

AMSC Issues Update Regarding its Anticipated Fourth Quarter and Fiscal Year 2010 Financial Results

On March 31, 2011, Sinovel Wind Group Co., Ltd. (Sinovel) refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts that AMSC was prepared to deliver. AMSC believes that Sinovel intends to reduce its level of inventory before accepting further shipments.

These delayed shipments are the primary cause for lower-than-anticipated financial results for AMSC’s fourth quarter and full fiscal year 2010. AMSC currently expects total revenues for its fourth fiscal quarter will be less than $42 million and that it will generate a net loss for the fourth quarter on both a GAAP and non-GAAP basis. As a result, AMSC currently expects its full year fiscal 2010 revenues to be less than $355 million. This compares with the company’s prior forecast for fiscal 2010 revenues of $430 million to $440 million. AMSC also expects that its GAAP and non-GAAP earnings for full year fiscal 2010 will be well below the company’s previous forecasts.

AMSC estimates that its balance of cash, cash equivalents, marketable securities and restricted cash as of March 31, 2011 was approximately $240 million. This is down from $260.5 million as of December 31, 2010. AMSC’s cash balance was negatively impacted by an increased inventory level related to the refusal of shipments by Sinovel, and Sinovel’s failure to pay AMSC for certain contracted shipments made in fiscal year 2010. As a result of both accumulated aged accounts receivable due to payment delays and Sinovel’s recent refusal to accept March deliveries, AMSC is reviewing the appropriateness of the timing of its revenue recognition on approximately $56 million of unpaid shipments in the second, third and fourth quarters of fiscal 2010.

Switch Deal Looks like it is going to be Canceled

Note AMSC recently agreed to acquire The Switch Engineering Oy, a power technologies company headquartered in Finland for $265 million.The Switch made complementary products like permanent magnet generators (PMG),power converter systems (PCS) for Wind Turbines and would have given access to more customers to AMSC like Goldwind.Note AMSC serves mainly Asian customers like Inox,Doosan,Dongfang and Sinovel.This Acquisition comes in jeopardy as $186 million ws to be paid in cash and the remainder to be paid in the form of AMSC stock.With the stock halving in value it remains to be seen whether AMSC can close this deal.

AMSC To Significantly Expand Wind Business Through Proposed Acquisition of Power Technologies Company “The Switch”

AMSC’s growth in recent years has primarily been driven by the sale of wind turbine core electrical components and full wind turbine electrical control systems (ECS) to Windtec licensees and strategic partners. The Switch provides a substantial existing channel for power electronics and control system sales to other global wind turbine manufacturers. The Switch focuses on the production of power converter systems (PCS), which are a subsystem of full wind turbine ECS. By joining forces with The Switch, AMSC also sees the opportunity to further enhance the performance and reduce the cost of its PCS and ECS offerings. The Switch today offers PCS’s with power ratings ranging from 1 megawatt (MW) to 6 MW.

The Switch also opens a new addressable market opportunity exceeding $1 billion annually with its portfolio of proprietary permanent magnet generators (PMG). PMG are a powerful new class of generators that are utilized inside an increasing number of both geared and direct drive wind turbines. The Switch today offers low-, medium- and high-speed PMG up to 6 MW in power rating. These PMG systems, which already are being utilized by several companies in Europe, the U.S. and Asia, will extend the technology portfolio currently available to Windtec customers and increase AMSC’s potential value per MW of wind power. AMSC also expects to leverage The Switch’s strong background in advanced synchronous generators to commercialize superconductor generators for direct drive SeaTitan(TM) wind turbines.

PG

Abhishek Shah

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