We downgrade our recommendation for American Superconductor Corporation (AMSC) from Neutral to Underperform. Our downgrade is inspired by the refusal of its largest customer – Sinovel Wind Group Co. Ltd to accept further shipments. Sinovel is China’s largest and the world’s third largest wind turbine manufacturer.
American Superconductor would be paying a high price for its over-dependence on Sinovel. On March 31, 2011, Sinovel bogged down by high inventory levels refused to accept contracted shipments of 1.5 MW and 3 MW wind turbine core electrical components and spare parts from American Superconductor. Sinovel also was unable to pay for past shipments worth $56 million.
Sinovel represented approximately 75% of American Superconductor’s total revenue for the nine month period ending December 31, 2010. American Superconductor expects the situation to continue till Sinovel substantially winds down its level of inventory before accepting further shipments.
As a result American Superconductor now expects total revenues for its fourth quarter of 2010 ending on March 31, 2011, will be less than $42 million and consequently a net loss in the fourth quarter. As a result American Superconductor has revised its fiscal 2010 ending on March 31, 2011. Revenue guidance is less than $355 million versus the earlier guidance range of $430 million–$440 million.
As of December 31, 2010, American Superconductor had cash, cash equivalents, marketable securities and restricted cash of $260.5 million. It also had unused, unsecured lines of credit of CNY 120.4 million (approximately $18.2 million), €2.0 million (approximately $2.7 million).
The company also had a non-fund credit line of $3.8 million for bank guarantees and letters of credit. However after the Sinovel debacle the company estimates that as of March 31, 2011, its balance of cash, cash equivalents, marketable securities and restricted cash would be approximately $240 million.
Devens, Massachusetts-based American Superconductor offers an array of proprietary technologies and solutions spanning the electric power infrastructure, which includes generation delivery and end-use applications. The company is a leader in megawatt-scale wind turbine designs and electrical control systems. The company mainly competes with Advanced Photonix Inc. (API), Ceradyne Inc. (CRDN) and Polypore International Inc. (PPO).
AMER SUPERCON (AMSC): Free Stock Analysis Report
ADV PHOTONIX -A (API): Free Stock Analysis Report
CERADYNE INC (CRDN): Free Stock Analysis Report
POLYPORE INTL (PPO): Free Stock Analysis Report
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