American Superconductor Gets Beaten Up Again

American Superconductor (Nasdaq: AMSC  ) has been through a rough two-month stretch -- and a press release yesterday didn’t make matters any better. The company delayed its quarterly report and gave us a few hints at what we might expect when it finally does announce earnings.

What we know is:

  • AMSC missed its filing deadline yesterday and filed for a 15-day extension.
  • American Superconductor will revise previously reported revenue from 2010 to account for what was and will be paid for. Of note: the “less than $355 million” in revenue it previously disclosed sounds more like a lot less. Details are light right now, but reading between the lines we know that Sinovel did not pay for all shipments made in previous quarters and as a result AMSC will modify financial statements.
  • The company is looking for additional financing to finish The Switch acquisition.
  • AMSC expects Sinovel to be a customer in the future despite the mess they’ve caused for the company.
  • The company is cutting head count and other costs to spend in line with revenue.

But there is still a lot of uncertainty:

  • We have no idea if the Sinovel folly will be something other customers will attempt to repeat or how big of a customer Sinovel will be in the future.
  • The company has not given us any indication that its inverter or superconductor business will be affected by the Sinovel fiasco or how these businesses are performing.

The market has been pricing in bad news since the first Sinovel announcement, but we don’t really know how much bad news to expect. I’m a little surprised shares have fallen 17% today since we knew pretty much everything in the press release before yesterday.

A new focus will now be put on the inverter business, which will compete with Power-One (Nasdaq: PWER  ) and Satcon Technology (Nasdaq: SATC  ) for renewable energy projects. Management had high hopes for this business and with the wind business faltering the company may have to change focus.

Superconductors will also be key. This business has just recently started getting a little bit of traction and it may need more to help the company’s stock.

Foolish bottom line
Basically, there is still uncertainty for AMSC and investors are increasingly skittish about the stock. I’m not sure how much farther it can fall, but with $169 million in cash to end 2010 and zero debt, there must be a bottom somewhere. Even if it has to take out debt to complete the $265 million The Switch acquisition -- or call it off all together -- I don’t see AMSC nearing bankruptcy. Insiders have been buying shares lately and I will consider doing the same once we get a little more certainty from the company.

Interested in reading more about American Superconductor? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium owns shares of American Superconductor and has shares covered with call options. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (4) | Recommend This Article (4)

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  • Report this Comment On June 01, 2011, at 4:37 PM, ClevelOfficer wrote:

    Sir, I wrote some comments earlier today and want to add to them as you note alerts me to a few points:

    1. Insiders buying "recently". This is very much dated news, and related to 1 director who is very wealthy. This Director purchased shares in the low $20's mid $20's and in the $30's. This Director is probably saying to his/her broker to purchase x$ worth and then buys without that much attention to the economic climate and business practices.

    Also, for completeness, some Insiders sold shares 10,000 -20,000 share blocks. Regardless of where/why they received the shares, still , they sold! ...more recently (than that one large Director)

    2. Any business can name another as a customer. What kind of customer or business partner is this Sinovel anyways.

    Sinovel "customer" (business partner):

    (a) PAST orders it had not paid for

    (b) CURRENT order - they refused to accept it! If the contract between AMSC and Sinovel is such that Sinovel has option to refuse, then AMSC is really naive. If, however, Sinovel just says we can't accept it and walks away, what kind of customer or business partner is that to let you hang at the 11th hour? And what legal recourse does AMSC have to sue Sinovel? Probably none.

    (c) "FUTURE" April 1 orders - such order were anticipated and no order has been made

    (d) FUTURE relationship - how much business volume can AMSC expect? at what profit margin? under what contract terms of cancelling/walking away / refusing shipment?

    A major international business and cultural lesson for AMSC! one that does not look to recover from upon some further reading. China is slowing in general, China spent money on infrastructure projects just to generate a desired level of GDP and yet ghost-town exist.

    3. Another element of the PR is that several quarters of results need to be restated. This is not so insignificant as a one-quarter adjustment. What amount of settlement can be expected from the Class Action attorneys? Surely, it is not $1 or $5 million. This seems to be a much bigger number. Management time will be diverted and AMSC will be paying some rather hefty legal bills. With only 50 million shares, this is not some negligible 10cents per share item.

    I was more positive earlier, but this is a mess.

    The Chinese can put 100 engineers on a project and reverse engineer or improve upon existing techniques. Things have already been dragging on and AMSC is losing competitiveness with each day.

  • Report this Comment On June 01, 2011, at 5:32 PM, ClevelOfficer wrote:

    If I may add: no one is perfect, but this is very poor Risk Management - credit risk, customer risk, R&D risk, financial risk, operational risk, reputation risk.

    China is indeed more of a cash-economy than the long-developed nations' credit-economies. However, businesses do need financing and Chinese banks have cut back on mortgage lending, etc, so private financing have become the norm, particularly with business chain partners.

    However, have we not learned from the telecom and CLEC providers' era of in the late 1990's early 2000's as fiber optic cables were built out?

    Heavy investment was needed. Telco's provider financing to others in the chain, expecting to be repaid as those business partners earned revenue from their infrastructure build outs. But such revenues did not provide anywhere close enough to repay the loans. Big write-offs.

    So, now in China, there is build-out of this or that infrastructure, such as wind energy, etc.

    The financiers better take note about their

    (a) lending practices

    (b) ensure collateral exists

    (c) have legal contracts and specific legal penalties/remedies in the contracts

    (d) perhaps get further financial guarantors for the contracts (perhaps local governments?)

    (e) limit the absolute size of credit extended

    (f) limit the concentration of risk to any one customer / business partner

    (g) lay off some of the risk to financial agencies (if they will accept)

    (h) require x% down payment

    (i) "look through" the business partners' sales channel to its workforce, and operational ability to do the installations of infrastructure

    Underwriting. Risk Management. Have we not learned?

  • Report this Comment On June 02, 2011, at 6:31 AM, CassandraSays wrote:

    We would not look so foolish floundering around trying to figure out what is happening with Sinovel were it anywhere but China.

    What I'm pretty sure of: Sinovel has not found a different supplier. I'm sure Sinovel and every other Chinese business wants and plans to replace imports with domestic suppliers some time, and Sinovel has a subsidiary that is working on it, but that won't be a factor for years.

    What I know about the Chinese economic climate: China had credit flowing freely then decided they were running too hot and reined it in.

    What I think is probable: Sinovel got ahead of itself and ordered for a major project before it had the financing in place and was unpleasantly surprised to find that it was not available for the asking any more.

    This has happened in the U.S. and every more transparent economy in the world -- no surprise to see signs of it rearing its head in China when they pull back on credit.

  • Report this Comment On June 02, 2011, at 6:35 AM, CassandraSays wrote:

    Oh, and p.s.

    I continue to think that the "sky-is-falling" bear raiders who have been saying AMSC was too dependent on Sinovel were, and are, silly in the-real-world terms. It's like saying it's a bad sign that an automotive parts maker has a contract with General Motors. Sinovel IS the market.

    I've never traded options, but I'm thinking now is the hour.

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