The net American Superconductor (Nasdaq: AMSC) has cast keeps getting wider, scooping up more firms entering the wind-turbine market.
The latest customer to buy in is Beijing JINGCHENG New Energy, based in -- you guessed it -- China. This is the company's sixth Chinese customer, and yet another boost for its market share. In 2009, almost 10% of all wind turbines made worldwide used American Semiconductor's power electronics and control systems.
The company's business model is pretty simple:
- Sell your wind turbine design to an up-and-coming manufacturer.
- Sell that same manufacturer electrical equipment for the turbines.
- Bathe in piles of cash.
American Superconductor doesn't have to invest capital, worry about what price the turbine will sell for, search for cheap labor, or wrestle with any of the numerous obstacles the renewable energy sector faces every day. Of course, when the manufacturer decides it doesn't need your designs anymore, the fun stops abruptly. But that won't happen for a good while yet.
A-Power Energy Generation Systems (Nasdaq: APWR) has seen the downside of being the manufacturer, as reflected by its sagging share price. The company has moved into the wind turbine business, but its disappointing sales there have hurt its stock.
Giant multinationals are still competing in the wind market as well. General Electric (NYSE: GE) and Siemens (NYSE: SI) are formidable competitors, but as we've seen in other markets, when China puts its mind to something, you might as well get out of the way.
The real test of American Superconductor's business model begins when its SeaTitan model turbine hits the water. It's supposed to be much more powerful, in addition to offering cost advantages to wind farms. If the design is as good as management thinks it is, and reduces the cost of energy significantly, we could have a blockbuster on our hands.
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