American Superconductor Pushes Ahead After Struggles
In the past few weeks the severity of the issues faced by Devens-based American Superconductor (AMSC) has become much clearer.
After spending nearly the entire summer investigating why the company’s main customer — who accounted for more than 70 percent of sales — suddenly backed out of contracts and stopped paying for parts that it ordered, the company came to a realization: Its intellectual property had been stolen.
Dejan Karabrasevic, a former employee at the company’s Austrian subsidiary Windtec, pleaded guilty in a European court recently to economic espionage and has been sentenced to one year in jail and two years of probation.
It is alleged that AMSC’s Chinese customer, Sinovel, used Karabrasevic to gain AMSC’s IP. In doing that, Sinvoel no longer needed AMSC as a customer, so it stopped paying for products it ordered.
“During the spring, we repeatedly attempted to reach a resolution with Sinovel on its contractual breaches,” CEO Daniel McGahn said in a recent conference call with investors. “Over the summer, these breaches were eclipsed by our discovery of evidence that Sinovel had gained access to stolen intellectual property. “That changed everything.”
And now, according to investors who track the company, things will likely not be the same for the company for some time.
Long Road
Earlier this year, things looked pretty bright for AMSC. It recorded a $16 million profit in its last fiscal year, fueled by the growth of China’s renewable energy market.
Then, news that Sinovel stopped accepting orders came out. The company’s founder and CEO, Greg Yurek, retired. Then, AMSC laid off 30 percent of its staff. It was warned by the federal government and NASDAQ that it had fallen out of compliance to be listed on the stock exchange. But it regained NASDAQ compliance last week.
The company recently reported the damage from the entire incident: a $186-million loss for the year, $158 million of which was tied directly to one-time losses from the Sinovel situation.
First-quarter profits dropped from $97.2 million in 2010 to $9.1 million this year. The company filed civil and criminal charges related to the incident, alleging illegal use of the company’s intellectual property. That litigation is expected to continue for months.
“There was really no way to expect a development like that,” said Ben Schuman, an analyst with Pacific Crest Securities, based in Portland, Ore.
Company officials said they’re happy to be moving on from the situation.
McGahn, on the conference call, said he looks forward to putting the company’s “full attention on the future.”
To that end, the company announced $100 million in new contracts for wind turbine parts to customers in China, India and South Korea, as well as for technology that allows renewable power-generation systems to connect to the utility grid in U.S., European and Asian markets.
A South Korean utility company recently energized the world's longest distribution-voltage superconductor cable system in the world, which was manufactured by AMSC. Finally, some good news for the company, Schuman said.
But, even with all the new contracts, Schuman said the company is not out of the woods yet.
Sinvoel represented a significant portion of the company’s revenues — more than 70 percent.
“Whatever happens with these court cases and the contracts, it doesn’t change the fact that the company’s major customer is gone,” Schuman said, who predicted that the loss of the Sinovel revenue will require the company to right-size itself.
McGahn realizes that and said the process has begun. Personnel cutbacks have made the company leaner and reduced middle management, allowing the company to be more “nimble” and efficient in developing new strategies, he said.
Schuman isn’t convinced a 30-percent cut in the workforce is enough, though.
It’s not all bad news for the company, he noted.
The company’s technology has a solid platform that can be used across a variety of renewable power-generation products, from wind to solar to hydroelectric production.
Though it could be a long, painful process for AMSC to rebuild itself, Schuman said the work has begun.
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