Despite recent setbacks, analysts hopeful for AMSC’s future
It may not have profits, but AMSC, of Devens, does have prospects. Analysts say the troubled clean energy technology company is not in dire straits, but needs to execute on current orders and sign new deals to recover from several years of legal woes with overseas companies.
In 2013, the company appeared to be headed in the right direction. AMSC was narrowing its losses throughout last year after losing its largest customer, Sinovel Wind Group of China. AMSC, formerly American Superconductor, continues to battle Sinovel in the Chinese courts, alleging that it stole trade secrets from wind turbine software AMSC had developed for the company. In 2011, Sinovel also failed to pay AMSC for products it had ordered, costing the company $37 million in revenue. AMSC is trying to collect $456 million in damages stemming from the court case, but success is far from a sure bet.
By June of this year, losses were on the rise again. AMSC lost $22.7 million, due in large part to restructuring costs, compared with losses of $19.8 million a year earlier.
Adding to that was a September arbitration decision by an international court that requires AMSC to pay $11 million to an Indian company over an alleged breach of a licensing agreement. As a result, AMSC said it expects quarterly losses of nearly $26 million, almost double what was projected when first-quarter results were announced this summer.
A bump in the road?
While the arbitration decision was a setback, AMSC should be able to absorb the cost, said Carter Driscoll, a senior analyst who covers AMSC for the investment firm MLV & Co. of New York. Driscoll said the $11 million payment “definitely hurts,” but since the company has cleaned up its balance sheet to reduce operating costs over the last year, it shouldn't break AMSC.
Driscoll said that before AMSC was ordered to pay the award, the company was fiscally in a much better place than it was nine months ago. In March, it announced a restructuring that's expected to reduce its global workforce by up to 10 percent by the end of the year, saving AMSC about $3 million annually.
With that work behind it, AMSC must now execute on two large orders from Indian clean energy firm Inox Wind, a subsidiary of Inox Group that AMSC has worked with since 2009. AMSC will make wind turbine electrical control systems for Inox to the tune of $55 million. This will buy the company time over the next several months as it looks for additional sources of revenue, Driscoll said.
“There's no doubt that they have to find new sources of revenue growth,” Driscoll said.
Looking beyond wind
AMSC executives declined comment for this article, but a presentation made to investors in August detailed the company's growth prospects. AMSC said it anticipates another order from Inox, as well as orders from the U.S. Navy and Chicago utility company ComEd. The latter two would be for energy equipment outside AMSC's wind segment, therefore diversifying its revenue sources.
For the Navy, AMSC hopes to deliver a system to be used on a combat ship that would make it more difficult for enemies to detect and damage it.
For ComEd, AMSC is hoping to deliver a resilient electric grid (REG) system, which would be used to strengthen Chicago's power grid. A deployment plan is in the works under a federally backed effort by the Department of Homeland Security, and AMSC is expected to do similar work for grid systems in at least two other U.S. cities. If the ComEd plan comes to fruition, AMSC said it will be the first U.S. commercial application of this type of technology.
While the federal government is pushing for upgrades to the aging U.S. grid system to make it more resilient during catastrophic events, such as natural disasters or acts of terrorism, profitability for the grid business is limited, according to JinMing Liu, an analyst who covers AMSC for Ardour Capital Investment in New York. In addition, Liu noted that AMSC is in the early stages of moving forward with a REG system for ComEd, so it's not something to bank on yet.
Despite the restructuring announced earlier this year, Liu would like to see the company do more work to streamline operations.
“The cost structure … I still think is too high. Of course they have to generate more sales. Somehow they need to figure out how to get more money from their wind energy businesses — and hopefully get some more government contracts,” Liu said, adding that India holds the most growth potential for the AMSC's wind business segment.
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