Trade Winds Not Lifting Profits At American Superconductor

The Company: American Superconductor, which -- again despite its name -- generates nearly three-quarters of revenue from power systems sold to the wind-energy market.
The Filing: A recent Form 8-K filed on June 11, 2008.
The Finding: American Superconductor won a $450 million order for core electrical components from Beijing's Sinovel Wind. The parts will be used in Sinovel's 1.5 megawatt and three megawatt wind turbines, totaling approximately 10 gigawatts of wind power capacity, according to Greg Yurek, American's founder and CEO. Nonetheless, this purchase order does not change the company's unfortunate operating dynamics.

The Gist: Annual operating losses at American are as predictable as the Yangtze River flooding its banks each spring, since the company basically sells commodity parts (although management argues otherwise). The company's accumulated deficit in the fiscal year ended March 31 was $410 million.

American hopes to expand its wind power business globally, targeting growth in countries where dynamic voltage standards for wind farms have been put in place, such as Australia, Canada, New Zealand and the U.K. In the 2007 fiscal year, Sinovel represented approximately 51 percent of American's total revenue, up from 11 percent in fiscal 2006.

American expects to begin shipping its customized power electronic systems to Sinovel in in January 2009 and increase in amount year-over-year through the contract's completion in December 2011. The execution risk of this contract falls to American, for there are no cancellation penalties.

The Questions: Why have insider stock sales topped $19.5 million in the last two months? And what's with the less-than transparent Sinovel Wind Web site?

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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