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American Superconductor Corporation in the third-quarter of fiscal year 2011 ending December 31, 2011, reported an adjusted loss of 38 cents per share which beat the Zacks Consensus Estimate of a loss of 47 cents. Earnings in the reported quarter however came below the year-ago quarterly adjusted loss of 33 cents per share.

Operational Statistics

American Superconductor’s total revenue of $18.1 million in the reported quarter was below the $31.6 million in the year-ago period. The downcast in revenues year-over-year was due primarily to lower shipments from the Grid segment. However, revenue was above the Zacks Consensus Estimate of $16.0 million for the quarter.

Wind segment’s revenue of $10.1 million consisted of the bulk of the quarterly revenue (56.1%). While Grid segment’s revenue of $7.9 million accounted for the rest (43.9%) of the quarterly revenue.

American Superconductor digested a net loss of $26.3 million in the reported quarter versus net loss of $18.2 million in the year-ago period.

Financial Update

Cash and cash equivalents as of December 31, 2011, were $58.6 million versus $169.0 million as of December 31, 2010. Cash used in operating activities during the first nine months of fiscal 2011 was $133.3 million versus $16.0 million of cash used in operating activities in the year-ago period.

Looking Forward

Devens, Massachusetts-based American Superconductor offers an array of proprietary technologies and solutions spanning the electric power infrastructure, including generation to delivery to end-use. The company is a lead player in megawatt-scale wind turbine designs and electrical control systems.

American Superconductor’s performance was impacted by business and contractual issues with its largest customer in China – Sinovel Wind Group Co. Ltd. Earlier, American Superconductor’s revenue growth largely depended on its customer Sinovel, China's largest and the world's third largest wind turbine manufacturer. However, since April 2011, Sinovel bogged down by high inventory levels refused to accept further shipments from the company and was unable to pay for past shipments.

American Superconductor sued Sinovel in November 2011, for payments for past shipments, and compensation for infringement of intellectual property rights. American Superconductor alleges that Sinovel illegally obtained and used its proprietary technology to upgrade its 1.5 megawatt wind turbines to meet proposed Chinese grid codes. The matter is now sub-judice, with American Superconductor seeking to recover more than $1.2 billion from Sinovel through civil cases filed in various Chinese courts.

American Superconductor looking forward to the fourth quarter of fiscal year 2011 ending March 31, 2012, expects net loss to be less than $24 million, or $0.47 per share, adjusted net loss to be less than $20 million, or $0.39 per share, and revenues to exceed $27 million.

AMSC estimates that it will have approximately $50 million in cash, cash equivalents, marketable securities and restricted cash on March 31, 2012. The company expects that its net cash usage will be further reduced in subsequent quarters as revenues grow year over year, working capital requirements are minimized and the benefits of recent cost reduction efforts are fully realized. The management believes that it has sufficient cash to fund its operations for at least the next 12 months.

Consequently, we advise investors not to take any new position over the Neutral-rated American Superconductor stock. In the near term, its Zacks #3 Rank (Hold) clearly suggests a wait and watch strategy. In the near-term, however, American Superconductor’s Zacks #1 Rank (Strong Buy) peers, like RadiSys Corporation (RSYS - Snapshot Report) and CalAmp Corporation (CAMP - Snapshot Report) look attractive.

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