American Superconductor Corporation (AMSC - Snapshot Report) has filed an appeal with China's Supreme People's Court, contesting the Hainan Higher Court's decision on April 5, 2012 to uphold the Hainan Province No. 1 Intermediate People's Court's dismissal of American Superconductor's civil case against Sinovel Wind Group Co. Ltd. and Dalian Guotong Electric Co. Ltd. American Superconductor alleges contractual breaches and intellectual property theft against the above companies.
American Superconductor, earlier in September 2011, filed a copyright infringement lawsuit with the Hainan Province No. 1 Intermediate People's Court against Sinovel and Guotong. Sinovel filed a jurisdiction opposition motion in December 2011 requesting that the Hainan Province No. 1 Intermediate People's Court dismiss American Superconductor's case against Sinovel, saying the case should be governed by the Beijing Arbitration Commission. Not only did the court grant Sinovel's motion, it dismissed the cases against both Sinovel and Guotong. American Superconductor appealed the dismissal to the Hainan Higher Court, which on April 5, 2012 upheld the decision of the Hainan Province No. 1 Intermediate People's Court.
This is the smallest of four legal actions that American Superconductor has brought against Sinovel. American Superconductor is seeking a cease and desist order as well as damages totaling approximately $0.2 million. In total, American Superconductor is seeking to recover from Sinovel over $1.2 billion for contracted shipments and damages in these cases.
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 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.
The company 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 #5 Rank (Strong Sell) clearly suggests an exit strategy. Contrarily, in the near term, American Superconductor’s Zacks #2 Rank (Buy) peers, like Cogo Group Inc. and DDI Corporation look attractive.