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I was taken by surprise by this acquisition. I don't know the company they acquired, but it seems to be a move to spread their base a bit over more clients and control a little more of the finished product in the wind turbine market.

I was quite suprised to see AMSC dip SO low on the news.

Scott
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As not much news in the first post here are the details, AMSC have purchased a company called the Switch. http://www.theswitch.com/

Press Release is here: http://phx.corporate-ir.net/phoenix.zhtml?c=86422&p=irol...

American Superconductor Corporation (NASDAQ: AMSC), a global power technologies company, today announced that it has signed a definitive agreement to acquire The Switch Engineering Oy, a power technologies company headquartered in Finland. The 190-million-Euro acquisition (approximately US$265 million based on current exchange rates) is expected to be immediately accretive and support AMSC's growth to US$1 billion in annual revenues. With sales of both power converter systems and permanent magnet generators to wind turbine manufacturers in China, Europe, Korea and the U.S., this acquisition will diversify AMSC's customer base and channels to market.

Price $265M

Stock down 4%.

Tango
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No. of Recommendations: 9
I was quite suprised to see AMSC dip SO low on the news.

This is probably the reason:

In conjunction with today's announcement, AMSC is updating its guidance for fiscal year 2010 (ending March 31, 2011). The company expects that its revenues will be toward the lower end of its $430 million to $440 million forecast range. Due primarily to anticipated one-time costs related to the acquisition, AMSC is reducing its net income guidance from a range of $48.0 million to $50.0 million, or $0.99 to $1.04 per diluted share, to a range of $44.0 million to $46.0 million, or $0.91 to $0.95 per diluted share.

Saying the acquisition is accretive to earnings and then guide down is double-speak that, although it can be logically explained, is not what the common man might understand.

TMF had this to say about the event:

So what: The fall stems from American Superconductor buying a smaller rival known as The Switch Engineering. Though the deal is expected to add to the bottom line immediately, investors are clearly not jazzed about this deal.

Now what: Of course, the company lowered its 2011 guidance to account for acquisition costs. I still don't see how it could be a bad move to get into Switch's core market of wind-powered generators, with financial windfalls starting almost right away.


This is my Take: The Switch has permanent magnet generators (PMG). Everything I read says that PMG's are the near-term future for wind farms needing a direct-drive configuration. They are highly efficient and low maintenance. Until the superconducting side of SeaTitan can be perfected and the cost lowered, PMG is the next generation of technology.

Here is a snip from TheSwitch.com

We at The Switch are following the development with interest. Not only are we among the few companies in the world mastering permanent magnet technology, but we are also among the very few able to supply direct-drive generators above 5 MW based on proven technology.

Denmark has first-mover advantage and as Vikings intends to fight to maintain its global market leadership, focusing on large offshore turbines.


This does raise one nasty question. Most of the largest offshore wind farms being built use PGM's. I wonder if AMSC isn't covering its bases in case its SeaTitan turns out to be a SeaLillipution?

The Switch started operations in November 2006. That's a young company for such rapid sales growth -- and profitability. The 2009 annual report is a very interesting read because it sets an aggressive 2012 sales growth target, notes special products like its in-place-replacement PMG system, and sets an industry objective of being #1 by 2012:

http://www.theswitch.com/files/2010/05/News_AR-2009_final-2....

The solar part of the business could be a sleeper but the fuel cell effort doesn't fit AMSC's existing profile. The Switch looks like a very successful rapid-development company that takes university ideas and turns them quickly into products. Their culture of rapid development sounds very good. I just hope there isn't a clash with AMSC's culture.

This purchase puts AMSC solidly inside all three of the largest wind turbine manufacturers in China. This allows AMSC to cross-sell its other products and allows superconductor applications to be sold when AMSC has them.

AMSC is paying 17.6-times earnings for The Switch (a company with an ROI of 6.5% in its fourth year of operation). That seems like a reasonable price for a complimentary technology that makes Windtec product catalog that much more robust. AMSC has the $186 million on its balance sheet for the cash portion of the purchase. If AMSC wants to borrow some of this, that's OK with me. Rates are low and The Switch is generating enough net income to help pay for the borrowing.

I like the purchase. The market may start to like it after the June 3rd analysts conference. The deal is scheduled to close 8/31/2011.

W.D.
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W.D.

Nice write-up, thanks!

Denny Schlesinger
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Sorry - about to display utter techno ignorance but can't AMSC in the future build superconductors into the PMG technology (as per switching copper wire to superconductor in the electric ship propulsion systems)?
a
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...but can't AMSC in the future build superconductors into the PMG technology (as per switching copper wire to superconductor in the electric ship propulsion systems)?

Interesting question. Researching it allowed me to learn a lot. Sorry for my potentially poor answer but, not being a PMG engineer, I am ignorant of this technology. Here is what you can get from The Switch's site:

Industrial electric drive trains

The Switch is a pioneer in high-speed motor applications and an innovative and experienced supplier of permanent magnet machines. We are specialized in designing and manufacturing direct-driven electrical machines for various applications across wide power and speed ranges.

The Switch’s main products are solid rotor motors for high-speed applications and permanent magnet motors and generators for low- or medium-speed applications.

Our advanced technology drive systems are compact, rugged, field-proven and speed adjustable. In each case, we work closely with our customer to integrate the drive system directly into the application.


So, one of a permanent magnet's benefits starts with it size -- small. But, I did a Google search to see what the average copper use was per MW of offshore power. It was 6.05 tons! 1.75 tons is in the turbine and transformer and the balance in the cable between the turbine and the substation. [See Page 40 of 90 in this link to a 2009 study.]

http://geography.exeter.ac.uk/media/universityofexeter/schoo...

Now I don't know what a The Switch offshore PMG product weighs, but this is what AMSC had to say about PMG's when it announced SeaTitan in 2010:

Gearboxes for these conventional multi-MW turbines, however, are very heavy and there has been widespread speculation that some designs have unresolved reliability issues. Generators for multi-MW direct drive turbines are typically large and heavy as well. Allowances for tolerances and deformations in large generators reduces the effectiveness of permanent magnet generators. In addition, the potential unavailability of rare earth materials could prevent direct drive permanent magnet generators from being cost effective.

Deploying more advanced technology, such as a smaller superconductor generator with a large air gap, can effectively replace a permanent magnet machine for direct drive applications. In addition, with superconducting generators, tolerances, deformation and material availability are no longer an issue.

As turbine sizes approach 10 MW and beyond, other types of direct drive generators, such as permanent magnet and synchronous machines, get larger in diameter and weight, thus making them more expensive to integrate in comparison with HTS technology.

Increased personal safety: The HTS generator rotor can be demagnetised during wind turbine maintenance or potential wind turbine repairs. This significantly increases the personal safety of service employees compared to wind turbines with permanent magnet generators.

In addition, conventional permanent magnet generators require grease for the bearings and tightening checks on fasteners...


http://www.renewableenergyworld.com/rea/news/print/article/2...

So, in AMSC's own words, they bad-mouthed the PMG 10 MW alternative. That's odd now that AMSC want to spend over $200 million to own that technology in August. This may be why the stock declined today. Analysts following the company may wonder why AMSC would spend so much for a technology it plans to replace. And, it will not be until June before they get a public forum to ask why. The answer may be that the SeaTitan is finding problems that are delaying its introduction for years. PMG's are here today.

I did a quick look at the 10 MW offshore competition and only found one company (out of the four in the running) with the funding and prototypes in place to be a major contender. This company is United Technologies. It got into offshore by buying Clipper Windpower, a money losing but fast growing wind manufacturer with a PMG portfolio.

I looked at the other two but could not determine what their technology was. What is clear is that UTX is going with PMG and they have the Britannia 10 MW offshore wind farm on the books! The other two have no firm orders.

I suspect that there is a lot of copper in a PMG system. I am not certain that will make a big difference in the total cost of a offshore wind system given all the environmental and maintenance challenges.

It was fun taking this look at the industry and the technology. Now, though, I am not certain why AMSC would shell out so much cash for a technology it is trying to displace...

W.D.
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No. of Recommendations: 5
Today, Seeking Alpha writer Tate Dwinnell had this to say, in part, about AMSC:

Shares of American Superconductor (AMSC) plunged to another 52-week low yesterday morning with heavy volume after the company announced a $265 million acquisition of Finnish company The Switch and subsequently lowered guidance in the short term. CEO Greg Yurek calling 2011 a “transition year” likely didn’t help the stock either.

Let’s start with the acquisition news. Sure, in the short term the financials take a hit, but it appears AMSC acquired a key technology which will be a growth driver for it in the future. The Switch manufactures permanent magnet generators, which eliminate the need for gearboxes and increase efficiency by nearly 10% over traditional wind turbines in a 2MW turbine. According to AMSC, The Switch's products may also prove to be an important ingredient in offshore wind turbines, because they won’t rust out over time as traditional gearboxes do. The company believes the acquisition will help it achieve its goal of $1 billion in revenues by 2014.


http://seekingalpha.com/article/258334-american-superconduct...

While I am in no rush to buy AMSC, I do agree with Mr. Dwinnell's assessment that the nuclear problems in Japan will finally turn the world away from nuclear. What I think wins big is wind. Why? Simply stated, in the right place, wind is extremely cost effective.

Solar is still not cost effective. It takes a lot of land to do large solar installation and if you have seen one you know what an eyesore it can be on the landscape.

What does wind have going for it that both The Switch and AMSC see? Offshore! Offshore wind farms can eliminate visual problems and the noise associated with wind turbines. Since so much of the population lives by coastlines, a natural place to locate these farms is offshore.

As the ocean fades over the horizon, it doesn't necessarily get deeper. If you have ever watched the new surf documentaries, there is a place miles from Tahiti's shores that has the most perfect waves. Big. Thick. Perfect tube. You cannot get waves without a seafloor around to push the water up. As a surfing oceanographic student would say (yes, me, 1967) you can't have L2 and L4 -- slang for "wave forms" and "wave breaks" -- with no rising seafloor close at hand.

So, find the high ground on the seafloor and build out of sight but close enough to population centers to make the cost of cable connections realistic. There is plenty of experience in the North Sea building structures bigger than SeaTitan that can withstand the elements. Wind farms can use that technology to build upon (to use a pun).

The company building United Technologies offshore wind turbine's blades is located close to shore. Why? The blades for a 10 MW wind turbine are going to be very long. Passing them through the streets of any city would be next to impossible. Moving them from shore, to the sea, to their sea location is just common sense -- and probably pretty cheap too.

I don't see any solar installations going offshore. Who would they get to regularly clean the salty water off the solar surface? LOL

While wind doesn't replace oil for liquid vehicle fuel, it does offer a way at 10 MW to put a lot of payload into a reasonably sized package. Find a long enough seabed upwelling and you could power a lot of homes. If AMSC reaches their 400-homes-per-MW high-end target, 10 SeaTitans could power 40,000 homes without fuel.

http://www.boston.com/business/technology/articles/2010/05/0...

Here is what AMSC thinks is the technology challenge offshore:

Wind generators up to 5 MW are now being sold commercially on the market. However, higher power systems have not been introduced due primarily to generator weight and cost limits.

http://phx.corporate-ir.net/phoenix.zhtml?c=86422&p=irol...

So, what is the answer?

Lower weight HTS direct drive generator systems are expected to provide more power in a smaller package for about the same cost as conventional direct drive generators. By replacing copper with HTS on the generator's rotor and utilizing a new high-efficiency stator design to be developed under this project, AMSC and TWMC estimate that they could produce 10 MW class direct drive generator systems that would weigh approximately 120 metric tons, or about one-third the weight of conventional direct drive generators with this power rating. Technically, weight reductions could be greater, albeit at a higher cost, giving wind energy system manufacturers and developers new options to design and deploy cost-effective offshore wind farms.

And, the blades will not be moving at a blinding speed which should help eliminate some environmental (bird) problems:

The targeted ultra-low-speed, high torque generators are expected to produce full power at 6 kilovolts at 11 revolutions per minute.

Plus, one other thing AMSC has in its SeaTitan data sheet that the industry is not targeting. 20 MW systems! In an industry where size may matter a lot, AMSC is talking big! Imagine ten 20 MW SeaTitans powering 80,000 homes! That is an amazing number of homes for a very small number of towers. It is this small footprint, large power base turbine that may be the eventually winner for land and the sea.

http://www.amsc.com/pdf/SEATITAN_DS_1010_FNL.pdf

While there is plenty of need for land-based wind farms today, the niche for offshore should be large -- or my oceanographic studies failed me in this analysis.

I still think The Switch and its PMG's only gives AMSC a long-term headache if superconducting units are really the future. But, if AMSC is wrong, they will have the technology in The Switch that will make them a name player in the current generating business.

UTX is getting government funds for its 10 MW PMG system. AMSC is getting similar funding for SeaTitan. My guess is that neither has been proven to be the best or that SeaTitan can deliver on its disruptive technology promise. Time will tell but it still looks to me like AMSC is trying to cover all the bases for offshore with the purchase of The Switch.

W.D.
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No. of Recommendations: 4
Giant oceanic windmills might be dinosaurs. A newer wave driven technology is being developed that might give windmills a run for their money. Ocean Power Technologies (OPTT) recently completed a 150 kilowatt test unit, the PB150 PowerBouy. They are working on the design of the PB500 which I figure is a 500 kilowatt model. The PB150 is 35 meters tall, 9 meters above the sea and 26 meters in the water. I figure (guess) they will be anchored on 30 to 50 feet of water. Ten of them can be connected to a hub creating a 1.5 megawatt generator. I suppose the PB500, if connected ten at a time, will generate 5 megawatts of power.

I see a lot of advantages in the PowerBuoys. While they generate less power per unit they can be placed closer together and they should generate the same or even more power per area of ocean. Construction and installation is a lot simpler since they float. They are not an eyesore at only nine meters above the water (30 feet). They don't have blades that make noise and kill birds.

Also, they should be steadier in their electric output than windmills. Waves are generated by the wind but they persist after the wind is gone. Also, even tsunami waves should be less of a problem for them than hurricane gales for windmills. If they are in deep enough water the waves are not a problem. Waves break mostly when they meet a shallow bottom.

This is a much younger technology. There are some PB40s installed in Hawaii and the first PB150 will be installed as soon as weather in Scotland permits. Worth watching out for this technology.

BTW, check out tumblr, it's great for creating a blog:

http://captainccs.com/post/3883677582/ocean-power-technologi...

See also my post at the NPI board:
http://boards.fool.com/ocean-power-technologies-optt-earning...

Denny Schlesinger
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For those not interested in OPTT, please skip this post.

Ocean Power Technologies (OPTT) recently completed a 150 kilowatt test unit, the PB150 PowerBouy.

Denny, I respect your opinion. I have been reading this board long enough to know you take the time to think through your posts and investments. In the case of OPTT, it is a company I have followed for years because of their Reedsport, Oregon testing. I use to live in Oregon and have followed this with fond memories of the Oregon coast. Let me take a critical (positive and negative) view of OPTT.

This is from the recent OPTT conference call:

The company is seeking additional funding for the commercial utilization of the buoy after the trial phase is completed, including its possible deployment at various potential sites. It is the first test system for our PB150 product line and a significant engineering achievement. As we have progressed during the construction phase, it has already provided valuable data for the advancement of our technology and its manufacturability.

http://seekingalpha.com/article/258125-ocean-power-technolog...

I always cringe when I read something to the effect of "...provide valuable data" on "...its manufacturability." That says that it is very early and that delays are very likely. My tendency is to buy too early so this is a warning sign for me.

Slide 5 shows the integration of the spar and the first half of the float during the final assembly process. On Slide 6, the picture on the left side shows the buoy with the second half of the float being assembled.

It always makes me laugh to think how companies start. The, "Look at my baby photos" start is followed years later with a virtual news blackout. Try and find pictures of SeaTitan being built by AMSC...

OPT's PowerBuoys have been injured by Lloyd's syndicates for over 10 years for property loss and third-party liability.

The fact that insurance rates are already set will help make sales. The fact the PB150 has not been hit is also a positive.

Like all new industries, there is lots of competition. Look at this Wikipedia list of all the "Modern Technology" being tested:

http://en.wikipedia.org/wiki/Wave_power

What caught my eye on that list was this:

The United States Air Force Academy is developing a long ocean wave-cancelling electric generator that simulations and small-scale tests show can capture more than 95% of the energy of long ocean waves.

Does it strike anyone as funny that the Air Force is doing the research behind a project that would seem much better suited for the Navy?

Product development costs decreased to $2 million as compared to $3.7 million for the third quarter of the prior year.

That is a big drop! But, that is common for a start-up company living off government(s) funding. Revenue will flow up and down sharply with each individual build. There is lots of risk that slow periods will make keeping a trained staff very hard.

We believe we have paths to profitability with each of the two major market areas we mentioned earlier.

I wish I had been handsomely rewarded for every time I read that line. I purchased Energy Conversion Devices in the late 1960's with that expectation. Kept it through the 70's, 80's, and 90's. I finally gave up in the new millennium. I wish OPTT smooth sailing...

The major flaw I see (and see with solar) is found on Page 11 of 23 of this presentation:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...

The power cost is $.16 versus $.08 to $.16 for wind. With wind less expensive, and costs falling, it is hard to ignore that cost advantage. While waves have many benefits, including the ability to project energy output five days in advance, I have a nagging fear that the long-term maintenance costs will be higher than expected -- making the $.16 a goal instead of a result.

There is also the risk from their "selling plant instead of energy." This is a manufacturing company that requires government subsidy of its product's electric output in order for the owner to make money. Governments, strapped for cash, will move slowly when making this kind of a capital expenditure.

OPTT is an interesting company. It has a great funding base and is in great projects around the world. Although there are a lot of people designing product for this market, few will actually get to commercialization. OPTT has a early mover advantage. With a market capitalization of $56 million, and $23 million in net cash, things look good. But, the company is selling for 8-times sales and burned through $18.4 million (operating cash flow) over the last 12 months.

http://finance.yahoo.com/q/ks?s=OPTT+Key+Statistics

I wish you good luck on this. I will continue to watch from the sidelines. I think AMSC has a lot more near-term upside with less risk.

W.D.
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W.D.:

I hope people realize that all development stage companies are high risk. If I had to add all the potential warnings they would overwhelm the length of the story. When for some reason I feel compelled to add a warring it usually is "This is neither an offer to buy nor to sell securities, quite the contrary." One hundred years ago there were hundreds of car makes. A few survived, the rest went to Auto Heaven, may they rest in one piece. I once wrote a post listing 100 auto brands:

http://softwaretimes.com/files/the%20internet%20and%20the%20...

I like technology. I'm also a sailor. I also investigated waves when they destroyed our marina. The PowerBuoy makes a good story, a probable story. At this stage getting into cents per kilowatt is moot. Just look at the big picture.

The use of energy can only increase if the world's population wants a higher standard of living. It does not have to be additional energy, some of it will come from increased efficiency. But fossil fuels are expensive and dirty. Nuclear is feared, rightly or wrongly. Once our standard of living is high enough, we also want a cleaner world. All these things make CleanTech or alternative energy inevitable. Betting on the players is risky but interesting, and it can be very rewarding. I don't really "invest" in them in the traditional sense of putting money down in the hopes it will grow. Instead I have developed a trading method that has proven profitable even as I accumulate shares. For me to take an interest in a development stage company, it has to have a good story and the stock (or options) have to be tradable by my method.

After I posted my earlier piece I thought that Ocean Power Technologies might be an interesting acquisition target for American Superconductor as it tries to cover all the green energy bases.

Denny Schlesinger
Disclosure: I'm short OPTT put options, short AMSC put options and long AMSC and other GreenTech and other energy related securities.
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The use of energy can only increase if the world's population wants a higher standard of living.

That is the key point. While our per-person energy use in the US may go down with the advent of high MPG cars, organic LEDs, and other breakthroughs, there are billions who don't have the things we would call the basics of life. As the entire world electrifies, the use of oil for electricity is not an option. There isn't that much oil. Hawaii and many other islands need to find a better option. For them, wave power may be the gateway to a way of life under their control. It may, on a cost basis, be their best option now.

I don't doubt that waves are a real option. I just question how big it will be in the near term. If AMSC could somehow use its superconducting technology to improve on the OPTT core, then buying OPTT would certainly make sense. For now I will be glad to see AMSC get SeaTitan and its other developments into the market in a reasonable time.

W.D.
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No. of Recommendations: 1
W.D.

Greatly appreciate all your write-ups on AMSC. One question regarding the following statement,

This does raise one nasty question. Most of the largest offshore wind farms being built use PGM's. I wonder if AMSC isn't covering its bases in case its SeaTitan turns out to be a SeaLillipution?

During the AMSC conference call the following is stated,

we are also actively pursuing our first SeaTitan superconductor wind turbine licensees. Discussions are ongoing, and we are optimistic we will close our first licensee in the not-too-distant future.

If there was any doubt about SeaTitan viability would they be looking to sign up a licensee at this point?

Darrell
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No. of Recommendations: 4
Darrell

If there was any doubt about SeaTitan viability would they be looking to sign up a licensee at this point?

Good point.

Here is where SeaTitan is today:

Feb. 10, 2009-- American Superconductor Corporation today announced that it has entered into a Cooperative Research and Development Agreement (CRADA) with the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and its National Wind Technology Center (NWTC) to validate the economics of a full 10 megawatt (MW) class superconductor wind turbine. AMSC is separately developing full 10 MW-class wind turbine component and system designs. A CRADA allows the Federal government and industry partners to optimize their resources, share technical expertise in a protected environment and speed the commercialization of technologies.

Under the 12-month program, AMSC Windtec™, a wholly owned subsidiary of AMSC, will analyze the cost of a full 10 MW-class superconductor wind turbine, which will include a direct drive superconductor generator and all other components, including the blades, hub, power electronics, nacelle, tower and controls. The NWTC will then benchmark and evaluate the wind turbine’s economic impact, both in terms of its initial cost and its overall cost of energy.


http://phx.corporate-ir.net/phoenix.zhtml?c=86422&p=irol...

As I see it, a year has passed and AMSC should have news on this front. The money was given and the NWTC benchmark should be available soon. To have not said that they were looking for licensees would have raised a red flag.

But, that same press release says this:

Concurrent with the CRADA, AMSC and TECO-Westinghouse Motor Company (TWMC) have been working on a project since October 2007 to develop HTS and related technologies for 10 megawatt-class direct drive wind generators under an award from the National Institute of Science and Technology’s Advanced Technology Program (ATP). The CRADA and ATP programs are intended to serve as a prelude to follow-on programs aimed at building and testing a full-scale prototype superconductor wind turbine, prior to commercialization.

So, based on that, do you see SeaTitan looking for a licensee to build a prototype? I do.

I also look at a recent company purchase and wonder if there wasn't something lacking during those benchmarks. This was said during the conference call:

Blade Dynamics is executing its business plan on schedule and has started adding staff at its new manufacturing plant in Louisiana. We believe Blade Dynamics' proprietary blade technology will help our wind licensees gain market share faster and in turn, drive higher sales volumes for our wind turbine power electronics and controls.

Remember that this 25% stake was purchased because this company had technology to get to 5 MW and beyond. AMSC's CEO said at the time:

Onshore wind turbines now exceed 2MW in many locations, and offshore wind farm developers are increasingly seeking wind turbines with power ratings exceeding 5MW. Blade Dynamics presents us – and the entire wind industry – with a game-changing wind turbine blade technology that enhances performance and reduces weight and cost for high power wind turbines.

http://www.windpowermonthly.com/news/1022801/AMSC-acquires-2...

I see SeaTitan being "enhanced" by Blade Dynamics before it even gets to the prototype stage. And, the correct question may be, will The Switch's PMG system get the SeaTitan label and Blade Dynamics blades? That would allow AMSC to get to market years before the superconducting product is ready for mass sales. This is from the conference call:

...as SeaTitan starts to make an impact there in the outer years of that five-year plan, it will accelerate the Wind segment, the wind growth rate as we've called it.

Was anyone thinking that SeaTitan's impact is going to be in 2105 or 2016 (i.e., the outer years of the next five year)? With The Switch's system, they could get that brand name on the market in 2011 (and The Switch wasn't on the radar for the last conference call). SeaTitan PMG could come before SeaTitan Superconductor...

When you add up AMSC and all its parts, it is a very exciting company. I think when the analysts day comes in May, the company could present a very interesting outlook. At the same time, enough time will have passed for the SeaTitan benchmark to be available.

It will be interesting to see if press release happy AMSC announces anything about the benchmark. If it does not, I would say that benchmark was not a high point. Since the funding was announced via a press release, why not the results? But, even if the benchmark was less than favorable, the analysts day could be used to reposition SeaTitan with Blade Dynamics and The Switch being key new product directions.

This is all speculation on my part about SeaTitan. I am trying to decide if this is the time to buy AMSC. I think the company is finally at critical mass but I have not purchased shares.

W.D.
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No. of Recommendations: 7
No need to speculate. AMSC has spelled out what it is doing.

Vanguard engineers at The Switch, a world-class Finnish company specializing in machines that transform energy into electricity, developed power conversion electronics so advanced that AMSC founder/CEO Greg Yurek approached The Switch President/CEO Jukka-Pekka Mäkinen in 2009.

"I cold called him," Yurek laughed. He had seen The Switch power control technology and permanent magnet generators (PMG) and understood, because of AMSC’s "deep knowledge in the technology and business of generators," that the trend in the wind industry is to direct drive PMG systems.

In August 2009, Mäkinen invited Yurek to Finland where they agreed to get their engineering teams together "to see where the opportunities might be." After a period of brainstorming, "you could see the complementarity quite clearly," Yurek said.


http://seekingalpha.com/article/259046-a-superconductor-magn...

In 1 1/2 years, the CEO's decided to combine operations. That makes sense given this:

AMSC’s Windtec subsidiary developed a wind turbine that required a permanent magnet generator for Korea’s Doosan Heavy Industries and recommended The Switch PMG technology. It was the beginning of a beautiful friendship.

Maybe this explains why The Switch's sales were growing so rapidly and why AMSC didn't have to pay an excessive price to buy the entire company. Windtec was helping them grow and they realized that selling to AMSC gave them a seat to the superconducting discussion table. Remember, The Switch has in its very short history establish a very good record for bringing cutting edge products to market. Their well might have been dry as they tried to look past RMG's. In AMSC they saw an opportunity that they wanted bad enough to not price their company out of AMSC's reach.

This is where it is all going:

"The cross fertilization between those two channels is very exciting," Yurek said, because the Switch permanent magnet generator and the Windtec wind turbine electronics – consisting of AMSC’s Electrical Control System and the Switch’s Power Control System – can be optimized as a unit.

"And," Yurek added, "take the advanced blades from the company Blade Dynamics that we took a position in last August, and bring in our Nuremberg, Germany, bearings engineering group with its advanced bearings designs," he said. "We clearly could make one of the best designed, most efficient, most powerful wind turbines in the world. And I think that cross-fertilization will open up new licensees and new channels to market."


PMG's are the near-term industry direction for offshore wind and a leading candidate for big onshore too. Blade Dynamics may be the trend setter for a new breed of blades although there is at least one other company I have read about that has radical new blade technology. Then there is the future:

That will happen as AMSC brings its superconductor technology to the marketplace. "Superconductor is the optical fiber of power," Yurek said. "Optical fiber replaced copper in telecommunications cable because it had such higher capacity for information and data. Well, Amperium™ wire carries more than 100 times the electricity of a copper wire of the same size."

"You take all these advanced technologies," Yurek said, "pulling those all together you come up with the Sea Titan" AMSC’s prototype ten-megawatt offshore turbine. "I think the way you go beyond six or seven megawatt power ratings with conventional machines, including permanent magnets, to get to ten, fifteen and twenty megawatts, you really need to go to superconductors. That’s the next phase."

"As we get to the end of this decade, we think superconductors clearly have the potential," he said, "to be the largest part of our business."


As I read it, the near-term industry direction is PMG's and AMSC has found the right partner to bring this technology to market. With The Switch, AMSC will be in four of the top five wind manufacturers products. Their combined catalog of products will be impressive. SeaTitan and superconductors will be the rage just as they said in the conference call. They will take center stage in the 2015-2016 period and be the toast of the town by decade end. At least, that is how I read it.

W.D.
I like that Mr. Yurek is talking about 15 MW and 20 MW systems. I have read a number of negative articles recently about the number of structures you'd have to build in order to power a city of any size. When you do the math with 2.5 MW systems, they are correct. But, the argument dries up when you start deploying 20 MW systems.
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DCWD40 thanks for the super summary. Very helpful to build the pieces of the jigsaw puzzle together.
km
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DCWD40-
I also saw that article on Seeking Alpha. It is a very encouraging
slant on the prospects for a company that all the analysts and
traders love to beat up. Do you think there will be an uptick in the recent trend?
shdwgrph
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A company and its stock are two different animals! ;)

In time stock price follows company value but short term stock price follows market whims.

My hunch is that nuclear is effectively dead, not that they will raze existing reactors but new construction is going to be delayed indefinitely while the amount of energy required by the growing and prospering world population continues to increase.

American Superconductor is bulking up beautifully in an important sector of the green energy revolution. As in any start-up industry there is a lot of fragmentation and with maturity comes consolidation. If American Superconductor can continue to bulk up while not getting gobbled up by one of the giants like GE, Siemens or ABB, AMSC should be a good long term play. But the road to investor heaven is never a smooth escalator but more like a rowdy roller-coaster.

Denny Schlesinger
Long AMSC
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Do you think there will be an uptick in the recent trend?

It is funny you should ask me that question. I have been sitting on the sidelines waiting for the charts to finally say, Buy!" So far, that has been a good move. Since I started to sense that AMSC was going to be a big winner, the stock has done nothing but wilt. But, at 18-times March 2012 earnings and selling at a PEG of .50, this stock is cheap today in my book.

I think Denny said it best:

American Superconductor is bulking up beautifully in an important sector of the green energy revolution.

I also like the superconductor angle. There are so few companies that are dedicated to getting this to market. It leaves AMSC as a logical place to land if you are in a university setting and have product ideas to bring to market or R&D. GE and the other big boys may have deep pockets but they tend to share their wealth only with their executives. AMSC and other small companies can offer shares that might, given the right decisions, make someone very rich. [See my math at the end for how I look at the stock.]

There is a lot of like about The Switch. They seem to be a gifted rapid development company. If they are not just a fluke, then they could be the gifted team that brings an interesting array of new alternative energy entries (like solar and fuel cells) to AMSC shareholders.

I like where AMSC is today. The market seems to think that funding for alternative energy is in trouble in Europe and the US. That's the only thing that makes sense with AMSC trending down to its 52-week low. But, as I have shown via government studies, wind isn't in big need of government help. I think AMSC has the opportunity in June to explain to analysts why they are well positioned and to tout The Switch's and Blade Dynamic's benefits.

My ability to guess stock direction is not great. That is why I use charts to find trends before making an investment. The fundamentals are important. Company stock usually does not go to the sky without a good story that is confirmed with fundamentals.

So, do the math. If AMSC is headed to $1 billion in 2014 with 20+% margins (as the company says), you are looking at operating income of $200 million. AMSC has 50.7 million shares so, if you take out 30% for taxes, the rough math says the company has the potential to earn $2.76 a share and be growing at 30% or more a year. At a PEG of 1.0 (30-times earnings), the stock should be $82.80 a share -- roughly 3.6-times where it is today by 2014. Now that's what I call a nice gain.

Anyone want to share a different look for the future stock price?

W.D.
Who still doesn't own any shares...
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WD

I also like the story they pitch. And having a nice 1B goal is a great target.

I have more of a question on the 20% margin. If they can match that then they are special. Not many guys of that size keep 20%.

Putting 12% into the valuation matrix has of course a huge impact on earnings and future stock price.

We all in the WAG game, but I do like the story.

Tango
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I have more of a question on the 20% margin. If they can match that then they are special. Not many guys of that size keep 20%.

20+% is the target the CEO stated. But, is it so special? Tired old Cisco, the company everyone seems to be selling, has 21% operating margins. Tiny NVEC, a company I follow but do not own, has margins of 57% yet sales are only $31.2 million. CREE 25.3%. FSLR 30.6%. I could site a number of companies, in an size category, with operating margins north of 20%. The thing that makes them special is that they are usually #1 in their industry or #1 in some key markets. Big, or #1, are not a key to success. Kraft Fods has margins of 13.3% and many of its brands are #1.

The valuation I built was based on the company growing 30% annually, reaching $1 billion in revenue by 2014, having operating margins of 20%, and selling for 30-times earnings. That is a tall order. Working in AMSC's favor are its 16.2% (and rising) operating margins. Purchasing The Switch will help get to the $1 billion target. Year-over-year growth last quarter in revenue of 41.6% and earnings of 209% certainly makes my valuation seem possible.

What might hurt those numbers? AMSC is parting with a lot of cash to buy The Switch. AMSC has sold shares in the past to get cash on the balance sheet and to stay away from debt. If AMSC were to sell shares again and again, the 50.7 million share base used to compute that future price is no longer valid -- and that is very important number.

Other operating margin impacts might include the building of a large wire facility or other capital projects. One thing I would like to see that would hurt margins is the company to ramp-up R&D from less than 8% to 9.5% -- a level Corning has shown to be very effective. Without making that investment (or 14% like Intel), it concerns me how a small company like AMSC will compete with giants like Siemens and Sumitomo in superconductors.

Profitability is great but AMSC has to establish itself in a massive market -- energy. The money to be earned is very big and there are lots of Big Boys who will want to steal AMSC's lunch money. It is their success in making the R&D dollars work that will probably decide if they make the big time.

One other problem is worth noting. I have posted previously about Sinovel's (AMSC's largest customer) plan to open its own wind R&D facility. They believe that their access to highly qualified Chinese engineers will give them an advantage in the long term. Couple that the Chinese government's "help" of many (most?) high technology businesses with tax holidays for (in some case) five to seven years, and you have a competitive situation that could work against AMSC in the future.

While I like AMSC, there are plenty of threats that exist that could derail their plans. It is nice to see a way to an $80+ dollar stock price in 2014 but it is quite another thing to make the R&D investment, and pay taxes on income, and compete against companies that are either industry giants or government sponsored.

Think before you invest your hard earned greenbacks...

W.D.
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Operating margin is not an absolute number, it is very industry specific. Recall that the basis for the calculation is revenue. When management says they will raise the operating margin to 20% they are saying, in effect, that they will run a tighter ship, a more efficient business. That means cutting SG&A and/or lowering the cost of goods sold. Increasing operating margin by lowering R&D is probably not a good idea.

Unfortunately Yahoo does not show an industry average for AMSC's industry group but ABB's is a low lower at 12.6%:
http://finance.yahoo.com/q/co?s=AMSC+Competitors

Look at aerospace, under 10%:
http://finance.yahoo.com/q/co?s=ba

Pharmaceuticals, over 20%:
http://finance.yahoo.com/q/co?s=JNJ+Competitors

Denny Schlesinger
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All good points about margins.

The current income from last Q (3 months ending Dec 10) is: $16M from $114M. Let's call that 14%.

And previous Q(3 months ending Sept 10) is: $10M from revenue of $101.5M. Let's call that 10%.

So this pretty good growth, maybe they can continue margin expansion.

Tango
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CORRECTION

I wrote:

The Switch started operations in November 2006. That's a young company for such rapid sales growth -- and profitability.


ACTUAL FACTS:

That's not totally correct. Here is the whole story:

In December 2006, three innovative companies – Rotatek Finland, Verteco and Youtility – joined forces to become The Switch.

As the newest player in the market, The Switch brings a fresh approach to the business. At the same time, it combines 25 years of expertise from three well-respected organizations.



MORE ABOUT THE SWITCH

I looked into the pre-Switch companies but found this industry analysis done in 2010 more interesting:

In December 2006, three innovative companies – Rotatek Finland, Verteco and Youtility – joined forces to become The Switch.

As the newest player in the market, The Switch brings a fresh approach to the business. At the same time, it combines 25 years of expertise from three well-respected organizations.

Another oft-claimed advantage is that, compared with DFIGs, PMGs with full-power converters offer easier compliance with stringent future grid codes. On the other hand, the iron (Fe) elements in the NdFeB magnet material makes these components prone to corrosion, which necessitates long-lasting magnet insulation and complete protection from harsh exterior environments. Also, operating temperatures inside the generator rotor must be limited to a maximum of 80°C in order to retain magnetic properties. Current manufacturing capacity for The Switch amounts to 1500 MW for generators and 3500 MW in converters, with a target to expand generator output volume to 6000 MW and converters to 7500 MW within two years. DongFang of China, among the world’s largest suppliers of power engineering equipment, currently manufactures most generators and power converters for The Switch’s global distribution.


http://www.renewableenergyworld.com/rea/news/print/article/2...

As noted before, The Switch is an interesting company and it appears that it has a unique quality in its desire to move rapidly. Let's hope that culture doesn't have a negative impact at AMSC.

W.D.
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