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No. of Recommendations: 6
The technical picture was just starting to turn on AMSC before today's news. The news turned them up and I purchased the stock late this morning.

What AMSC has is excellent management. When alternative energy stocks had fallen after the dot.com crash, many AE corporations turned to debt. AMSC almost did that but finally decided to issue shares. That was a great move because it kept the banks out of the executive suite and let the company have the freedom to get where it is today. The Windtec deal confirms why I like this executive team.

Windtec designs a wide variety of wind turbine systems from the ground up, and in certain cases licenses these designs to third parties for an upfront fee and royalty payments for each installation of a Windtec-designed wind turbine system. Windtec also provides consulting services for its licensees who want to upgrade or optimize their wind turbine systems. Licensees normally purchase the wind turbine electrical systems from Windtec, which utilize AMSC's PowerModule systems to control power flows. Windtec's customers and targeted markets include industrial equipment manufacturers and engineering construction companies in countries such as Canada, China, the Czech Republic, Germany and India, who are addressing an unmet need for local manufacturers of wind turbine systems.

As noted earlier, this means

"These capabilities provide us with a competitive advantage, particularly in emerging countries where local content is often government-mandated."

Competitive advantage: Love those words! But, there is big cometition in GE and Vestas -- and they do not sound like they are customers (although they could if AMSC and Windtec produce a superior product package). But, it is true that countries like China and India make local manufacturing a key part of government purchases in order to encourage competition. AMSC might just have the key component package that allows them to sell systems while others do the hard labor bending metal and pouring concrete into the ground.

This press release also should remind shareholders that AMSC already has a toe inside the door in China. In October the company announced:

SECRI plans to develop and certify HTS power cable systems for use by its constituent members, which are power cable manufacturers throughout China. As a first step toward this objective, SECRI will manufacture and test in its advanced facilities a 30-meter-long, 110,000 volt prototype transmission voltage HTS power cable utilizing AMSC's HTS wire. The next step is an installation of HTS cables in the power grid, most likely in Shanghai.

http://phx.corporate-ir.net/phoenix.zhtml?c=86422&p=irol-newsArticle_Print&ID=923811&highlight=

From the same press release you get the feeling that China's government will tackle its electric problems (while we here in the USA lack government leadership):

"China alone accounted for close to 41% of the world's energy growth in 2004. This rapid growth in demand in China is expected to continue for the near term and, as a result, new and radical solutions must be examined. It is important that the Chinese government is taking the necessary steps by introducing reforms to address this issue."

This China connection might be where AMSC finds its long-term cable manufacturer...

My only concern is how GE will view the Windtec deal. They have been a key sales partner for D-VAR's for some time. GE is the big name in electricity (and the "E" in GE stands for electric) and AMSC may now be viewed as a competitor. Losing their support might cause a short-term sales pause.

But, there is a lot to like:

Based on existing backlogs and forecasts, AMSC expects Power Electronic Systems revenues, with the inclusion of Windtec, to more than double from approximately $22.5 million in fiscal 2007 to approximately $50 million for the fiscal year ending March 31, 2008. AMSC is not assuming any debt in the transaction, and it expects the acquisition to be accretive to earnings beginning in its first full quarter of operations as an AMSC subsidiary.

I have watched many developing companies over the years. Until an operation approaches $100 million in sales, they lack the size to grow quickly and profitably. AMSC has formed a subsidiary that looks like it will get to $100 million quickly. Wind is, to steal a phrase, growing quickly. Better yet, AMSC now has a full-scale systems package to sell wind manufacturers.

I also like the lack of debt and the fact the purchase will be accretive to earnings. While the number of total shares to be issued (1.3 million + 1.4 million) will potentially increase the share count by over 8% (there were 33.4 million shares fully diluted shares outstanding at the end of last quarter), that seems like a great tradeoff if the Power Electronics Systems business can sell complete systems and gain the critical mass to be highly profitable.

Obviously AMSC future is all about superconducting wire. There are still many massive markets that the company has the find partners (acquisitions?) and get products introduced. But, has the market forgotten that AMSC had a major temperature breakthrough this year?

Tests showed that 348 superconductors with today's performance levels can already be utilized to produce a 36.5-MW (49,000 horsepower) HTS ship propulsion motor capable of operating at 38 degrees Kelvin -eight degrees higher than the operating temperature of the 36.5-MW ship propulsion motor that AMSC is shipping to the U.S. Navy this year, which utilizes the company's 1G HTS wire.

"Our objective is to increase the operating temperature of large-scale electrical equipment, such as motors and SuperVAR synchronous condensers, much further - to about 55 degrees Kelvin - which will increase these savings further.


In my opinion, AMSC is on a roll. They can now get future funding via bank loans. Interest rates are reasonable. The company has rapidly growing product divisions. And the future of the cable can be listed as "when" -- not "if".

I like the company. I purchased my first shares today.

W.D.
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