This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

No Cheers in Latest China Green Energy War

NEW YORK ( TheStreet) -- American Superconductor (AMSC - Get Report) said it had no choice but to sue Chinese wind giant Sinovel for intellectual property theft, but that doesn't leave investors with much of a choice when it comes to shares of the technology company and former supplier to China's largest wind turbine maker.

American Superconductor announced late on Wednesday that it was suing Sinovel for stealing its intellectual property -- related to the software and electric components it makes that allow Sinovel's wind turbines to connect to the electricity grid. The turbine produces electricity that must be converted for the grid and the software card inside the electrical components facilitates this process. A former employee of an American Superconductor affiliate in Europe was arrested by Austrian law enforcement in July for corporate espionage, essentially for providing a way for Sinovel to hack through the encryption that protects AMSC's source code.

It's the latest twist in a downward spiral of the relationship between the Devens, Mass-based company and its former revenue stalwart Sinovel, which had accounted for as much as 75% of American Superconductor's revenue. The issue started as an inventory backlog at Sinovel, which forced the Chinese company to stop accepting shipments from AMSC, it said. As a result, AMSC had to restate its financials and lower expectations for revenue as it tried to work out a deal with Sinovel.

The issue occurs within the larger context of lower margins for Sinovel in the Chinese wind market where pricing has moved rapidly lower. Sinovel was also reportedly buying more electrical components from an affiliated supplier in China at the time of the AMSC hard stop, a relationship given new light now that the AMSC source code within the more commoditized nuts and bolts of the eletrical component has allegedly been stolen.

However, until AMSC's surprise announcement on Wednesday night alleging corporate espionage and IP theft, Wall Street had hoped AMSC eventually would work out its differences with Sinovel, getting it back to some semblance of a relationship to sell its electrical components that support Sinovel wind turbines, even if it was lower revenue in total, predicated on Sinovel's need to bolster its declining margins.

Suing Sinovel ends that dream, and even if AMSC ultimately recovers cash through a legal settlement, there is no telling how long that could take or what amount of cash a settlement could add to its balance sheet.

If the charges of source code theft are true, AMSC had no choice and its case against Sinovel is a positive step since there was no other steps to take. But all the same, it leaves investors caught between a rock and a hard place. Here are the issues for American Superconductor which mean any bet on AMSC by an investor at this point is a purely speculative play:

When the company announced a work force reduction of 150 employees earlier this year, as part of its attempt to recover from the Sinovel situation, Wunderlich Securities analyst Theodore O'Neill noted the size of the job cuts suggested the Sinovel relationship would be resuscitated. In fact, the analyst said that if Sinovel wasn't coming back as a sales agreement, AMSC would have had to lay off as many as 600 employees.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AMSC $4.02 1.80%
AAPL $118.88 0.96%
FB $105.75 -1.10%
GOOG $748.29 -1.00%
TSLA $218.25 0.23%


Chart of I:DJI
DOW 17,812.19 +19.51 0.11%
S&P 500 2,089.14 +2.55 0.12%
NASDAQ 5,102.8080 +0.33 0.01%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs