China wind market may help AMSC blow past estimates

BANGALORE (Reuters) - American Superconductor Corp, which makes electrical systems for wind farms and turbines, is likely to report third-quarter profit above market expectations, helped by continued strength in the Chinese wind market.

"This year is being really driven by the company's No. 1 customer, Sinovel," analyst Ben Schuman of Pacific Crest Securities said.

China's Sinovel Wind accounts for about 75 percent of American Superconductor's total revenue. The company -- which also offers smart grid infrastructure technologies -- has a total of 13 customers in the wind industry, of which five are in China.

China is leapfrogging global wind power rankings with a combination of aggressive growth targets and domestic support. It has doubled its entire installed capacity each year since 2005, according to the Global Wind Energy Council.

For the third quarter ended December, analysts on average expect American Superconductor to earn 14 cents a share, on revenue of $76.7 million, according to Thomson Reuters I/B/E/S.

According to StarMine's SmartEstimates, which places more weight on recent forecasts by top-rated analysts, the company should report a profit 9.6 percent above the consensus.

However, Pacific Crest's Schuman said product mix will drive some margin pressure in the third quarter.

American Superconductor's wind turbine electronics business has favorable gross margins, but the power grid business has gross margins that vary across customers, he added.

Most analysts do not expect the company to alter its 2010 forecast. In November, the company said it expected 2010 adjusted earnings to be more than $1.15 a share on revenue of more than $400 million.

SINOVEL WORRIES

However, the overbearing dependence on Sinovel is a cause of concern and Wall Street will be looking out for any commentary from the company on this count.

Analysts do expect the company to diversify its customer base, but said it was going to be a long process and Sinovel was unlikely to be replaced as the top customer in the near term.

American Superconductor has developed key relationships with customers in several developing markets such as India, Korea, Turkey and the Czech Republic, analysts said.

"AMSC is well positioned to benefit from growth in these regions' wind markets as these countries seek clean sources of electricity," Michael Horwitz of Robert W. Baird said in a note dated January 27.

Though analysts are curious to see what type of ramp up the company will see from the new customers, they expect the progress to trickle in from fiscal 2010 rather than in the third quarter.

The company is poised to participate in a number of attractive markets, but wind remains the main driver near term, Citigroup said in a note dated January 28.

By the end of calendar 2010, nearly all of its customers are expected to be in production and meaningfully contribute to revenue, the brokerage added.

American Superconductor recently said it was looking for a U.S. manufacturing partner to enter the U.S. market.

"The company has its hands full in fulfilling orders in China, and because China is growing so quickly it is unlikely that United States will become a significant percentage of AMSC's revenue in the near term," analyst John Hardy of Broadpoint Amtech said.

(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Aradhana Aravindan)