American Superconductor Poised for Super Results
By: Jesse Berst
American Superconductor (AMSC) is poised to play an integral role in the buildout of the Smart Grid, both in the U.S. and Asia. If you visit our Smart Grid Central profile (see link below), you’ll see that the company has been in business since 1987. And it has been three years away from good times for all of those 22 years.
This time, I think the three-year prediction may finally be accurate, if the firm can avoid a few pitfalls.
What’s in a Name?
American Superconductor is a great name if you’re in the superconductor business. Yet the high-temperature superconductors the company started manufacturing 20 years ago represent the smallest, slowest-growing part of its business today.
A far bigger share of its revenue comes from its power systems division, which (1) makes systems to convert and regulate power from wind farms, (2) designs wind turbines, and (3) develops smart systems with self-healing technologies to connect the wind farms to the Smart Grid. (You’ll find more details in the profile.)
Marketing folks would dub American Superconductor a branding disaster, but I’ve had several discussions with top management, which doesn’t see a problem with things as they are. They tell me there’s great synergy between the divisions. In reality, the divisions are so different that refrigerators and high-def TVs actually have more in common. Do you see the problem? If I need a new refrigerator, I’m not going to go to a store called Video Only. If I’m a utility in the market for a wind turbine, will American Superconductor spring to mind?
Still, there are tens of thousands of solid companies that have overcome the disadvantage of a misleading name. A more worrisome problem may be AMSC’s overreliance on a few customers.
Needed: Customer Diversification and a Stronger Sales Force
The bulk of AMSC’s sales come from its power systems division, and roughly two-thirds of those sales come from China. Worse, most sales in China come from one customer, turbine vendor Sinovel. The Chinese economy, which gave AMSC such a boost in the past, puts it at risk now (unless it can get its products baked into the Chinese stimulus package).
And its sales staff isn’t exactly experienced. It used to have a marketing agreement with GE. It’s going it alone now â€" a huge challenge when trying to sell worldwide against big companies with big resources.
Though they’re committed to their superconductors, management tells me they have begun to get serious about diversifying their customer base. And there’s a lot of potential for new customers both in China and the U.S. with the growth of wind farms and the Smart Grid.
A Light at the End of the Tunnel?
But current events may be shifting in AMSC’s favor. The company is hoping its superconducting business line will get a boost from future climate change legislation. Some versions of the bill contain support for new kinds of conductors, including superconductors.
In addition, passage of a climate change bill would greatly increase the pressure to create large wind and solar farms, thereby increasing the already pressing need for more transmission. Right now that new transmission is seen as 765 kV overhead lines that would require new rights of way. Translation: Endless lawsuits over eminent domain and not-in-my-back-yard concerns. When AEP needed to run a new transmission line through West Virginia, it famously took only two years for the construction, but 14 years to get the necessary permits.
The AMSC plan would use existing corridors as routes for underground "superconductor electricity pipelines,” minimizing legal costs and delays. The link at the end shows an animation of their concept. It's a long shot to hope that America’s short-term-minded politicians will buy into such a futuristic, long-term solution. On the other hand, this is such an unusual time that perhaps the concept will gain traction. Indeed, the DOE just announced that they are giving $4.8 million to AMSC to develop these superconductor electrical cables. If the idea succeeds, it suddenly puts AMSC's superconducting division in a whole new light.
Based on my research and the current state of the global economy, I think it could take three more years for major orders to start coming in, but AMSC definitely seems on an upward trajectory. And it only took 22 years.