American Superconducter Plummets After Announcement Of Order Cancellation To Biggest Chinese Customer Due To Overinventory

A stock falling due to a cut in FY outlook is nothing new. However, a stock cutting its outlook due to its biggest customer refusing to accept contracted shipments "until it reduces inventory levels" is probably the first confirmation we have ever seen of the massive inventory overbuild in China. The plunge in AMSC stock afterhours by over 40% is not surprising considering its entire business model is now turned upside down. What also should not be a surprise is when ever more companies delivering into China commence with comparable announcements. And with China drowning in excess inventory of virtually everything, this certainty is just a matter of time.

From Reuters:

American Superconductor Corp , which makes electrical systems for wind farms, cut its full-year outlook and said its biggest customer China's Sinovel Wind has refused to accept contracted shipments until it reduces inventory levels.

On March 31, Sinovel refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts that AMSC was prepared to deliver, the company said in a statement.

And the full press release:

DEVENS, Mass. – April 5, 2011 – American Superconductor Corporation (NASDAQ: AMSC), a global power technologies company, today issued an update regarding its anticipated financial results for its fourth quarter and fiscal year 2010 ended March 31, 2011. AMSC expects to report final fourth quarter and full fiscal year 2010 results in May 2011.

On March 31, 2011, Sinovel Wind Group Co., Ltd. (Sinovel) refused to accept contracted shipments of 1.5 megawatt (MW) and 3 MW wind turbine core electrical components and spare parts that AMSC was prepared to deliver. AMSC believes that Sinovel intends to reduce its level of inventory before accepting further shipments.

These delayed shipments are the primary cause for lower-than-anticipated financial results for AMSC’s fourth quarter and full fiscal year 2010. AMSC currently expects total revenues for its fourth fiscal quarter will be less than $42 million and that it will generate a net loss for the fourth quarter on both a GAAP and non-GAAP basis. As a result, AMSC currently expects its full year fiscal 2010 revenues to be less than $355 million. This compares with the company’s prior forecast for fiscal 2010 revenues of $430 million to $440 million. AMSC also expects that its GAAP and non-GAAP earnings for full year fiscal 2010 will be well below the company’s previous forecasts.

AMSC estimates that its balance of cash, cash equivalents, marketable securities and restricted cash as of March 31, 2011 was approximately $240 million. This is down from $260.5 million as of December 31, 2010. AMSC’s cash balance was negatively impacted by an increased inventory level related to the refusal of shipments by Sinovel, and Sinovel’s failure to pay AMSC for certain contracted shipments made in fiscal year 2010. As a result of both accumulated aged accounts receivable due to payment delays and Sinovel’s recent refusal to accept March deliveries, AMSC is reviewing the appropriateness of the timing of its revenue recognition on approximately $56 million of unpaid shipments in the second, third and fourth quarters of fiscal 2010.

AMSC continues to have active discussions with Sinovel to determine when Sinovel will accept further shipments and when it will pay for past shipments. In the meantime, AMSC has taken certain actions to reduce expenses, and the company is in the process of implementing plans to better align spending with near-term revenues while continuing to maintain a high level of service and support for its global Wind and Grid customers.