2012 Preview: American Superconductor

After a terrible 2011, there are a lot of questions heading into 2012 for American Superconductor (NAS: AMSC) . Will the wind business make a comeback? Can the company make a dent in utility scale inverters? And, most importantly, will it survive?

Blowing in the breeze
The wind business used to be American Superconductor's bread and butter. But after everything that happened with Sinovel during 2011, the entire business is up in the air. During the calendar third quarter, wind revenues fell 85% to $13.4 million, and it's very uncertain how much that will improve in 2012.

Management will point to partnerships with Hyundai Heavy Industries and Doosan, among others, as positives, but I'm not sure how strong those relationships are after what happened with Sinovel. They will also point to drivetrain solutions for multiple designs and capabilities for up to 10 MW turbines as a competitive advantage.

The problem with those arguments, however, is that most major manufacturers like General Electric (NYS: GE) , Vestas, and now Sinovel can do their own R&D in-house. American Superconductor only offers an advantage to start-ups, and with the wind market floundering for even established players, I'm not sure I would want to rely on young companies right now.

Connecting energy to the world
If American Superconductor is going to get out of the position it's in, the grid business may be its best chance. The company offers a number of solutions to wind and solar power plants, including inverters and power cables.

But the competition is stiff with Satcon Technology (NAS: SATC) , Power-One (NAS: PWER) , and others trying to expand their foothold in the market. If American Superconductor can build a significant position in the grid business in 2012, it just may be able to survive.

Losses continue to mount
Financially, American Superconductor is starting behind the 8-ball. The company has had to cut its staff about in half since the Sinovel fallout and is expecting just over $15 million in revenue during the current quarter.

With $93.5 million in cash and no debt, there is some leeway to make the necessary adjustments to help the business succeed, but 2012 is filled with urgency. If revenue doesn't climb to near $30 million in the first quarter of next year as the company expects, and if losses aren't greatly reduced, there's a chance the company won't survive the year.

There are still more questions than answers heading into 2012, and while there's a lot of potential upside for American Superconductor, there's a lot of risk as well.

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At the time thisarticle was published Fool contributor Travis Hoium owns call options on American Superconductor. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.The Motley Fool owns shares of Power-One. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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