With a firm foothold in the world wind business, American Superconductor (NASDAQ:AMSC) has taken a giant step toward becoming a billion-dollar powerhouse with the acquisition of Finland’s The Switch.
As a 1987 startup, AMSC was initially focused on superconductor materials and power grid applications. In 2010, it earned revenues of $430+ million licensing wind turbine designs and selling electronics and transmission system technology. It has more than 250 employees and $300+ million in revenues in China alone.
Vanguard engineers at The Switch, a world-class Finnish company specializing in machines that transform energy into electricity, developed power conversion electronics so advanced that AMSC founder/CEO Greg Yurek approached The Switch President/CEO Jukka-Pekka Mäkinen in 2009.
"I cold called him," Yurek laughed. He had seen The Switch power control technology and permanent magnet generators (PMG) and understood, because of AMSC’s "deep knowledge in the technology and business of generators," that the trend in the wind industry is to direct drive PMG systems.
In August 2009, Mäkinen invited Yurek to Finland where they agreed to get their engineering teams together "to see where the opportunities might be." After a period of brainstorming, "you could see the complementarity quite clearly," Yurek said.
AMSC’s Windtec subsidiary developed a wind turbine that required a permanent magnet generator for Korea’s Doosan Heavy Industries and recommended The Switch PMG technology. It was the beginning of a beautiful friendship. "The value we bring," Yurek said, noting his own excitement at the prospect of a Windtec brand and a Switch brand, "is that we’ll have two separate channels into the wind market."
Through Windtec, AMSC has longstanding contracts with China wind industry leader Sinovel, its biggest customer, and with rising China wind powerhouse Dongfang. Through The Switch, it will gain access to Goldwind, China’s second-biggest wind manufacturer and The Switch’s biggest customer, and GE (NYSE:GE), the biggest U.S. manufacturer. This list includes three of the top five wind turbine manufacturers in the world and four of the top ten.
"The cross fertilization between those two channels is very exciting," Yurek said, because the Switch permanent magnet generator and the Windtec wind turbine electronics – consisting of AMSC’s Electrical Control System and the Switch’s Power Control System – can be optimized as a unit.
"And," Yurek added, "take the advanced blades from the company Blade Dynamics that we took a position in last August, and bring in our Nuremberg, Germany, bearings engineering group with its advanced bearings designs," he said. "We clearly could make one of the best designed, most efficient, most powerful wind turbines in the world. And I think that cross-fertilization will open up new licensees and new channels to market."
AMSC is making the acquisition for $265 million, $186 million in cash and the balance in AMSC stock. The Switch 2010 total revenue was $179 million and its net income was $15 million. AMSC believes these figures, added to its own $430-to-$440 million in 2010 revenues and $48-to-$50 million in net income, moves it toward the goal it expects to achieve in 2014 of becoming a billion dollar company with operating margins in excess of twenty percent.
That will happen as AMSC brings its superconductor technology to the marketplace. "Superconductor is the optical fiber of power," Yurek said. "Optical fiber replaced copper in telecommunications cable because it had such higher capacity for information and data. Well, Amperium™ wire carries more than 100 times the electricity of a copper wire of the same size."
"You take all these advanced technologies," Yurek said, "pulling those all together you come up with the Sea Titan" AMSC’s prototype ten-megawatt offshore turbine. "I think the way you go beyond six or seven megawatt power ratings with conventional machines, including permanent magnets, to get to ten, fifteen and twenty megawatts, you really need to go to superconductors. That’s the next phase."
Yurek said AMSC is focused on growth and Amperium, AMSC’s proprietary superconductor wire, is "extremely important" in future plans. "We got our first large commercial volume order from LS Cable of South Korea last September," Yurek said. He expects more orders in 2011. "As we get to the end of this decade, we think superconductors clearly have the potential," he said, "to be the largest part of our business."
State Grid, which operates some 90 percent of China’s transmission, is planning a major high capacity project and AMSC expects to get the contract to supply Amperium. "The CEO of State Grid," Yurek said, inspected the superconductor power cables in a Long Island project "and said he wants that in China." It will happen soon, Yurek predicted. "They don’t know how to go fast in China," he said, "they only know how to go faster."
Perhaps the most interesting aspect of AMSC’s acquisition of The Switch is that, after sixteen straight quarters of growth, AMSC foresees slowing in 2011 – for a remarkable reason. In recent meetings, Chinese officials suggested they cannot beat their 2010 new wind capacity achievement this year. Having grown three times faster than the U.S. and twice as fast as Europe last year, they expect to develop no more than another EIGHTEEN GIGAWATTS. But that will likely be enough to keep AMSC, The Switch and a lot of other wind industry suppliers busy.