AMSC says Sinovel row hits the top

US wind power technology group AMSC today claimed to have grabbed the attention of the planet's two most powerful men in what it described as its “slow and frustrating” legal battle with Chinese turbine-maker Sinovel over intellectual property (IP).

AMSC has for almost two years been pursuing Sinovel – once its biggest customer – through the Chinese courts and commercial arbitration system in a $1.2bn action centering on allegations that some of the manufacturer’s turbines used software code stolen from the US company.

One of its former employees in Austria has already been jailed over the issue, which AMSC is presenting as a test case for the “sanctity” of IP in the Chinese market.

Today chief executive Daniel McGahn told financial analysts that the “fight for justice” with Sinovel had put the issue of the IP security of Western companies doing business in China on the agenda at the highest level.

McGahn said: “We believe our topic is on the agendas of President Barack Obama and Chinese President Xi Jinping.” The two leaders met for talks in California last week.

The company is also claiming the support of a roll call of political heavyweights on both sides of the Atlantic.

Five US cabinet-level figures, including secretary of state of John Kerry and vice-president Joe Biden, have supported AMSC’s case, McGahn said.

He also claimed that those “working on our behalf in Europe” include EU trade commissioner Karel De Gucht.

However, offering a rare insight into the progress of the litigation, McGahn admitted: “Progress of our cases in China’s legal system has been exceedingly slow and frustrating.”

The company is awaiting what it hopes will be a final hearing on its commercial arbitration claim, and the first substantive hearing on its trade secrets case.

Its two copyright infringement cases entered China’s Supreme People’s Court at the end of May for a hearing on jurisdiction issues. McGahn said both parties have made their case and AMSC is “hopeful” of a decision on that issue in the next few months.

McGahn was keen to stress that its strategy for returning to financial stability after the havoc caused by the rift with Sinovel is not dependent on the outcome of the Chinese cases.

AMSC today posted a full-year net loss of $66.1m, narrowing a $136.8m deficit in 2011, on revenues of $87.4m, up from $76.5m.

The fourth-quarter net loss was $19.8m, compared to a $21.2m deficit in the same period of 2011.

Revenues for the final quarter were $20.4m, an improvement on Q3’s $17.4m.

However, that was down from a year-earlier $28.6m, with the vast majority of that fall due to a drop in AMSC’s wind revenue to $8.9m from $16.8m, while the grid-related side of its operation held steady.

The strain on the company showed in a note to its accounts from its auditor, PwC, flagging doubts about its ability to continue as a going concern.

But AMSC’s management insisted its plans are on course after a 2012 “of transition” for the company.

McGahn said AMSC reduced its cash burn by more than 70% last year. "We continue to execute on our plans. We managed expenses to reduce our net loss by more than 50%. Fiscal 2012 marked a year of transition for the company."

In the current first quarter, ending 30 June, AMSC expects revenues of more than $22m and a net loss below $15m.

"We believe that fiscal 2013 will be a year of revenue growth and will position the company to meet our objective of positive net cash flow on a quarterly basis by the end of fiscal 2014," McGahn added.

AMSC sees “positive momentum in the wind market”, pointing to expected 20% growth in the Chinese market in 2013 and a recent $30m follow-on order from licensee Inox Wind of India.

The company told investors it has confidence in the ability of Inox to continue gaining ground in the growing Indian wind market – and so to play a big part in helping AMSC reach its turnaround targets.