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Analysis - Innovation key to LM Windpower's revival

DENMARK: LM Windpower must continue to innovate and push the boundaries of blade design if it is to mount a sustained recovery and return to profit in the coming years.

LM's 73.5 metre blade for the Alstom Haliade 6MW turbine
LM's 73.5 metre blade for the Alstom Haliade 6MW turbine

Earlier this month the blade manufacturer said it increased sales and cut its losses in 2012, despite enduring departmental restructuring, mass redundancies and the departure of its chief executive.

According to the company's annual report for 2012, the firm's revenue was EUR 752.8 million, an increase of 6.4% from the EUR 707.5 million reported in 2011. Pre-tax loss was EUR 11.2 million, a significant improvement on the EUR 51 million loss of the previous year.

In his first annual report as LM Windpower chief executive, former Siemens Wind Power global supply chain CEO Leo Schot wrote that the company remained "focused on continuing our efforts in cash management and cost-saving initiatives to ensure we can deliver new blades at competitive prices".

While LM Windpower's improved results in 2012 suggest the company is beginning to turn the corner back towards profitability under Schot's stewardship, one analyst warned that this would only happen if the company remained focused on innovative blade design, and not just cost-cutting.

"In terms of future success, much will depend on how quickly they can adapt their existing facilities to deliver new innovative technologies with larger blades, and at the same time reduce the cost of blades to meet increasingly demanding price pressures that the OEMs are facing and passing down to their component suppliers," said Aris Karcanias, a managing consultant with Navigant's BTM Consult.

"LM also faces the challenge that many of the OEMs are taking production of core components back in house. LM's future success really will depend on how innovative they are: it's with these newer blades that the bulk of their revenues are emanating from."

Despite this, LM's spending on research and development dropped by EUR 6.5 million last year, from EUR 25.1 million in 2011 to EUR 18.6 million in 2012.

"There are different ways to innovate and [even though the R&D budget has been cut] I don't think R&D is at the back of their mind," said Karcanias.

"Having said that, LM is having to compete against smaller emerging designers, for example Blade Dynamics with their segmented blade technology. Will LM begin developing such modular blade technologies, or will they look to acquire some of the smaller firms?"

In addition to the threat from OEMs and smaller innovative firms, Karcanias said LM may also have to face increasing competition from Chinese blade manufacturers, with Zhongfu Liangzhaon (LZ Blades) most likely to lead the charge following its 2007 acquisition of German firm Sinoi.

Regardless of all these challenges, Karcanias said most critical to LM's future success will be adapting its scale of operations in its core markets of the US, China and India, where it has invested heavily in manufacturing facilities.

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