By Jon Mainwaring

Bad news comes in threes. So says a recent analyst report from investment bank Collins Stewart on Denmark’s Vestas Wind Systems.

The report, which rates Vestas as a sell at DKK308.80, highlights three items of news flow that show just how competitive is the market in which the world’s leading wind turbine manufacturer is operating.

First, Collins Stewart is concerned about the effect of planned international expansion by Goldwind – the second-largest Chinese turbine manufacturer and the fifth biggest in the world. This company has received approval from the Chinese Securities Regulatory Commission to list its shares in Hong Kong, and it is expected to raise up to $1.2 billion. The funds will be used to drive Goldwind’s international expansion, as well as to fund technology development and support working capital.

Secondly, Sinovel Wind Group – China’s largest turbine manufacture and number three in the world – is also pushing hard into international markets, according to Collins Stewart. Proof of this is the company’s focus on the quality of the components used in its turbines, as demonstrated by recent contracts with suppliers Hansen Transmissions and American Superconductor.

Thirdly, and perhaps the most worrying piece of bad news, is that Siemens has secured a 343MW order for turbines from a key Vestas client in the US. The €400 million deal is with Puget Sound, which had previously used Vestas turbines exclusively.

It has not been all bad news for Vestas, though. The company recently announced a 49MW order for the Red Lily Wind Project in Saskatchewan, Canada. Meanwhile, investment bank Piper Jaffray recently pointed out in a research note of its own that the quality of Vestas’ turbines and the breadth of its portfolio were key reasons why the company won a recent 1.5GW contract with EDP Renováveis.

Elsewhere in Europe, Spain’s Gamesa Corporacion Tecnologica – the world’s second-largest company in the wind sector – has also been suffering recently.

In mid-May, Gamesa reported that first quarter revenues for the three months to 31 March had dropped 43% to €474 million. It blamed the weak global macroeconomic and financial situation, as well as regulatory changes made in 2009 that the company says has put a brake on overall demand for wind turbines.

However, Gamesa’s focus on efficiency enabled the firm to maintain, and even improve, key efficiency and productivity ratios. For example, the EBIT margin of its core wind turbine manufacturing business was 6.2%, which is on a par with the 6.5% EBIT it achieved in Q1 2009. Meanwhile, the division’s EBITDA margin improved 2.5 percentage points to 15.5%.

However, overall Q1 net profit for the entire business was down 75% at €8 million.

Perhaps more important than short term revenues and earnings is Gamesa’s own long term plans to deliver turbines to customers in growing markets outside of Europe and the US. Already, 18% of the firm’s sales are made in China, while India (where the firm has recently begun operations) accounts for 3%. Of the balance, 20% of Gamesa’s sales are made in Spain, 32% in other Europe and 14% in the US, while the rest of the world accounts for 13%.

Gamesa has recently completed expansion of production capacity for its G8X-2.0MW turbine in China to 400MW, and it plans to build a fifth manufacturing plant in Jilin province that will have an estimated capacity of 500MW. In India, orders received just three months after the commencement of operations amount to 100MW by the end of Q1 2010.

Shares in Vestas ended May 15.4% down from where they had started the month, while Gamesa’s shares fell 13.7%. Doubtless, the recent wider turbulence in equity markets has had its effect as investors have steered clear of stocks that they perceive as risky, but winds blowing from the east will surely be the next major concern for Europe’s turbine manufacturers.