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hey, dduct -

The urge to merge is certainly a sign that the grass isn't greener at home.....


Weeeellll, I'm not sure about that,

AMSC is an anomaly in this space, remember. They've not only thrown themselves into this and only this (I consider the non-superconducting part of the company doing the powre electronics as a good adjunct - and intro - for them into the whole market; not something unrelated).

They've always considered their main competitor - by far - to be Sumitomo, a little company in Japan. Sumitomo so far, though, has only been doing first gen wire (e.g, the Albany power cable demo underpass with Mohawk); the second gen follow on demo on that cable - if it ever happens - will be by Intermagnetics (now Philips). But, as you know, HTS is far from IMGC's main focus; and will become less so (IMO) with the Philips buy fully incorporated. That's why the most likely thing to happen there, I think, is for Philipps to spin-off the HTS unit - publicly - into a separate company, to get value out of them (and making sure they aren't a continuing distraction to the 'main' business Philips is interested in IMGC in).

I know the management treats the IMGC/HTS guys with respect, by the way. The interesting thing to see is how much funds they get when/if they go public.
AMSC's CEO says he expects more competitors to jump into the market as the entire market realizes the subject of HTS is very real: "The potential market is too big". And that's just in the US. IF you imagine China and India convinced that HTS can be bought economically as they build out.........geez........kinda like them in telecom: instead of duplicating the last 100 years of the West stringing phone wires everywhere, they just jumped to cell phones/wireless et al.

Infrastructure everywhere in the world - including the US - is underbuilt, or overstressed. Water and sewer probably worst; but then they leak before failing. The power grid in urban areas, even when replaced, as the CEO has pointed out, all they've done, year after year, is pull through a new same-sized copper cable to directly replaced a burnt-out one. Literally. Yet not only has our population continued to increase; but so has our personal energy usage density.

I guess what i'm trying to tell you is that - in my personal opinion - this CEO doesn't 'hype'. Not all the times I've listened to him; and not when I've spent two hours with him, including toe to toe. He really believes this stuff. And since he's one of the founders - and he's been around a long time, and, in IMO, has proven (unlike some founders) that he's a good executive - he's allowed.

But - let us now question a couple of things I know he believes.

- he believes he can see through to break-even with the funds he has now.
I think he is probably right. I also think that if the stock sees a sharp upward surge for a while, he'll take advantage of that - like he did before (in fact, you were the one who correctly predicted this) and pass out some more stock at the elevated price, rather than take on debt.
IMHO, I do not believe he will sell more stock below $10 share price. He doesn't have to; they don't have a debt problem; one of their businesses is ops profitable now and increasing (ever faster, in fact).

- he thinks that he'll successfully put the grid shock absorbers in Tennessee in place by March 31st; and that this will lead within a year to orders from other utilities. I agree that is as reasonable a scenario as any, based on how well they've handled things so far.

- I think that he feels that: the current Phase one of the high-profile, 2000 ft. HTS cable in the spine of the Long Island Power grid will lead to a Phase II there, going at least a few miles. (If it does, by the way, he doesn't have that much first gen cable left; it would be second gen). If that is successful, he believes that will be the thing that frees up honest-to-god other operatoinal grid cable orders for urban centers from other utilities.
I agree with that scenario as being the most reasonable one to shoot for.

- He used to believe - as late as december of last year - he honestly believed that just because he had shown the commercial ship industry that using HTS motors and generators was life-cycle cost competitive, that he was about to get ordes - any day now..............
He believed that they would do so - even though the Navy hadn't ordered any operational equipment. He believed this because in the past, the ship industry had gone electric without waiting for the USN to do likewise.
Well, he was wrong, turns out. They've been booked solid, didn't need to take the chance, and haven't. So I don't think he'll get any ship orders - at all - unless the Navy comes through with an operationally-related order.
And there's the rub.

- because, he believes the Navy WILL come through ---and I'm not so sure. They SHOULD come through, because it makes money for them (the Navy) in terms of long-term costs, performance, other savings....and he's believed that for the last 4 years.
But things in the outside world have changed. The DDG-1000 program he's depending on has ballooned in costs - just as one technology program after another within DOD is being cancelled due to bleeding (literally) in other areas. He honestly believes they will come through; and that may be too optimistic.

That's actually the worst 'news'; because the Navy might not be allowed to come through, for reasons not under his control, the commercial ship industry - the real shipbuilding prize - probably won't, either.

Now, for the possible wildcard: The Japanese magleve. Seriously.
I was pleasantly surprised that the program is continuing on in Japan; believe me, that was not a given, at all. But I've told the CEO directly - based on my own knowledge - that an operational maglev line, between Tokyo and Osaka, will not happen (IMHO) if the Japanese feel that they have to stick with low-temp superconductors, which is the base design. So either they don't go ahead with the final operational system at all - or they will go ahead with HTS. And at the moment, the only wire the've tested at JR is AMSC's.

AMSC has all the incentive it needs in the utility business to keep going with its aggressive, 2g, cost-out program; in that sense, JR doesn't have to do a thing. In terms of numbers, they can afford to wait and see if HTS 2nd gen and affordability comes to them, before they make a final decision on the final Tokyo Osaka line. (This recent decision is just for a second test segment).

So: here's my summary:
- Ship industry business: unlike the CEO, I'm concerned we're looking at a series of events that may make this a no-go- both Navy and commercial. Factoring in ANY income from ships going forward - based on what we know now -- is too high risk to be justified.

- Utility wire business: I think looking as good going forward as it ever has been. Delayed over 6 months from where they were projecting 3 years ago--but considering the subject, and the conservativeness of utilities - I'm shocked that's all the 'delay' has been. And, 2nd gen is farther along than anticipated back then.
- Utility SuperVar/shock absorber business: slightly delayed - but looking good. Thing to look for next: When TVA will order the final three of their original five-unit order. Before, or after, installation of the current two being built??

- non-superconducting power management: growing faster than anticipated. When the company turns profitable at first, will probably be do to this.

Sorry for the length and no spell-checking. Gotta go.

jp
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