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jp: Excellent comments. Let me start, though, where I disagree.

As to copper - WD, I don't think you're taking the rapidly-growing China/India/+ others into account; which is the single biggest reason that we've experienced the growth in copper that we have.

As a Phelps Dodge owner, I would love to see copper stay at $2 levels. But, there is no shortage of copper deposits in the world or companies trying to bring them into production. Production will meet demand (probably in 2008) and, in a recession, exceed demand. Today's high prices do, as you state, come from the demand in China and India. But, high prices and high profits bring on new supply.

You, though, provide what I think should be the AMSC mantra. Instead of talking about $2 copper, they should be talking about maglev and motor opportunities and how they compare versus today's production. The cost of copper isn't the issue here. The impact of superconducting is changing our world and these applications are getting funding considerations.

So much for where I disagree...

There is a real danger to little AMSC if it doesn't do these wire/cable production partnerships before the real capacity crunch wave appears on the horizon.

I agree. I would add the name of Japan's Mitsui to your list. They have been mass producing nanotubes since the technology started needing mass production. Some would say they have been flooding the market too early in order to keep others out and prices down. They understanding of nanotechnology would make them an excellent partner. [I do not own shares in Mitsui.]

I also agree that China should be the focus of where wire plants are located. China is the leading producer of rare earth metals. Being close to the most critical resources and having a face-to-face relationship with these suppliers is critical. If these metals get into short supply because of demand, it's better to be in-country and close to the mine if rationing is a potential option. [Don't forget, China is a "managed" economy.]

Getting a wire partner is critical because it will probably bring an up-front fee for AMSC. Stopping the cost for building wire plants and turning it to in-house AMSC-labeled product development is critical. So is the development of G3 wire, something that probably won't be discussed publicly for another two years. I worry more about AMSC and G3 than any other thing.

Finding partners for motors and generators is needed for the very same reason -- up-front fees for AMSC and the company's inability to build product for a market this big. The company has done a good job of avoiding debt. It has allowed them to operate without a bank being a partner in day-to-day decisions. But, the time has come to realize that AMSC cannot meet the demand in these major markets. Having partners today would show that a build-out is possible and allow the partners to lavish the money on getting the superconducting message into the marketplace. With partner funding, hopefully AMSC could radically ramp-up R&D without having to sell any more equity.

The hockey stick demand point for G2 wire is probably already here. The company has its own product areas, like those at Power Electronic Systems. It has orders from OEM's for wire. If they do not find a partner to produce the wire, it probably means the company is trying to do too much with limited resources. Having a big backlog is just another way of saying you can't meet demand -- and that's not good if you are trying to displace established products.

If AMSC is successful without partners, shareholders will make a fortune. But the odds of doing that are slim. If they outsource, shareholders might still make a fortune but the risk to AMSC will be greatly diminished. It will be interesting to see how the company addresses this issue (expansion) in the Risk section of the next annual report.

W.D.
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