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No. of Recommendations: 5
(market cap $0.327B)

INTRO Here's my semi-annual exercise to see if I remember why I own the stocks I own. I post it in case it helps others too.

American Superconductor is a speculation that is becoming an investment, but just like its technology and industry, this will happen slowly. My easiest description of them is that they are to power what optical fiber was to the telephone. The analogy isn't completely accurate. I didn't think it up, but it helps illustrate where they are and what they are doing. They have more in the product line (e.g. power regulation, motors). That's why they could be a very good investment.

But. They are in an industry that changes slowly. Their system requires cryogenics which is far more complicated than the switch from copper to fiber. And as I recall, they can't go everywhere. They can't be used in overhead wires and such - though for many years I envisioned them doing so.

I consider tham a buy. They've cleared the research hurdles, are into development, selling some units, and are correctly focussing on improving manufacturing processes.

As for stock price, compared to this time last year, their risk is lower and they are closer to profits. Yet the price stagnates as if it is being analyzed as a mature company instead of a startup. This gives the stock a lot of potential as the products ramp up and generate revenue. No guarantees of course and that is why they are speculative. A windfall might give me the money to buy more but I will continue to hold.

DISCLAIMER LTBH since 2003 with a few shares added in 2006
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No. of Recommendations: 7
Good, short summary.

they can't go everywhere. They can't be used in overhead wires and such - though for many years I envisioned them doing so.

That's literally true if you're limiting yourself to the actual overhead cables. However, power cables are not the first application, even in the electrical utility sector. The first 'commercial' utility units are being installed in the next few months (which puts them a few months behind schedule, by the way) in TVA; but they are not wires, but the 'grid shock absorbers' called SuperVAR rotating machines. And TVA has committed to buying two more after that. It is these SuperVARS that AMSC hopes will be the first true grid HTS success story.(Note, however, that I don't expect these first four 'commercial' SuperVAR sales to TVA to be profitable in themselves).

I would consider 2007 'very successful' for AMSC if we are hear a year from now and AMSC has:
- gotten any SuperVAR orders from any other utility;
- if LIPA/Long Island Power Authority agrees to go to phase two of their HTS in-line cable project, going to at least 5000 feet.
- power electronics- including Windtec's - profitable growth continues.
- the Navy pronounces itself happy and totally satisfied with the 36.5m HTS test motor in Philadelphia.

Yup, that's it. Sounds kinda sparse? Well, there are two things that have proven themselves to move forward at a very slow pace:
- utility adoption of new technology. After all, taking any changes could conceivably interfere with skyrocketing CEO utility pay. (If you don't think that sort of thinking enters into the equation....well, we'll just agree to disagree....).
- ship usage. While I'd love to be proven wrong on this, I consider the chances of any commercial ship motor orders zero before the Navy pronounces itself totally satisfied with the 36.5 mw test order; and only marginally better after that. (Note, the CEO disagrees with me on this).
The chances of operational orders for any of the DDG-1000 numbers 3 thorugh 7 orders are decreasing, in my view; costs and US budget problems are worse than ever, and the ships even without hi-tech motors are tremendously expensive. Add to those two things democratic control of the Congress, and things don't look good.
That COULD change in one scenario, IMO: and that is if the company makes a hard, public push on how the expansion of HTS helps energy security and the environment. The push would have to be directly with the Massachusetts congressional delegation; AND, with any environmental hearings, It is all true, of course. But in addition, it would help put things like the DDG-1000 using HTS in an entirely different light: of providing the needed impetus that allows wide-spread adoption of HTS for commercial ship motors (the real prize), as well as helping with the infrastructure that enables economies of scale for other applications as well. The wider the spread of HTS - with large motors; with smaller motors over time--and with utility applications, the more fuel is saved, the less diesel, the less coal, the less CO2.

But this won't happen by wishful thinking or osmosis. And I don't see any indication that the company is thinking along these lines; perhaps because the CEO believes -wrongly, in my view- that the successful testing of the 36.5mw motor in Philadelphia is all that is needed for marine applications to take off.

jp
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What is the advantage/rationale for HTS in commercial ship motors? I thought electric motors were already pretty efficent in absolute terms, and weight not that critical on ships?

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Improvements in weight. space, and efficiency mean more cargo, heavier cargo, and cheaper operations. Each individually may not seem like much, but put together they become a powerful trio of advantages. Of course, I haven't run an ocean freighter business, so I am just guessing, but they do seem to try to cram as much as possible into a ship and run it as cheaply as possible.
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Thanks, but I'm really seeking some stats, perhaps I can find them on the AMSC website. I'm all for greater efficiency, but my concern is that this could be a solution in search of a problem. Electric motors now are typically between 85 and 95% efficient, it might make sense to buy a more expensive but efficient electric motor (using a copper rotor for example), to go from 85% to 95%, but might not make sense at all for most applications to pay for a HTS motor to go from 95% to 97%, especially if that new HTS motor requires a liquid nitrogen cooling system to operate (added space, safety issues, and reliability issues).

I'm sure the Navy is considering all the issues and if I were a commerical shipbuilder I'd wait until I knew what the Navy's decided and why.

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Louisiana, that's a very good question.

I would think that most electric motors are already very efficient.

I would also think that for most larger craft the biggest drag on efficiency is simply the resistance to forward motion, probably the biggest factor being the design of the hull. ("I'm Not A Shipwright, But I Play One On TV.")

My thinking would be that the motor's efficiency isn't so important for day-to-day operations as it might be to enable the craft to push a little harder while constrained to a particular ship's design, and also to make full use of all available electric power while submerged. This would probably be more important with diesel submarines than with nuclear subs (power available to a nuke would in all probability be higher than the sub's design requirements). A diesel sub would need to run fully off batteries, so ANY efficiency increase would allow extended missions to the great joy of mission planners, if not to sailors.

Pro:
In the realm of subs that must operate for long periods under their own power (which is exclusively military AFAIK) if the more efficient motor required less cooling or space, this would also be a huge boon, given that the cooling system were proven and unlikely to fail.

Con:
Since ships can always turn to pumped seawater for cooling and a water-cooled system could probably operate for long periods even with significant leakage, i think that the biggest obstacle to acceptance may be the reliability of the cooling system, and the ability of the motor to operate at least partially with a failed cooling system. Otherwise, it is unlikely that the military would be very interested in something which could very well fail and leave a craft (sub or boat) stranded.

So i think that if AMSC can prove its design to be, well, bulletproof, they stand a very good chance of getting huge contracts (assuming GE or Sumitomato doesn't get them).

If not, i don't see it happening at all. At least not for the military.

And from what i have heard, if they can't get it on a military craft, they won't get it on a civilian boat either... which doesn't make sense, but since when did anything have to make sense.


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I would consider 2007 'very successful' for AMSC if we are hear a year from now and AMSC has:
- gotten any SuperVAR orders from any other utility;
- if LIPA/Long Island Power Authority agrees to go to phase two of their HTS in-line cable project, going to at least 5000 feet.
- power electronics- including Windtec's - profitable growth continues.
- the Navy pronounces itself happy and totally satisfied with the 36.5m HTS test motor in Philadelphia.


I agree. I would also like to see the company license its wire manufacturing so 1) it could get a large cash infusion and 2) free itself to focus on wire R&D (for third generation wire) and new product introduction. I would welcome licensing for motors as well. With AMSC's limited capital, the company needs to find a way to quickly build and dominate markets. If AMSC takes a "We'll do it ourselves" approach its lack of capital will be an ongoing concern (when it doesn't have to be).

I also agree that Windtec is a key to what happens in calendar year 2007. By itself, Windtec looks to be ready to grow quickly in China and India. Better yet, it puts AMSC in a position to sell PowerModule and D-VAR technologies -- and this the company says should drive sales in this division up by 100%. This is a win-win for AMSC because it is the rapidly growing and profitable Power Electronic Systems business where it expects to have 10% margins in 2007 and, as this division grows, it will provide the cash that will turn down the cash burn rate.

Add to those two things democratic control of the Congress, and things don't look good.

While the Republicans were afraid of the words "alternative energy," the Democrats have embraced them. The presidential election cycle is now starting to gear up and I expect the Democrats to want the green banner in their corner. I see the Democrats as a major plus for alternative energy.

I am convinced the Democrats are at the right place at the right time for alternative energy. Many of these technologies are finally becoming cost effective. Wind is already there and Windtec is well positioned although solar is still two generations away from prime time. But, portable fuel cells are ready to enter the market and superconducting is starting to be cost effective in its first niche markets.

So where in the Democratic plan is the opening for AMSC? It is plug-in hybrids. Let people draw cheap electricity to cover their first few driving miles every day. It will focus attention on the grid and power-dense areas where electricity distribution is an issue -- a place where AMSC has product and others do not. The DOE-LIPA project is important to getting this technology on the radar for funding consideration (both federally and at utilities).

Also, there might be a surprise in 2007 that could help AMSC as time passed (and the Democrats beat their drums about the Republicans inability to deal with grid issues). If the Supreme Court puts CO2 on the EPA's regulation list, expect the Democrats to focus on CO2 reduction. One avenue they may take is on efficiency. Instead of building a power plant a week (that is the pace!) and looking only at the smoke stacks of power plants, they may want to see more efficient motors and other energy saving technology that would reduce our use of fuel. If so, AMSC could find itself in the right place at the right time.

The 55 Kelvin cooling target AMSC has in its sights is worth watching. As the temperature required for superconductivity rises, the cost of cooling (and the technology required to get it done) becomes more conventional (and less costly). It is the temperature breakthrough that AMSC has that can provide the competitive edge it needs for its products.

Just one person's opinion...

W.D. (Happy to be a shareholder)
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What is the advantage/rationale for HTS in commercial ship motors?

Here is what AMSC says:

Ship Propulsion Motors for military and commercial applications demanding improved propulsion efficiency combined with shock resistance, low noise, and small size permitting increased payloads or pod mounted configurations.

http://www.amsuper.com/products/motorsGenerators/index.cfm

W.D.
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