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No. of Recommendations: 7
The biggest negative news this week was the success of the Exxon/Chevron snow-job in California that led to the short-circuiting of an additional $4billion into A.E. That is a sad thing; an opportunity lost.

The single biggest prevailing wind in AMSC's favor is already blowing: the creaking - occassionally, cracking and bursting - electrical infrastructure; coupled with the 2005 energy bill that encourages reliability standards - and specifically endorses HTS as a thing to be evaluated.
(AMSC is not the only one to mention that we're on an upswing in electrical buildup, either. The DESC conference call also mentioned it repeatedly; and they have nothing to do with HTS).

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. Even a recession that cut growth rates among those 2.5 to 3 billion people down to 'only' 5% or so, is not going to let copper collapse back down. I think that the probability of sustained below $2 copper - for years to come - is extremely low. Yet the cost of 2nd gen HTS is being driven relentlessly down by AMSC and its competitors.

Also remember, that it isn't just the cost of copper. Copper at $1 per pound still doesn't cut it in terms of re-wiring urban America through established underground conduits. Copper is no longer acceptable, longer-term; as energy use, per household, per customer, per person, only goes up, with each new gadget after gadget after gadget. (And since we're likely to even start adding cars to the grid with plug-ins..........utilities know better than we do: what replaces copper in those conduits has to be better, has to be more....and there are damn few other choices, in my view, at any cost. Once HTS gets down to be price-performance-competitive with copper, even the dumbest, most short-sighted utility exec won't have a choice. And that could come by 2010, only 3 years away.

More forward looking utilities -like LIPA; probably TVA, some others - won't wait for exact copper cost-competitiveness. Once HTS cable is certified and available, I think some of those guys will flat-out stop doing copper upgrading of what's in conduits now, period. Just from a demand standpoint.
(Case in point: Telecoms didn't wait for fiberoptics to be exactly cost-competitive with copper twisted-shielded pairs before starting to do most of their upgrades with fiber- right? Capacity going forward was the issue; not this week's exact penny-per-penny comparison with copper).

The problem is not whether there will be enough demand or customers; the problem is where will the wire come from. The 2008-2010 production capability estimate of 720k meters/year is only enough to build a few big supervars for a few utilities. (Seriously). They've already had two requests for quotes for 2m meters of wire each for the 2010 time period - just those two, alone, would take up the entire theoretical production run for 2010 and 2011, ASSUMING that the new, 10-cm wide process is a. on scheduled; and, b. flawless.

To add the other extreme in for clarity: as mentioned, building out the 350-mile Tokyo-Osaka line - if approved after 2010 (and it might be), would require well over 100m meters of wire for that one program; dozens of years of 2010 production capability - when we aren't even at the intermediate dec.07 production capability yet, which is one fourth that.

Assuming AMSC stays on top tech and production-tech wise - and I'm betting they will (they impress me) - they still will never be able to meet even a fraction of the post-2010 demand once the world excepts that HTS is 'real' - affordable - and available just as billions are flowing world-wide for infrastructure development.

Previously, AMSC and Sumitomo laid down their swords long-enough to cross-license themselves on 1-g wire technology. Once the following combination of events happen; i.e,
- commercial SuperVars prove themselves in the real-world (via TVA; cy 2007). AND,
- the first 2nd g production line is up and operating at 720k m/year at end of 2007......

then the only way to conceivably meet the orders that will come in will be to cross-license/sub-license/partner with several Really Big Guys. By the end of 2007 or shortly thereafter.
Potential guesses:
#1: Sumitomo. Reason: AMSC and Sumitomo are the best of enemies; they've been down this route before; and they both realize that a single program order in Japan could be One Hellacious Order (i.e, the maglev). JR would very much like to buy Japanese - in any form - if they could.
#2: China - china has more reasons than any country in existence to not only upgrade the electrical infrastructure it has - but to jump to a 21st century high-tech, efficient infrastructure as well. (Kinda like skipping the decades of phone land lines and going wireless directly, like they are doing). Among all the reasons is environmental. As the country with the fastest-growing environmental problem, anything that can cut coal use by 30% just by having an ultra-modern transmission infrastructure has got to be attractive for that reason, alone. Then there are lots of other reasons.
AMSC is already building an excellent reputation in China via non-superconducting power and grid tie products; its the fastest growing part of their order book. They've already sent some samples of 1-g wire to China; now they are deepening those relationships with an eye on the future. It is inconceivable to me that AMSC would not consider it absolutely necessary to somehow, somehow, establish a 2-g wire production facility arrangement in China, with someone. It would be nice to say that selected relationship would form the low-cost production base for the company world-wide; but actually, the demand in China could be so great for all the reasons we know as to totally sop up any production capability.

#3: Europe: I'm betting on a wire partnership with Siemens; again, not for the export market out of Europe, but just to handle demand within Europe.

And note: I'm saying all this looking primarily just at utility customers; with one possible nod to Japanese maglev. I'm not assuming a single war-ready Navy motor, or a single commercial ship motor, at all. The commercial order potential is totally dependent - IMO - on the US Navy; and the US Navy order is totally dependent on Congress not only funding the big, multi-billion dollar advanced surface ships; but then plus-ing them up to boot for HTS motors. That's two big 'if's' in a time - 2007 - when the Defense budget-- non_raq related - is going to have to be cut, somehow, somewhere.
UNLESS MASSACHUSETTS DEMOCRATS -ALL OF THEM; THE TWO SENATORS, NEW A.E. ORIENTED GOVERNOR, AND THE CONGRESSCRITTERS - ALL DECIDE, TOGETHER; TO PUSH HTS ON SOME OF THESE NEW SHIPS - WITH PART JUSTIFICATION THAT IT HELPS JUMP-START HTS DEMAND FOR WIRE FOR A.E. PURPOSES - I PERSONALLY CONSIDER THAT THE ELECTION THIS WEEK DECREASED THE ODDS OF HTS SHIP MOTORS, NOT INCREASED THEM.
i> It does seem to me that the senators from Mass could do thier state a favor by paying a little attention to the AMSC naval ship motor issue. Why tie that motor's future to just the DDG-1000? The motor should be a good candidate for retrofit into older fleets. Seems like a few phone calls could generate some interest in that idea somewhere in the Navy

I agree. HTS motors save fuel as well - something not-insignificant, in any ship they may make sense in, new or not. There is a rare opportunity here - not only in DC but in the Governor's mansion - for Massachusetts democrats to do something abslutely selfish, and feel 100* good about it. One of them will need to take the lead, however. Unless that happens......
-------

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. The potential market is so damn huge - almost unimaginably so - that if they don't 'take care of The Really Big Guy competition' by bringing them in-house sooner than later, the Big Guys may just chance potential court battles and challenge little AMSC to catch them and stop them, IP or no IP, as they chase after the billions and billions of stars....er, dollars.

jp
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