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No. of Recommendations: 11

I couldn't agree more. I started accumulating shares early this year, and have pretty much reached a self-imposed limit of how much I'm willing to invest in a single company. I follow the company very closely (short of buying a subscription to SuperConductor Weekly ... it's just too expensive). From here I think you need at least a 3 to 5 year time frame ... although I'm hoping this is a 20 year holding.

I'm a RuleBreaker subscriber, and requested a board there on SuperConductor technology which I post to frequently. Not really a lot of interest there, though. (AMSC is not an RB rec). Two factors that I believe have limited interest in the company are: 1.) It's been around a long time and has become sort of "shopworn". 2.) It's still at least a couple of years from taking off ... it's not likely to even become profitable in calendar 2006.

The most exciting thing that has happened this year is the emerging commitment of the military to the technology and to AMSC specifically.
Here are some cuttings from some of my posts on the RB superconductor board (if you don't feel like reading all this, skip to the end and read about the contract the Air Force has just awarded to AMSC and Superconductor Inc. to ramp up 2G HTS production capability by 2008. That's right ... production capability, not R&D):

Large commercial ships (both new and retrofit) are starting to incorporate standard electric propulsion technology. I think I read somewhere that the QEII is a diesel electric.
The huge advantage that superconductor based motors offer is that they are about 1/3 the size and weight of an equivilent standard electric motor. In addition, they are lower maintenance (less heat), significantly quieter, and generate less vibration. In fact, these motors can be affixed directly to the hull whereas standard motors need a more complicated suspension system.
Dr. Yurek mentioned somewhere recently (I can't remember where) that AMSC is already receiving a considerable number of inquiries from the shipbuilding industry concerning the motor they are building for the Navy. In addition, they are also working with someone on designing and testing a superconductor based generator to be mated with the motors.
The beautiful thing about their Navy contract is that the Navy is providing the R&D money to help AMSC develop technology which they will then be able to sell in commercial markets.
I don't think it's unreasonable that over the next 6 or 8 years, superconducting motors and generators will become the standard technology used in large ships and even train locomotives.
Wouldn't it be nice to have a wealthy uncle who really wanted to see you get ahead in life? AMSC's favorite uncle (named Sam) just gave it a $13M dollar present to make sure it would be able to produce plenty of 2G HTS wire. AMSC currently has a contract to produce a superconductor based electric motor that could become the power plant for the next generation of various types of Navy vessels. AMSC also supplies HTS wire to DARPA and various defense contractors for various projects, some of which are classified (rail guns, specialized detection equipment, mine sweepers, etc.) The defense department needs to insure that everything it depends on will be available in time of war, and so typically does what is necessary to support at least two domestic suppliers.
As I see it, AMSC is right smack in the sweet spot. Uncle Sam is paying them to develop marine propulsion systems which will also have wide commercial applications. Uncle Sam is paying them to ramp up production of thier 2G HTS wire, which will unlock numerous other superconducting applications.
In addition, the Department of Energy views superconducting technology as a key element in plans to improve the electric transmission grid.

Here's a link to the news release issued this afternoon:
I mentioned yesterday that the DOD typically likes to have at least two domestic suppliers for critcal items (this includes large companies also, like two companies capable of building nuclear subs, two companies capable of building military aircraft, etc.). Anyway, I noticed in a different press release today that the second supplier of 2G HTS supported by Uncle Sam will be SuperPower, Inc. (a subsidiary of Intermagnetics). Here's the DOD blurb:

" American Superconductor Corp., Westborough, Mass., is being awarded a $13,557,500 cost reimbursement with cost share contract modification. This is for planned production scale-up activities to meet the Yttrium Barium Copper Oxide (YBCO) program's goal to establish a US-based commercial production facility for 2nd generation High Temperature Superconducting (HTS) material. At this time $578,000 has been obligated. This work will be complete by June 2008. The Headquarters Air Force Research Laboratory, Wright-Patterson Air Force Base, Ohio, is the contracting activity. (F33615-03-C-5504-P00006).

Superpower Inc., Schenectady, N.Y., is being awarded a $10,697,440 cost reimbursement with cost share contract modification. This is for planned production scale-up activities to meet the Yttrium Barium Copper Oxide (YBCO) program's goal to establish a U.S.-based commercial production facility for 2nd generation High Temperature Superconducting (HTS) material. At this time $1,800,000 have been obligated. This work will be complete by June 2008. The Headquarters Air Force Research Laboratory, Wright-Patterson Air Force Base, Ohio, is the contracting activity. (F33615-03-C-5508-P00008)."
I've been thinking about that press release, wondering why the Air Force would be contracting for 2G HTS ramp up. Seems like it would have been the Navy. I don't know if this is just the inner workings of the DOD, or if there is some other large scale use of HTS wire under development that we don't know about. (Classified, perhaps). In any event, having Uncle Sam fund the R&D cost, and production ramp-up cost for products that also have large commercial potential is a very, very nice situation to be in. Talk about having the wind at your back!
It's starting to look like electric motors may end up becoming the first really broad application of superconductor technology. Back in the 1980's cruise ships started switching to electric propulsion systems. Apparently the two big reasons were they were much quieter, and ran much more efficiently at low speeds. Marine propulsion systems operate much less efficiently when the ship is running at less than half speed. Cargo ships typically get out of port, and then run at their most efficient speed. Cruise ships can't do this ... they are usually traveling much slower than optimum speed. Then Navies around the world started looking at electric propulsion systems. Navy ships spend most of their time patroling at relatively slow speeds, and they like to be as quiet as they can. The currrent market for electric marine propulsion systems is about $250M/yr (not including military), and without considering superconducting technology. That was projected to grow to about $1B/yr over the next decade. But, Navy (not just US) applications along with the introduction of superconductor based motors could greatly increase that figure. Calculations (done in 2002) show that large container ships could carry up to 4% more cargo and save up to half a million dollars a year in fuel using superconductor based motors. At current fuel prices, that fuel savings could be even higher. So, it's not at all far fetched to project that 7 or 8 years down the road the market for superconductor based electric marine propulsion systems could be as large as $2B/yr. An electric marine propulsion systems consists of the motor, a generator and some sort of engine (usually diesel). AMSC plans to build superconductor based motors and generators for this application. (I should point out that cargo ships can't be made any larger than the canals, locks, harbors and ports they need to access. So, fitting more cargo in a given hull size is a big deal). I should also mention that superconductor based motors run at peak effiency throughout almost their entire range, whereas standard electric motors still lose efficiency at slower speeds.

In addition to marine propuslion systems, which are perfectly suited for superconductor based motors, there is also a $1.2B/year market for large industrial electric motors. Some of this market would be addressable by superconductor based motors.

For some quick thumbnail possibilities, AMSC is currently valued at around $300M. Assume it will be valued by the market at around 3x revenue. Assume that 5 years down the road it's able to do $400M a year in marine propulsion system and industrial motor business combined. That would put it's value, based on electric motors alone, at about $1.2B, making it a 4 bagger.
I did a little poking around as to why the Air Force would be funding the production ramp-up of 2G HTS wire rather than the Navy (which has already made public it's intention to build the next generation of ships based on superconducting motors).

Turns out the AF has planned many different uses for superconductor based generators. If interested, start at the following page and follow some of the links, especially those under "Power Division". These pages are all dated from 2002, so we can assume some progress since then. Also, within the DOD it's always easier to classify information than to decide to make it public, so we may be getting only a glimpse of what is going on in this area.

I like this blurb:

"Superconducting generators provide megawatts of power in a small, lightweight package. Aircraft, spacecraft and ground systems need more electrical power today and in the future than ever before. Several weapon systems in the near future require megawatts of electrical power. The superconducting generators being developed by the Power Division in the US Air Force's Propulsion Directorate will deliver this high power."

I wonder what weapons will be requiring megawatts of power? Rail guns? Ray guns? There is mention on one of the pages of a "Directed Energy" department, with no further info. Hmmmm....

Since I own a goodly little chunk of AMSC, I no doubt suffer from the myopia that tends to develop from being wrapped up in the unfolding story. (So take my opining with a grain of salt). As I see it, there have been many huge companies that were initially built on the foundation of military contracts. It seems that several branches of the military have substantial (and relatively near term) applications planned for this technology. (Notice the AF is funding production capability, not R&D ... ).

Happy New Year,

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