Over the past couple of years, investors who have focused on specific investment themes have done extremely well. Some investors have focused on the health care industry, others on mobile applications, and others on social media companies. Over the next few years, one industry that should see significant growth is renewable energy. Neah Power Systems (NPWZ.PK) is one company that has developed unique solutions that should allow it to generate large returns over the next couple of years.
Neah Power Systems is a developer of innovative, long-lasting, efficient, and safe power solutions for the military, transportation, and portable electronics applications. The company has developed a unique silicon-based design that enables its technology to deliver higher-power densities, air and non-air operation, lower-cost, and compact form factors. Because of the uniqueness of the technology, several large prominent organizations such as Intel (NASDAQ:INTC), Novellus Systems, the U.S. Navy, and several Tier 1 venture capital firms have invested close to $50 million in Neah Power.
To put that amount in perspective, investors should take a look at a competitor of Neah Power’s, Bloom Energy. Bloom Energy has invested roughly $1.2 billion in its technology and remains at the same point of development as Neah Power. Through Neah Power’s strong research and development efforts, the company has managed to secure 12 patents, with two others in patent pending status.
A fuel cell is a device that converts the chemical energy from a fuel into electricity through a chemical reaction with oxygen or another oxidizing agent. Hydrogen is the most common fuel, but hydrocarbons such as natural gas and alcohols like methanol are sometimes used. Fuel cells are different from batteries in that they require a constant source of fuel and oxygen/air to sustain the chemical reaction. As long as the source of fuel and oxygen are supplied, the fuel cells are capable of producing electricity into perpetuity.
With regards to Neah Power’s fuel cell technology, the company has developed a platform that has several unique advantages:
- Unique Porous Silicon Electrodes — Help to maximize the surface area, which increases a fuel cell’s efficiency.
- Silicon-Based Design — Eliminates the risk of exposure to contaminants such as sulfides and oxidants. These contaminants have a history of resulting in cell degradation.
- Anaerobic Property — As mentioned above regarding fuel cells, they require oxygen/air to sustain a reaction. Fortunately and wisely, Neah Power has built fuel cells that generate power for moderate periods of time in the absence of air. This will allow Neah Power Systems to penetrate markets where this type of advantage is important. A few examples of companies or organizations that would be interested in anaerobic fuel cells are oil exploration companies and the navy.
In addition to the above advantages, investors should take a look at the table below, which compares Neah Power’s PowerChip against batteries and PEM (proton exchange membrane) technology.
Neah Power Systems has invested roughly 90 percent of its resources into developing the company’s PowerChip product. Typical customers for PowerChip include the military, government organizations, and corporations that are interested in low-cost energy solutions capable of delivering longer life spans. In fact, the PowerChip product has demonstrated the ability to last five to 10 times longer than lithium batteries.
The PowerChip gives Neah Power a major advantage of over one of its primary competitors, Ballard Power Systems (NASDAQ:BLDP). Ballard Power Systems is a global leader in PEM fuel cell technology. The company provides clean energy fuel cell products that enable optimized power systems for a range of applications. Ballard Power has designed and shipped close to 150 MW of hydrogen fuel cell technology to date.
Unfortunately for Ballard Power Systems, the company’s financial statements have failed to impress. Over the last three years, the company has shown decreasing revenue as well as increasing net losses. For the year ended December 31, 2010, Ballard Power lost $35.4 million on total revenue of $65 million. For the year ended December 31, 2011, the company lost $36.2 million on total revenue of $55.8 million. And for the most recent year, Ballard Power lost $43.5 million on total revenue of $43.7 million. Despite this, shares of Ballard have increased over the past 52 weeks, which is interesting given that its PEM technology will soon be outdated when compared to Neah Power’s PowerChip.
As shown in the table earlier, PowerChip has PEM technology beat on five of six fuel cell energy characteristics. The sixth one is a draw. Given that Ballard Power is already demonstrating declining revenue, there is no reason to believe that it will turn around anytime soon, given that the PowerChip may soon surge ahead in the fuel cell energy industry.
In 2013, Neah Power Systems entered into relationships with many new clients. One of the largest clients, the DRDO (Defense Research and Development Organization, Government of India), signed a purchase agreement in November. The purchase order was for $172,000 worth of PowerChip product. Given that India’s defense department spent many hours evaluating the technology, this purchase order helps to validate Neah Power’s unique technology. It is likely that other governments will now take a strong, hard look at Neah Power Systems as a potential supplier of their defense application needs.
Another exciting development for Neah Power was its launch of the BuzzBar and BuzzCell products. The launch was announced on December 18 last year. The BuzzBar is a product that allows consumers to recharge their small mobile devices. The BuzzBar utilizes proprietary fuel cell (BuzzCell) technology. The company’s November acquisition from Clean Tech Investors assisted Neah Power in entering this fast growing and extremely promising market.
While PowerChip is typically required by larger organizations, the BuzzBar represents a direct-to-consumer market. There can be no denying that the smartphone market has greatly improved in the past couple of years. The innovations that smartphone manufacturers like Apple (NASDAQ:AAPL), Samsung (SSNLF.PK), and HTC have developed are nothing short of amazing.
Unfortunately, while the technology continues to improve, battery life has not. In December, there was an interesting article in Forbes that claimed battery life would be the new smartphone battleground. It appears that Neah Power Systems, with its new, state-of-the-art BuzzBar product, is poised to capitalize from the new smartphone battery wars.
Going after the smartphone market is an interesting twist that puts Neah Power one step ahead of one its main competitors, FuelCell Energy (NASDAQ:FCEL). FuelCell Energy is an integrated fuel cell company that designs, manufactures, installs, operates, and services stationary fuel cell power plants. The company’s Direct FuelCell power plants are capable of utilizing a variety of fuels, including renewable biogas from wastewater treatment and food processing, as well as clean natural gas, directed biogas, and propane. These plants are also clean, quiet, and environmentally responsible.
While FuelCell Energy may be strong in the fuel cell power plant niche, the company has struggled to generate profits over the past few years. For the fiscal year ended October 31, 2011, FuelCell generated a net loss of $45.7 million. During the following year, the company lost $35.5 million. And during the most recent year, FuelCell Energy lost $34.4 million. So while the loss is narrowing, it’s clear that the company is going to be operating at a substantial loss for years to come. The overhead costs of operating these plants appears is certainly one reason for the continued losses. Luckily, Neah Power won’t have to shoulder those costs in the booming smartphone market.
Neah Power Systems represents a very intriguing and compelling investment opportunity. The company is participating in some of the hottest areas within the technology sector. Neah has managed to build an impressive and unique product lineup to go along with an impressive list of clients. If the company can continue to do what it has been doing over the last one year of commercialization, it should surge past competitors like FuelCell Energy and Ballard Power Systems and provide Neah Power investors with substantial share price appreciation.
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