Q&A: Micro fuel cell promise

Earlier this year, I did a Cleantech Blog article called "Micro fuel cell killer" talking about the challenges that undermined the promise of micro fuel cells.

Well, now we are looking at the other side of the story. One of my friends, Peng Lim, who is the CEO of Mechanical Technology Inc. (Nasdaq:MKTY), parent company to leading micro fuel cell developer MTI Micro, graciously consented to an interview on what they have done and the general state of play. In other words, what is the current micro fuel cell promise.

Q: Peng, can you give our audience a little of your background prior to MTI? What made you choose MTI? And can you share some of your expectations from that time, and how they have panned out?
Lim: Prior to joining MTI, I spent the last 20 years in the consumer handheld electronics market starting with notebook computers in the early 1990's and then moving into wireless computing in the mid 1990's. At the time I joined, both markets were very young. You didn't see many people with portable computers, or the hot spots that wirelessly connect them to the internet. I was fortunate to be part of the growth experienced by both portable computing as well as wireless computing. Each one of those industries grew because of the intrinsic need for people to be mobile. Allowing people to work any time, any place is something that they want; hence, both industries took off.

From there, in the late 1990s, I moved into the PDA market where I lead the worldwide product development for Palm, and was responsible for the Palm devices, OS and Application Software. At that time, the challenge was to take mobility to the next level. We devised a product that had the capabilities of a computer, but that could fit in your pocket; there would be no need to worry about the device. When needed, it is there and when it is not, it is stored in your pocket. Again the concept took off. At Palm, we captured 65 percent of the worldwide PDA market share and 75 percent handheld OS market share.

I left Palm in 2001 to start my own company focusing on handheld multimedia and gaming. The company was sold in 2005.

The reason why I joined MTI is twofold: 1) the technology has the potential to exponentially increase the energy density over that of lithium-Ion batteries, and 2) because of mobility. Mobile devices are not truly mobile yet. There is one last wire that attaches them to a wall--a charging wire.

Micro fuel cells promise to cut the last wire and provide customers with real mobility where they can use their devices at anytime and anywhere without having to be tethered to the wall for charging.

Besides MTI, I am currently on the board of advisers for Inventec Appliances, a multibillion dollar manufacturing company based in Taiwan.

Can you talk a little about the Mobion chip and your recent advances in it? What does that mean in the context of getting a product to market?
Lim: In June, MTI Micro demonstrated its integrated fuel cell chip used as the heart of its fuel cell systems for consumer product applications. The Mobion chip is based on 100 percent methanol feed, passive, direct methanol fuel cell (DMFC) technology. Passive water management applied to DMFC technology is the catalyst for reducing size and simplifying fuel logistics. MTI Micro has reduced the size of the Mobion chip by over 40 percent to 9cc (small enough to fit in the palm of a hand), and has reduced the parts-count of the chip to one molded piece. The Mobion chip is capable of operating at 0 to 40 degrees Celsius and at any level of humidity. This is an industry standard requirement for many OEMs who want to use fuel cells with their products.

MTI Micro's Mobion chip architecture significantly reduces the complexity of a fuel cell system's internal construction, thereby reducing manufacturing costs, increasing performance and enabling further system miniaturization--factors that are critical for the successful launch of fuel cell products in the consumer market. We believe the Mobion chip is the first micro fuel cell technology designed with the performance and manufacturability necessary to make a significant impact on the consumer portable electronics markets.

If you had to pick your three top early adopter products for micro fuel cells, what would they be? And for each one, what are the power to weight, power to size, and lifetime targets you feel each will require.
Lim: We see a lot of opportunity for the early adoption of micro fuel cells, particularly in handheld consumer electronics. Applications including cellular phones PDAs, MP3 Players, digital cameras, game players are very attractive to us. As far as power, size and energy goes, it certainly would depend on every application and also on what requirements OEMs may have; at the same time, there may be some trade-offs between size and energy, etc.

If you had to tell a consumer customer what to expect from a microfuel cell product, what would you tell them?
Lim: Most importantly, longer device run-time--a feature that customers deeply care for. MTI Micro's Mobion technology will also allow users to be free from tethering their devices to an electrical outlet, eliminating the need for carrying multiple bulky chargers and converters.

Also, since refueling would be as simple as just replacing a cartridge, there is no downtime required for a recharge. "Hot-swappable" cartridges would instantaneously allow the user to continue to use their device.

Micro fuel cells are also considered a green technology. On the other hand, some rechargeable battery technologies such as NiCad are toxic to the environment.

What's different about micro fuel cells now as opposed to 4 or 5 years ago that gives you confidence?
Lim: 1) Technical improvements including size, energy density and power density have improved. 2) The worldwide energy source for the consumer portable electronic market continues to grow (approximately $12 billion this year and is expected to grow to over $20 billion in 2012). 3) The infrastructure and supply chain are starting to come together ? especially around methanol solutions like our Mobion Technology. 4) Methanol has been approved by the International Civil Aviation Organization (ICAO) to be carried inside commercial planes.

The DOT announcement on carrying methanol and fuel cells on planes is obviously huge. Exactly why has it been so long in coming, and what put it over the line?
Lim: Direct methanol fuel cells and fuel refills can be transported safely, provided appropriate precautions are taken in design and packaging. However, meticulous considerations are given to any new products for approval in commercial transport. Having been approved by ICAO and now waiting for implementation by the U.S. Department of Transportation is an important and necessary step towards the commercialization of Mobion.

What exactly are the terms of the Samsung collaboration, and how does it affect MTI Micro's plans for commercializing a micro fuel cell product?
Lim: MTI Micro first entered into a relationship with Samsung Electronics, our Korean partner and a leading producer of mobile phones, in May of 2006. Under the terms of MTI Micro's initial Alliance Agreement, our Mobion technology was chosen to power a series of prototypes designed for mobile cell phone and cell phone accessories. In a short period of time, we delivered two rounds of these prototypes to Samsung for evaluation, and each prototype demonstrated significant size reductions and performance improvements from the previous. The latest and most advanced prototype contains the Mobion chip. This agreement expired on its own terms on July 31 of this year. However, on October 25, MTI Micro announced its continued collaboration with its Korean partner, extending until the end of 2009, or six months after MTI Micro's first commercial product launch should our commercialization timeline become accelerated--whichever comes earlier.

With this alliance in place, we feel very confident about MTI Micro's strong momentum and ability to bring Mobion MFC technology to a high-revenue category within the worldwide consumer device market. Under this non-exclusive collaboration, MTI Micro will continue to refine the Mobion baseline product design for mobile phone applications. Until the design freeze date projected for December of 2008, our Korean partner may request product specification changes, and may also purchase commercial DMFC samples from MTI Micro as soon as they are readily available. Throughout this time we will also continue to share development updates with our Korean partner, as well as loan them prototypes for evaluation. With a production decision anticipated at the start of the third quarter of 2009, MTI Micro will thus prepare for the manufacturing of the Mobion baseline product starting in the third quarter of 2008, through the second quarter of 2009. To assist with evaluating potential manufacturing partners, and more importantly--to work as part of MTI Micro's business development team to establish business relationships with new OEMs and maintain anticipated day-to-day, on-going customer relationships in Asia--we have added Korea-based Daehong Technew Corporation as a new representative, which we announced in late October.

On the financial side, can you share when you expect to reach break even, and your cash vs. financial burn forecasts, and your feeling on when or if the company will need to raise more cash?
Lim: As of November 8, 2007, the company has $12.6 million in cash and cash equivalents. Our burn rate is approximately $0.9 million per month. We have a number of resources for funding including the positive cash flow from our MTI Instruments subsidiary, sale of Plug Power stock, government funding and the capital markets.

Thank you Peng, always a pleasure. I will keep my fingers crossed for you guys.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, and a blogger for the CNET Cleantech Blog.