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Q&A: Doug Milner, CEO, Active Power

Fri, 12/07/2012 - 17:36 -- Ruth Williams

Critical Power (CP):  You have introduced batteries in your latest CleanSource product. Doesn’t this go against Active Power’s ‘battery-free’ flywheel UPS philosophy?

Doug MilnerDoug Milner (DM): Like it or not, the standard UPS configuration is 15 minutes of battery with online double conversion UPS. We believe the option to include batteries gets us past the first objection to flywheels and moved on to discussing system architecture options of flywheel UPS. We expect the uptake of the batteries to be small, fewer than 10% of our customers.

The only reason our customers would incorporate batteries is if they have a system design that requires that they have non-generator autonomy of more than a minute or two.

We provide power protection for the vast majority of issues facing data centres, but in the very rare instance of a hard power outage then we would walk the data centre onto a battery. Some customers just take comfort in having that battery autonomy.

CP: Then why not just go for a battery UPS? Why bother with a flywheel?

DM: With a static UPS the batteries have to be replaced every 3 to 5 years, they are an inherently unreliable chemical energy storage. Every time you discharge a battery you shorten its life and reliability.

The flywheel will take the thousands of events each year that would ordinarily cause a battery discharge. The customers who couple of battery system with the flywheel will see battery hardening.

CP: What about the cost implications?

DM: We believe that on a purchase price basis, our new 625 kVA powerhouse system will be at parity with a double conversion, battery-based UPS. We are specifically targeting that cost reduction. Our 300 kVA unit had a 25% premium.

Of course if you add batteries it will be more expensive, but customers get the benefit of battery hardening so you don't have to replace batteries so often, and you still get the reliability.

We are going to have to come out with a more aggressive battery warranty because we know we will be extending their life. This translates to less costly maintenance and replacement. We hope to replace the batteries maybe once or twice rather than three or four times.

The warranty would probably be around 3 to 4 years, something that would be unheard of. If we can take out one battery replacement over a ten-year operating analysis that would offer significant value to customers. We fully intend to do that.

CP: Your share price is still in the doldrums. How are you going about improving it?

DM: We're not happy with the share price and we’re taking action to fix that. We've announced a 5:1 reverse split of the stock and to decrease the amount of shares in the market, and get out of the sub-$1 trading range to attract more liquidity.

You can't be under a dollar for very long because you run the risk of being delisted from the stock exchange. While our institutional investor base has increased, the problem is we are an illiquid stock. We have 95 million shares out there, but only 200,000 are traded on average per day.              

But nothing helps your stock price like making money. We made a $500,000 profit in the second quarter of 2012 and we have a fighting chance of making a profit for the full financial year. That would arrest a 20 year straight run of losses since the company founded.

CP: What have you done since you took over the post in March?

DM: We have focused on our core products. Sales of our CleanSource UPS are up 50% on last year. We have a new go-to sales organisation. That means meeting your customers where they prefer to buy the product and anticipating which channels they prefer to require this technology, whether it's on a direct basis, through an IT OEM, or a manufacturer's representative distributor.

We have some large customers like Yahoo, Capgemini and Tesco who like to deal directly from an engineering perspective with us. That defines your sales as being more direct.

But one of the main drivers is selling to new customers through distribution partners. We are seeing growth from our relationship with Caterpillar, and we are starting to see more opportunities from partnerships with IT distribution partners.

We have transformed ourselves from flywheel salespeople to sales people who understand the IT customer environment and what they are looking for in terms of product lead time and service. This is starting to pay dividends.

CP: What about your manufacturing capability?

DM: We have closed an office in Japan, which is a very difficult market to sell into. We have reduced our direct manufacturing capability in Europe and invested in our engineering and service channels, recognising that there are many partners we can work with in Europe to configure PowerHouse and our other products. Overall we have reduced headcount by 13%.

We’re also bringing a completely redesigned line-up of PowerHouse products, which will have a 15% price reduction. They will feature custom-designed switchgear with an optimised shell design to be more cost-effective. We have separated out the generator so customers can acquire the most efficiently packaged generator and fuel storage.

CP: You have announced a tie-up with data centre software provide IO. What do you hope to achieve from the partnership?

DM: This will bring us opportunities to not only provide product on an OEM basis, but also some pretty cool analytics and monitoring software capability that will be wrapped around our new PowerHouse line that's very much in line with contemporary data centre infrastructure management technology. It is plug-and-play with typical DCIM software.