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Active Power goes back to basics to get back in the black

Thu, 11/15/2012 - 17:10 -- Ruth Williams

1-22Critical Power (CP): Where did you work before Active Power?

Doug Milner (DM): I was with Exide for 11 years, mostly building their product line management function. When I left I was president of Invensys Power Systems, which among other businesses included Exide Electronics, which became Powerware and was acquired by Eaton in 2004.

After that I started up a semiconductor business, Ziptronix, which we floated in 2005. I left to join a former associate at Xerium Technologies, after which I left to join Aquilex in the industrial services space. I have left Aquilex to join my roots in the power quality business!

CP: Active Power has been around for some time now. You have a good product but you have been struggling in recent years. How will you get Active Power back in the black?

DM: It’s quite simple. We need to get the company back to basics. The company has been around since 1992. We have a good product which is a technical differentiator in the market with a simple value proposition. It’s efficient, reliable and green. 

That value proposition has been accepted more than 3 300 times in terms of flywheel sales by some of the biggest names in business. We have a marquee customer list and they keep coming back to us. There are customers in this market who get what we do and value the technology.

Back in the day, Active Power grew by having very simple, block-and-tackle sales and customer support. I believe that this part of the business has been neglected for some time.

We need a clear product line strategy that our employees and customers can understand. Customers want companies like Active Power to bring differentiated technical solutions which have a very clear outcome in terms of reliability and performance. That can only be delivered through a capable, technical sales organisation.

My predecessor spoke openly about this and we have undertaken a Herculean effort to overhaul our sales management structure and the technical capabilities of our sales force to develop our marketing strategy. This has taken some time, but we are coming to the end of this process. We have begun to see some favourable early results in terms of an increase in the number of opportunities we are looking at.

CP: The most recent financial results show that Active Power’s revenues are growing, but so too are its losses. Are you confident you can turn it around?

DM: We have seen growth in a segment of our product offering that is less profitable than the core UPS service line, while we have not seen the growth that we want in our UPS products. The combination of these two things has had a negative impact on profitability. In addition, we did a lot of restructuring last year, which brought a lot of charges and expenses.

1-23aWe have entered the infrastructure space, which is an extension of our PowerHouse technology and we are providing modular data centre infrastructure solutions, which is a new business for us. 

We have very quickly established a good reputation in this market space and it now comes down to execution. Now that we have figured out how to serve our customers we need to figure out how to have more competitive cycle times and a more efficient cost-base.

The focus for us is on the nuts and bolts of execution in terms of product design, manufacturing, production costs, improving efficiency and improving our cycle times. Focusing more on execution, efficiency and productivity within our manufacturing operations will reduce the costs of some our lower margin product lines.

Am I confident that the company can improve? Definitely. That’s why I’m here. Does it require an extreme makeover? No. It involves getting back to basics and focusing on what we have done historically to grow the business. I wouldn’t expect a radical change. What we hope our customers will see is a better positioned, more responsive Active Power.

CP: Which regions are you targeting for growth?

1-23b

DM: Obviously, the North American market is very important to us and one where we have to return to growth in the UPS market space. We have been very open about our efforts to overhaul the sales channel and management structure to improve our service to the North American market.

There are data centre market segments presenting good opportunities for us and we need to take advantage of them. The European market presents some of the biggest opportunities in the world and so we are focusing on how to manage our sales channels and get better access to customers. We are focused on Western European markets, but we are not looking to push east at this time.

The Asian market is very important for us. China has some sophisticated customers who get our value proposition. We’ve seen satisfying growth and a number of opportunities in China.

CP: If Asia is a major target market for Active Power, why did you shut your Japanese operations at the end of 2011? And if Europe is important, why did you scale back UK manufacturing?

DM: China, Central and South East Asia are probably not best served by an office in Japan. We have people on the ground in China and we are probably going to expand that presence. We are going to put our people and our logistical capabilities closer to the markets which we believe will deliver growth.

The UK is still going to be a logistics support operation and we will do some manufacturing their opportunistically, but we believe we can serve markets in Europe more cost-effectively and we have a plan to do that. It’s not a question of lack of investment in growth, it’s a case of investing where we believe will be more beneficial to our customers.

We may move manufacturing from Evesham to another part of Europe or simply supply out of the United States for a period of time. But we are growing our sales team in the UK.

CP: How is Active Power developing its product line?

DM: We will introduce new product lines this year. For CleanSource, there will be a new, larger scale UPS system with a much more favourable cost position in the sweet spot of our market, which is at the higher end of the power range. 

1-24There will also be some additional features, but we are not yet in a position to publicise those. We will continue to build and brand CleanSource UPS systems for Caterpillar. We are also making engineering and design changes to our PowerHouse product. The PowerHouse will directly benefit from this new platform. 

There’s no shortage of attention in all four corners of our engineering and product development groups at the moment. If you take a new product at a very specific power range and optimise it for that power capacity you are certainly going to make decisions different from a more, let’s say, modular approach. It’s optimised for the cost of the product as well as optimised to a very specific power rating. 

CP: Will Active Power expand into more traditional forms of UPS technology, or will you stay flywheels-only?

DM: We are not limiting ourselves to what we are currently providing in terms of technology solutions and certainly not close-minded to other types of architecture, such as other forms of non-traditional UPS systems. We are not going to be a flywheels-only company come hell or high water.

If you constrain yourself to any single energy storage technology, it will of course limit growth potential. And at some point in time you will become less relevant to the market. We believe that’s the case with us, or companies that sell lead?acid batteries, or any manufacturer in the industry. 

There’s a lot of exciting technology being developed and a lot of money has been invested in alternative energy storage. We are aware of all of them and we are exploring the ones we think will be the most practical in terms of application.

Going forward, we are going to be focused on what our customers tell us what the very best and most reliable solutions will be for them. We have a list of customers who are influential in their markets and we will be responsive to them. Whatever delivers that technology to the market at the most cost-effective price, that’s the path we will take, whether it’s manufacturing or sourcing alternative solutions.