I wanted to follow up on my article, Bye, Bye Love: Leaving my Apple (AAPL) iPhone for Verizon's Droid. My main point of contention at the time I wrote the posting - AT&T (T) abysmal wireless coverage. And not just 3G coverage - I have never possessed a mobile phone that drops as many calls as my beloved iPhone (we are going back to 1991 and the OKI 900!). I wish I was kidding, but too many important dropped calls led me to experiment with another wireless device. As for the commentary, please hold all fire when it comes to Apple Fanatics - I am tapping this posting on an Airbook, I have the Apple TV, three iPhones, and multiple MacBooks and one iMac. I am with you, my peeps. But I also run a very service-intense sales and marketing business, where a dropped call can literally mean life or death for a large deal. So, how can I justify keeping as my main phone the single best device I have ever owned - outside of the fact I cannot complete 38% of my phone calls without either a drop, or a long moment of dead silence (I have been keeping careful track over the past month, hence the 38% figure)?
Well, I have tried the Droid. It is a fantastic device, and I have been pleasantly surprised by the Android operating system. It has a long ways to go in terms of the seamless feel the iPhone OS has, but it's a given Google is addressing that quickly. I can happily report I dropped 21% of my calls on the Droid - still a high figure, but as you can see, it heartily beats the iPhone. I do want to note I live in Los Angeles, and I did eliminate any dropped calls that are in obvious dead zones, like the canyon passes.
Here are some of my initial experiences with both phones:
1. I had used BlackBerry (RIMM) for years and years, and I could blow out huge emails on the physical keyboards. It took a while, but I can throw down on the iPhone - especially since the last upgrade to the OS allows my to utilize the larger horizontal touchscreen keyboard. To my disappointment, Droid's keyboard leaves much to be desired. The physical feedback feels clunky, the keyboard itself is bit crowded (even for my small fingers), and actually feels fairly fragile - not impressed with the fit and finish of the keyboard at all. That said, again I am an Apple fan, and not much beats their fit and finish, to be fair. However, Droid and Verizon have been touting their product as a direct competitor to the iPhone, so let's subtract points on the physical keyboard. Most BlackBerry models have far superior keyboards, and even the Palm Pre beats out the Droid when compared directly. In summary, the keyboard, while not horrid by any standard, nevertheless is lacking when compared to the competition. Final note: I have spoken to many who simply prefer a physical keyboard to the touchscreen keyboard iPhone employs. If you find yourself in that category, I would recommend either dealing with the Droid's keyboard until the next upgrade, or waiting for that upgrade, simply because the Android operating system is fantastic. Bypass RIM and Palm - they will be small potatoes in the mobile market share game.
2. No multi-touch makes a big difference in day-to-day usage. I have had this argument 100 times with even Google execs - bottom line, multi-touch on the iPhone makes the overall user experience much more seamless and fluid. Google and Android has a ways to go to match ease-of-use for the average user.
3. I have 95+ applications on my iPhone, and they all work wonderfully, and update fairly well, with only the occasional hiccup. Android really needs to focus on this part of the experience - I have had nothing but trouble with many applications on my Droid. Open Source is fantastic - but there is something to be said for the Apple model of melding hardware and software. Most average users don't have the technical ability to navigate the application issues. Add to that, I cannot get nearly as many Android application on my Droid - they simply don't have nearly the number of applications, and the incredible variety. This leads into my next, critical point for Droid and Android...
4. It is CRITICAL for Android to step up and create a much more cohesive, user-friendly mobile application procurement environment. Long term, their open strategy (which right now is all the vogue with pundits but, as I wrote in another posting, they are way off mark on this) will lead to a lot of applications that are sub-par in performance, or worse, are net-negative on the base operating system. This is a huge issue for Google and it needs to be addressed. I am not advocating Apple is 100% right - but as of right now, their strategy kills Androids. My Android application experience has been confusing and downright awful, to be frank. And if it is for me, many other users are even more frustrated. Their base set of applications are fantastic, but iPhone users smugly look down at their Android counterparts, with dozens and dozens of fantastic, user-friendly and stable applications, easily procured from one easy source.
5. Web browsing speeds - here we give Droid and Verizon an important win, which goes back to AT&T - good old AT&T simply needs to step it up with their coverage. It's great that I am zipping faster than my Droid on Safari at times, but when I move seven paces to the left and the data stream wanes, what is the point of a faster browsing experience? The 3G coverage is frustrating, period, and it needs to be addressed or AT&T will lose iPhone in 2011.
6. I have been speaking with several Droid users having issues with their cameras in certain situations. I have not had the chance to really dive into the camera, but intend to over the Thanksgiving holiday, and post some results for comparative purposes. I WILL say iPhone's camera has never been my favorite, but actually works just fine for the casual well-lit snapshot. Even utilizing third-party apps, any iPhone pic taken in a dimly-lit setting is an act of redundancy - here's hoping what I hear is true, and 2010's update brings us not just a flash, but a fairly revolutionary upgrade to the camera (both hardware and rendering software - my sources say early tests are VERY exciting).
Summary: The iPhone remains first-in-class, but I see a tremendous future for the Android mobile operating system. And the factor that has driven me to carry two phones this month - Droid doesn't drop my calls nearly as much as the iPhone. I don't care about blaming hardware, the carrier, what geographic locale I happen to be in...consumers don't care. It is a phone after all, and my dropped-call percentage of 38% (almost four in every ten calls!) is unacceptable. AT&T and Apple need to address this issue, because if I am pitching a Fortune 100 client, I simply cannot have the phone blank on me if I move three steps top the left. My beloved iPhone is still in the lead over Android's latest and greatest offering, but AT&T and Apple must get the coverage problem solved and reassure their customer base (so incredibly loyal to begin with - as a former advertising executive, this should be an easy public relations fix once the actual coverage problem is addressed and rectified) that they can complete phone calls and have ready and stable access to their data streams without worry.
I will be checking back in with a further update after the holidays, and I would very much enjoy feedback on anyone's experiences with either device!
Disclosure: No holdings in any of the companies referenced in this article.
Tuesday, November 24, 2009
Monday, November 23, 2009
SunTech's Optimism - Is it Justified?
I have been knee-deep in research on SunTech's latest earnings release, and I wanted to share some of my findings, both macro and focused, in order to provide some guidance on SunTech, the solar vertical, and the near and long-term outlook for SunTech. I see a lot of positives, and if SunTech can navigate some of the upcoming challenges successfully, they are positioned to be a strong leader in over the next 3-5 years in the solar space.
1. I just had a long conversation today with the head of a leading Greentech distribution company, massive in size. 2010 orders are looking much stronger than 2009, and I think we will see an uptick (from ALL that data I am seeing) in Q1 that will result in a surprising YOY increase. BUT, let's take that optimistic view with caution. This is a vertical very similar to other technology verticals I have been deeply involved with my whole career - the technology is changing constantly, the main players are going through growing pains (an example would be SunPower's accounting difficulties and potential restatements - been through several larger startups, and earnings restatements are very common on the fast-moving tech sector), and I am not going out on a limb by saying the strongest players today could easily be eclipsed by emerging advances from other firms tomorrow. Tread carefully - the laws of Disruptive Innovation and Disruptive Technology rule the day in the GreenTech vertical.
2. We can all count on subsidies to remain, especially in the U.S. with the current Administration in power, but we can also count on those subsidies shrinking in all likelihood. Government fiscal policy will dictate cutbacks, as industrialized nations struggle with high percentage of government debt versus GDP. That said, we also cannot predict what types of legislation will be enacted to continue to force the private sector towards Renewable Energy implementation (e.g. California). It's a low-visibility environment when we look at government policy, but there is a momentum and political environment currently that trends positive for Renewable Energy and the GreenTech sector as a whole.
3. I get flack for this all the time, but to discount the cultural and societal push, both domestic and internationally, towards Green solutions and Renewable Energy is foolish. History has shown again and again, culture is a powerful dictating force in enacting macro-infrastructural and economic evolution. I don't agree or disagree with this trend - as a realist, and an analyst, you simply must factor in, and it's a strong part of my predictive modeling for short-term GreenTech projections.
4. I am going to diverge with the consensus on China. There are some fundamental factors that both bolster the viewpoint that China is going to eclipse the United States and other European countries in Renewable Energy and GreenTech technology advancements and production capacity, to be sure. But China is taking a different approach than, say, Germany, a nation that has invested billions and billions not to power their nation with solar power (at an average of four sunlight hours per day, it's just not a practical environment for large-scale deployment yet - until leaps in energy storage make it so). Germany made that strategic investment as an intellectual property investment, and it is paying off. China is taking a different approach, an approach far more in line with their overall economic model - production capacity, production capacity, and then more production capacity. As a side note, this is a strategy that is frankly a forced policy - they simply do not have the engineering brain trust yet that the G10 nations do (no disrespect to China - they will get there for sure!!). The revolutionary technology advancements will, in my opinion, come from the U.S. and Europe, and China will be a major player in building the production capacity infrastructure necessary to deploy solar on a widespread, positive return-on-capital basis that will help make Q3-Q4 a real tipping point in solar - look at that time frame for the global, and domestic U.S., to reach critical mass, making solar absolutely viable from a Levelized Cost of Energy standpoint (likely without government and utility subsidies). Many variables, but my finger on the pulse for 2010 skews towards the positive projections.
Now, to quickly address SunTech specifically:
1. At this point in their startup evolution, their balance sheet is above average. Keep a close eye on how currency fluctuations are both benefiting and/or having a negative impact on their earnings. Forward -looking, I am 100% convinced that the dollar with strengthen, and I watch as an investor for SunTech to be prepared with strategies in place for this inevitable eventuality. Examples would include distribution models, tactical global production facilities (e.g. Phoenix was a positive development) and currency hedges.
2. There are many players in their particular vertical, again typical of a nascent technology environment in an accelerated growth phase. Keen eyes will be on their research and development revenue allotments. Are they continuing a firm commitment to advancing their technology, as opposed to allowing their current technology to carry quarterlies for the time being? Also, they are fairly deep in terms on their R&D talent base - look to see if they are able to hold onto this talent. R&D will be a big factor in determining the long-term viability and success of SunTech in this environment. Innovation, innovation, innovation! Key to this vertical, as it is with most technology verticals. Investment in R&D, even at the expense of lowering guidance for the next few quarters, may sound like career suicide, but is key to SunTech's long-term industry leadership positioning.
3. They are talking the talk on diversification in their sales channels - let's keep on eye over the next 6-12 months if the walk the walk. With feed-in tariffs and other government subsidies getting squeezed due to budget constraints as the need for further economic stimulus continues, an aggressive, intelligent diversivication strategy will be a critical factor to maintain top-line revenue growth. Eastern Europe is starting to appear ripe for a market share grab. And the sleeping giant called the United States is slowly awakening - maintaining a large piece of the market share in the U.S. should be a critical component to SunTech's sales-mix modeling.
4. The Chinese solar market has gotten a lot of coverage as of late, and rightfully so. But I am stressing caution in the longer-term, 3-5 year time frame - China will absolutely not be able to maintain their current torrid GDP growth rates, and as we see globally, it's much easier to delay or shelve Renewable Energy projects to slow the rate of government spending. Coal is cheaper, and coal in plentiful in China. Despite the protestations to the contrary, the Chinese government's absolute priority is maintaining power, and when their economic growth rate inevitably slow, a lot of systemic troubles within both their government and banking system will be revealed. The Chinese are currently constructing one new coal-powered generation plant a week. The media coverage is fantastic, and it's absolute a positive to those of us in GreenTech. But the reality on the ground is China is committed to ensure their energy needs are met at all costs, and coal is still a cheaper alternative for the Chinese generation plans than solar or wind. So as we see their growth rates slow in the middle of the coming decade, and the turbulence that will go with that slowdown, expect a lot of these Renewable Energy projects announced with such fanfare to be delayed or shelved completely. SunTech needs to recognize this reality and diversify accordingly.
5. I am impressed thus far with SunTech's level of transparency and fiscal discipline. If this continues, and I have no reason at this time not to believe it won't, this makes them a far stronger player globally than much of their competitive set.
Bottom line: I think SunTech is a fantastic 3-5 year play. If you are looking for immediate returns, look elsewhere - volatility is the name of the game in Technology sectors such as GreenTech, still very early in their evolution. But I see a lot of positives in SunTech's fundamentals, and as a five-year strategy, I think they are a safe, strong investment in the GreenTech sector.
Disclosure: No holdings in any of the companies referenced in this article.
1. I just had a long conversation today with the head of a leading Greentech distribution company, massive in size. 2010 orders are looking much stronger than 2009, and I think we will see an uptick (from ALL that data I am seeing) in Q1 that will result in a surprising YOY increase. BUT, let's take that optimistic view with caution. This is a vertical very similar to other technology verticals I have been deeply involved with my whole career - the technology is changing constantly, the main players are going through growing pains (an example would be SunPower's accounting difficulties and potential restatements - been through several larger startups, and earnings restatements are very common on the fast-moving tech sector), and I am not going out on a limb by saying the strongest players today could easily be eclipsed by emerging advances from other firms tomorrow. Tread carefully - the laws of Disruptive Innovation and Disruptive Technology rule the day in the GreenTech vertical.
2. We can all count on subsidies to remain, especially in the U.S. with the current Administration in power, but we can also count on those subsidies shrinking in all likelihood. Government fiscal policy will dictate cutbacks, as industrialized nations struggle with high percentage of government debt versus GDP. That said, we also cannot predict what types of legislation will be enacted to continue to force the private sector towards Renewable Energy implementation (e.g. California). It's a low-visibility environment when we look at government policy, but there is a momentum and political environment currently that trends positive for Renewable Energy and the GreenTech sector as a whole.
3. I get flack for this all the time, but to discount the cultural and societal push, both domestic and internationally, towards Green solutions and Renewable Energy is foolish. History has shown again and again, culture is a powerful dictating force in enacting macro-infrastructural and economic evolution. I don't agree or disagree with this trend - as a realist, and an analyst, you simply must factor in, and it's a strong part of my predictive modeling for short-term GreenTech projections.
4. I am going to diverge with the consensus on China. There are some fundamental factors that both bolster the viewpoint that China is going to eclipse the United States and other European countries in Renewable Energy and GreenTech technology advancements and production capacity, to be sure. But China is taking a different approach than, say, Germany, a nation that has invested billions and billions not to power their nation with solar power (at an average of four sunlight hours per day, it's just not a practical environment for large-scale deployment yet - until leaps in energy storage make it so). Germany made that strategic investment as an intellectual property investment, and it is paying off. China is taking a different approach, an approach far more in line with their overall economic model - production capacity, production capacity, and then more production capacity. As a side note, this is a strategy that is frankly a forced policy - they simply do not have the engineering brain trust yet that the G10 nations do (no disrespect to China - they will get there for sure!!). The revolutionary technology advancements will, in my opinion, come from the U.S. and Europe, and China will be a major player in building the production capacity infrastructure necessary to deploy solar on a widespread, positive return-on-capital basis that will help make Q3-Q4 a real tipping point in solar - look at that time frame for the global, and domestic U.S., to reach critical mass, making solar absolutely viable from a Levelized Cost of Energy standpoint (likely without government and utility subsidies). Many variables, but my finger on the pulse for 2010 skews towards the positive projections.
Now, to quickly address SunTech specifically:
1. At this point in their startup evolution, their balance sheet is above average. Keep a close eye on how currency fluctuations are both benefiting and/or having a negative impact on their earnings. Forward -looking, I am 100% convinced that the dollar with strengthen, and I watch as an investor for SunTech to be prepared with strategies in place for this inevitable eventuality. Examples would include distribution models, tactical global production facilities (e.g. Phoenix was a positive development) and currency hedges.
2. There are many players in their particular vertical, again typical of a nascent technology environment in an accelerated growth phase. Keen eyes will be on their research and development revenue allotments. Are they continuing a firm commitment to advancing their technology, as opposed to allowing their current technology to carry quarterlies for the time being? Also, they are fairly deep in terms on their R&D talent base - look to see if they are able to hold onto this talent. R&D will be a big factor in determining the long-term viability and success of SunTech in this environment. Innovation, innovation, innovation! Key to this vertical, as it is with most technology verticals. Investment in R&D, even at the expense of lowering guidance for the next few quarters, may sound like career suicide, but is key to SunTech's long-term industry leadership positioning.
3. They are talking the talk on diversification in their sales channels - let's keep on eye over the next 6-12 months if the walk the walk. With feed-in tariffs and other government subsidies getting squeezed due to budget constraints as the need for further economic stimulus continues, an aggressive, intelligent diversivication strategy will be a critical factor to maintain top-line revenue growth. Eastern Europe is starting to appear ripe for a market share grab. And the sleeping giant called the United States is slowly awakening - maintaining a large piece of the market share in the U.S. should be a critical component to SunTech's sales-mix modeling.
4. The Chinese solar market has gotten a lot of coverage as of late, and rightfully so. But I am stressing caution in the longer-term, 3-5 year time frame - China will absolutely not be able to maintain their current torrid GDP growth rates, and as we see globally, it's much easier to delay or shelve Renewable Energy projects to slow the rate of government spending. Coal is cheaper, and coal in plentiful in China. Despite the protestations to the contrary, the Chinese government's absolute priority is maintaining power, and when their economic growth rate inevitably slow, a lot of systemic troubles within both their government and banking system will be revealed. The Chinese are currently constructing one new coal-powered generation plant a week. The media coverage is fantastic, and it's absolute a positive to those of us in GreenTech. But the reality on the ground is China is committed to ensure their energy needs are met at all costs, and coal is still a cheaper alternative for the Chinese generation plans than solar or wind. So as we see their growth rates slow in the middle of the coming decade, and the turbulence that will go with that slowdown, expect a lot of these Renewable Energy projects announced with such fanfare to be delayed or shelved completely. SunTech needs to recognize this reality and diversify accordingly.
5. I am impressed thus far with SunTech's level of transparency and fiscal discipline. If this continues, and I have no reason at this time not to believe it won't, this makes them a far stronger player globally than much of their competitive set.
Bottom line: I think SunTech is a fantastic 3-5 year play. If you are looking for immediate returns, look elsewhere - volatility is the name of the game in Technology sectors such as GreenTech, still very early in their evolution. But I see a lot of positives in SunTech's fundamentals, and as a five-year strategy, I think they are a safe, strong investment in the GreenTech sector.
Disclosure: No holdings in any of the companies referenced in this article.
Wednesday, November 18, 2009
Rooftop Solar Generation - Ready for Primetime?
California’s ambitious goal of obtaining a third of its electricity from renewable sources by 2020 has spawned a green energy boom with thousands of megawatts of solar, wind, and biomass power plants planned for ... the middle of nowhere.
And therein lies the elephant in the green room: transmission. Connecting solar farms and geothermal plants in the Mojave Desert and wind farms in the Tehachapis to coastal metropolises means building a massive new transmission system. The cost for 13 major new power lines would top $15.7 billion, according to a report released in August by the state’s Renewable Energy Transmission Initiative.
The initiative, called RETI, is an attempt to build a statewide green grid in an environmentally sensitive way that will avoid the years-long legal battles that have short-circuited past transmission projects.
But the rapidly evolving solar photovoltaic market may moot the need for some of those expensive and contentious transmission lines, requiring transmission planners to rethink their long-term plans, according to Black & Veatch, the giant consulting and engineering firm that does economic analysis for RETI.
In short, solar panel prices have plummeted so much as to make viable the prospect of generating gigawatts of electricity from rooftops and photovoltaic farms built near cities.
“This has pretty significant implications in terms of transmission planning,” Ryan Pletka, Black & Veatch’s renewable energy project manager, told me last week. “What we thought would happen in a five-year time frame has happened in one year.”
That’s prompted Pletka to radically revise the potential for so-called distributed generation—solar systems that can plug into the existing grid without the construction of new transmission lines—to contribute to California’s need for 60,000 gigawatt hours of renewable electricity by 2020.
When Black & Veatch did its initial analysis last year, it predicted that photovoltaic solar could contribute 2,000 gigawatt hours, given the high cost of conventional solar modules and the fact that a next-generation technology, thin-film solar, had yet to make a big commercial breakthrough.
Pletka’s new number is a bit of a shocker: Distributed generation could potentially provide up to 40,000 gigawatt hours of electricity, or two-thirds of projected demand.
“Certainly some of the new transmission lines will be needed but not as many as before,” he says.
That analysis also calls into question the need for as many large-scale solar power plants. Currently there are about 35 Big Solar projects planned for California that would generate more than 12,000 megawatts of electricity.
A game-changer has been the rapid rise of thin-film solar. Thin-film solar modules are essentially printed on glass or other materials. Although such solar panels are less efficient at converting sunlight into electricity than traditional crystalline modules—which are made from silicon wafers—they can be produced more cheaply.
In the past year, utilities like Southern California Edison have signed deals with First Solar, the thin-film powerhouse, to buy electricity from four massive megawatt thin-film solar farms. And in September, China inked an agreement with the Tempe, Ariz., company to build a 2,000-megawatt power plant, the world’s largest.
The next day, Nanosolar, a Silicon Valley startup, announced it had secured $4.1 billion in orders for its thin-film modules, which it claims will be even more efficient and cost less to produce than those made by First Solar.
Meanwhile, California’s two biggest utilities, PG&E and Southern California Edison, this year each unveiled initiatives to collectively install 1,000 megawatts of distributed solar generation. SoCal Edison will put solar arrays on warehouse roofs throughout the Southland - First Solar snagged the first big contracts - while PG&E is focusing on ground-mounted solar systems near its existing substations.
So what’s behind this rooftop revolution in solar?
Partly it’s due to a glut in the solar panel market. The global economy collapsed last year just as solar module makers ramped up production. But it’s also a result of technological innovation and economies of scale that have made thin-film solar, for instance, competitive. Strides have also been made in cutting installation costs, which typically account for half the price of photovoltaic systems. And finally, a giant key in gaining traction towards critical mass in rooftop solar systems is financing. California-based SolarCity has emerged as an industry leader in providing financing that makes fiscal sense for homeowners and commercial building owners through their SolarLease program.
The solar market, of course, is heavily dependent on government incentives—in the United States and overseas—and thus vulnerable to disruption. But the trajectory remains one of falling prices and thus Black & Veatch’s projections pose a conundrum for transmission planners.
Given that transmission projects can take a decade to complete, power bureaucrats make their plans based on 10-year projections of energy costs according to Pletka. That wasn’t much of a problem when planning transmission for, say, a grid supplied by natural gas-fired power plants as the technology or the market was not likely to change radically.
Not so for solar, where technological advances and fast-changing market conditions are shaking long-held views that photovoltaic power, or PV, is not ready for prime time.
“I’ve worked in renewables since the ‘90s and I myself had written off solar PV for years and years and years,” Pletka says. “That’s a firmly rooted mindset among everyone who works from a traditional utility planning perspective.”
“We present this new information on photovoltaics to people and it’s still not sinking in,” he adds. “It would cause a major shift in how we plan.”
While fewer massive transmission projects would be needed if California generates gigawatts of electricity from rooftops, the distribution network will need to be upgraded and a smart grid created to manage tens of thousands of pint-sized solar power plants.
Cities, Pletka notes, could become generators of electricity rather than consumers of power.
“It brings up questions people haven’t had to talk about before,” says Pletka.
And therein lies the elephant in the green room: transmission. Connecting solar farms and geothermal plants in the Mojave Desert and wind farms in the Tehachapis to coastal metropolises means building a massive new transmission system. The cost for 13 major new power lines would top $15.7 billion, according to a report released in August by the state’s Renewable Energy Transmission Initiative.
The initiative, called RETI, is an attempt to build a statewide green grid in an environmentally sensitive way that will avoid the years-long legal battles that have short-circuited past transmission projects.
But the rapidly evolving solar photovoltaic market may moot the need for some of those expensive and contentious transmission lines, requiring transmission planners to rethink their long-term plans, according to Black & Veatch, the giant consulting and engineering firm that does economic analysis for RETI.
In short, solar panel prices have plummeted so much as to make viable the prospect of generating gigawatts of electricity from rooftops and photovoltaic farms built near cities.
“This has pretty significant implications in terms of transmission planning,” Ryan Pletka, Black & Veatch’s renewable energy project manager, told me last week. “What we thought would happen in a five-year time frame has happened in one year.”
That’s prompted Pletka to radically revise the potential for so-called distributed generation—solar systems that can plug into the existing grid without the construction of new transmission lines—to contribute to California’s need for 60,000 gigawatt hours of renewable electricity by 2020.
When Black & Veatch did its initial analysis last year, it predicted that photovoltaic solar could contribute 2,000 gigawatt hours, given the high cost of conventional solar modules and the fact that a next-generation technology, thin-film solar, had yet to make a big commercial breakthrough.
Pletka’s new number is a bit of a shocker: Distributed generation could potentially provide up to 40,000 gigawatt hours of electricity, or two-thirds of projected demand.
“Certainly some of the new transmission lines will be needed but not as many as before,” he says.
That analysis also calls into question the need for as many large-scale solar power plants. Currently there are about 35 Big Solar projects planned for California that would generate more than 12,000 megawatts of electricity.
A game-changer has been the rapid rise of thin-film solar. Thin-film solar modules are essentially printed on glass or other materials. Although such solar panels are less efficient at converting sunlight into electricity than traditional crystalline modules—which are made from silicon wafers—they can be produced more cheaply.
In the past year, utilities like Southern California Edison have signed deals with First Solar, the thin-film powerhouse, to buy electricity from four massive megawatt thin-film solar farms. And in September, China inked an agreement with the Tempe, Ariz., company to build a 2,000-megawatt power plant, the world’s largest.
The next day, Nanosolar, a Silicon Valley startup, announced it had secured $4.1 billion in orders for its thin-film modules, which it claims will be even more efficient and cost less to produce than those made by First Solar.
Meanwhile, California’s two biggest utilities, PG&E and Southern California Edison, this year each unveiled initiatives to collectively install 1,000 megawatts of distributed solar generation. SoCal Edison will put solar arrays on warehouse roofs throughout the Southland - First Solar snagged the first big contracts - while PG&E is focusing on ground-mounted solar systems near its existing substations.
So what’s behind this rooftop revolution in solar?
Partly it’s due to a glut in the solar panel market. The global economy collapsed last year just as solar module makers ramped up production. But it’s also a result of technological innovation and economies of scale that have made thin-film solar, for instance, competitive. Strides have also been made in cutting installation costs, which typically account for half the price of photovoltaic systems. And finally, a giant key in gaining traction towards critical mass in rooftop solar systems is financing. California-based SolarCity has emerged as an industry leader in providing financing that makes fiscal sense for homeowners and commercial building owners through their SolarLease program.
The solar market, of course, is heavily dependent on government incentives—in the United States and overseas—and thus vulnerable to disruption. But the trajectory remains one of falling prices and thus Black & Veatch’s projections pose a conundrum for transmission planners.
Given that transmission projects can take a decade to complete, power bureaucrats make their plans based on 10-year projections of energy costs according to Pletka. That wasn’t much of a problem when planning transmission for, say, a grid supplied by natural gas-fired power plants as the technology or the market was not likely to change radically.
Not so for solar, where technological advances and fast-changing market conditions are shaking long-held views that photovoltaic power, or PV, is not ready for prime time.
“I’ve worked in renewables since the ‘90s and I myself had written off solar PV for years and years and years,” Pletka says. “That’s a firmly rooted mindset among everyone who works from a traditional utility planning perspective.”
“We present this new information on photovoltaics to people and it’s still not sinking in,” he adds. “It would cause a major shift in how we plan.”
While fewer massive transmission projects would be needed if California generates gigawatts of electricity from rooftops, the distribution network will need to be upgraded and a smart grid created to manage tens of thousands of pint-sized solar power plants.
Cities, Pletka notes, could become generators of electricity rather than consumers of power.
“It brings up questions people haven’t had to talk about before,” says Pletka.
Friday, October 30, 2009
First Solar Earnings Chatter - A View from 33,000 Feet
First Solar's (FSLR) earnings report has hit the Street, and with it, the buzz and the volume has been cranked up on it's ramifications for not just First Solar, but Solar and Renewable Energy as a viable industry. I wanted to bring some "boots-on-the-ground" perspective to the conversation, and hopefully both add some insight into the discourse, as well as debunk some truths being espoused as absolutes.
First, let's address First Solar:
1. Market Reaction to the Q3 Earnings Release - The stock plunge after the Q3 earnings release is simply common knee-jerk reaction to headlines in a real-time world. It's common, and frankly if I held a substantial position in First Solar, would inspire not much more than a yawn. Earnings and revenue are up substantially. The sell-off was due to First Solar not being able to recognize revenue attributable to a specific project until Q4 (Note: In a balance-sheet world, I would be up someone's tail if I were the CEO, a gifted CFO always ensures you don't miss earnings based on revenue recognition GAAP rules - I'm not saying I would pursue something illegal, quite the opposite, there are times GAAP simply doesn't reflect the true fiscal situation of a corporation, ESPECIALLY a fast-growing technology firm). When examined, the project is absolutely solid, and First Solar will have to post the revenue in Q4. Nothing we tech sector veterans have not seen a million times.
2. Company Performance and Trends - Late Wednesday, the company reported a 55 percent leap in third-quarter earnings on a 38 percent increase in revenue. But sales of $480.9 million missed the average analyst estimate of $528.8 million, as measured by a Thomson Reuters survey. This is a timing issue based on revenue recognition, not a revelation of weakness within the company or the solar sector. "This is truly a timing issue," Chairman Mike Ahearn said on a conference call with analysts. "That project has been sold, the contract wasn't signed until early in the fourth quarter. We remain on track for annual guidance." First Solar has some fantastic fundamentals in a sector that is prime to explode for the macro-reasons I list later in this posting. Bottom line: First Solar should remain the low-cost industry leader for the foreseeable future and will likely gain share value in large-scale projects.
3. Market Penetration - If First Solar navigates current conditions effectively, they will still have tremendous upside with their first-to-market (FTM) leadership position in residential rooftop installations in the U.S. - in technology sectors, never discount the critical FTM factor. Many inferior models have thrived simply based on this factor alone.
Second, let's quickly take a look at the solar industry from cruise altitude, so we can factor industry trends into any analysis of solar-related investments:
1. The Truth About Germany - German feed-in tariffs and other incentives indeed spurred the acceleration of solar energy projects in that nation, and they have a large number of roof-installed solar systems. Critics are always so fast to glance at a number or article and then convey them not as opinions, but as absolutes. But I suggest to be sure to do your due-diligence. Germany has horrid solar generation conditions, averaging only four sun-hours per day. So yes, it is not going to displace other traditional forms of energy generation. But be careful to state it has failed, because that was never the point. Germany made a strategic move in investing a lot of capital in solar energy generation - to attain industry leadership. Germany now possesses the intellectual property and the manufacturing and export capacity that is expected to make it one of the three dominant global players in an industry that will be worth tens of billion dollars a year. Even today, it already has over 50,000 employees in the solar industry.
2. Rooftop Solar Energy Generation Systems - I continually hear, "We are not going to make any dent with only rooftop installments. We will only displace a couple of coal power plants, at best." I have irrefutable evidence to the opposite - I personally have dozens of rooftop installation projects I can share with anyone, anytime, that have eliminated a homeowner's entire energy bill. These installations were in Arizona and California, primarily in desert regions, where averages of 7-8 sun-hours per day are common. So to take the above often-repeated statement-of-fact further, indeed if we extrapolated that on a much larger scale, and there are several hundred thousand homes in the Phoenix metro area with rooftop installations that are 100% offsetting their energy bills, we can displace more than a "couple of coal power plants at best." So that is indeed not an absolute fact - it's actually very much incorrect.
3. End-User Return-on-Investment - As far as overall return-on-investment, we have a program in place with realtors and have executed several successful case studies in Phoenix and Palm Springs that are clear in showing it has a significant ROI on a homeowners capital investment - better returns than most places you could deploy that capital in this economy. When you combine government subsidies that help offset a significant portion of the homeowners out-of-pocket up-front costs with the lift on property values in this real estate market (with 20-year warranties on the balance-of-systems, you are selling a home that does not have an electricity bill attached to it - a powerful hedge against future energy and inflation cost increases), the resultant ROI is powerfully conclusive in these markets that residential solar installations are absolutely viable.
4. Long-Term Outlook for Solar - The longer-term outlook is cloudier, but trends positive. Government funding, as well as funding from the private sector, has been flowing strong into the solar industry. That is a leading indicator - "follow the flow,", as we say in Silicon Valley. But that isn't sustainable long-term - the key metric to follow is the LCOE (Levelized Cost-of-Energy), or LEC (Levelized Energy Cost), two different names for the exact same thing. It is an economic assessment of the cost the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital. A net present value calculation is performed and solved in such a way that for the value of the LEC chosen, the project's net present value becomes zero. Typically LECs are calculated over 20 year lifetimes, and are given in the units of currency per kilowatt-hour, for example USD/kWh or EUR/kWh or per megawatt-hour. Solar's LEC must come down to the level of other, traditional energy generation sources for it to truly gain critical mass and the accelerated investment and deployment that comes with it.
5. The Green Culture Cannot be Discounted - Another powerful force isn't a quantifiable metric but must be factored when forecasting the solar industry, which is the cultural and societal push to renewable Energy, both domestic and internationally. The United States has been effectively put in the position of either taking over the leadership of the GreenTech sector, and the climate debate, as only the U.S. can do, or find ourselves behind Europe and Asia in a technology sector absolutely critical to the economy. And effectively there is no choice - whether you believe in global warming or Renewable Energy, we are jumping on the train because we must.
6. The Smart Grid Impact - The Smart Grid's evolution and the corresponding innovations will have a dramatic effect on Solar's LEC. The Smart Grid is in its infancy, so we will see its impact on Renewable Energy sources and their net efficiencies over the next 5-10 years start to be realized. I cannot stress enough how critical a factor the Smart Grid will have on the entire energy industry, and the result of its impact simply cannot be forecasted yet - by the Smart Grid's very nature, there are too many variables to accurately analyze and draw a clear conclusion.
7. Solar Component Oversupply Issue - The oversupply of solar panel units does indeed have an impact on First Solar, but it is a net-positive for the industry as a whole for obvious reasons. Case-in-point, China's Solar production capacity has increased substantially (both qualitative and quantitative, I have seen impressive bench test results from very low costs panels as compared to expensive established brands, and the build quality is impressive), and the impact of a downward pressure of solar panel components will continue to effect LEC in a positive manner for the solar industry as a whole.
8. The Federal Government Impact - Finally, at least in the near-term, we have an Administration and Congressional body that, right, wrong or indifferent, is dedicated to continue investment substantial sums into the GreenTech industry, solar very much included. And the investment is coming both directly and in the form of subsidies and tax-credits. It's stunningly substantial when I can eliminate 75% of a homeowner's out-of-pocket initial costs of a rooftop solar energy system. That cannot be discounted, again in the near-term.
Just some insights to consider when you look at the solar landscape from a macro-level. I hope it is helpful!
Disclosure: No holdings in any of the companies referenced in this article.
First, let's address First Solar:
1. Market Reaction to the Q3 Earnings Release - The stock plunge after the Q3 earnings release is simply common knee-jerk reaction to headlines in a real-time world. It's common, and frankly if I held a substantial position in First Solar, would inspire not much more than a yawn. Earnings and revenue are up substantially. The sell-off was due to First Solar not being able to recognize revenue attributable to a specific project until Q4 (Note: In a balance-sheet world, I would be up someone's tail if I were the CEO, a gifted CFO always ensures you don't miss earnings based on revenue recognition GAAP rules - I'm not saying I would pursue something illegal, quite the opposite, there are times GAAP simply doesn't reflect the true fiscal situation of a corporation, ESPECIALLY a fast-growing technology firm). When examined, the project is absolutely solid, and First Solar will have to post the revenue in Q4. Nothing we tech sector veterans have not seen a million times.
2. Company Performance and Trends - Late Wednesday, the company reported a 55 percent leap in third-quarter earnings on a 38 percent increase in revenue. But sales of $480.9 million missed the average analyst estimate of $528.8 million, as measured by a Thomson Reuters survey. This is a timing issue based on revenue recognition, not a revelation of weakness within the company or the solar sector. "This is truly a timing issue," Chairman Mike Ahearn said on a conference call with analysts. "That project has been sold, the contract wasn't signed until early in the fourth quarter. We remain on track for annual guidance." First Solar has some fantastic fundamentals in a sector that is prime to explode for the macro-reasons I list later in this posting. Bottom line: First Solar should remain the low-cost industry leader for the foreseeable future and will likely gain share value in large-scale projects.
3. Market Penetration - If First Solar navigates current conditions effectively, they will still have tremendous upside with their first-to-market (FTM) leadership position in residential rooftop installations in the U.S. - in technology sectors, never discount the critical FTM factor. Many inferior models have thrived simply based on this factor alone.
Second, let's quickly take a look at the solar industry from cruise altitude, so we can factor industry trends into any analysis of solar-related investments:
1. The Truth About Germany - German feed-in tariffs and other incentives indeed spurred the acceleration of solar energy projects in that nation, and they have a large number of roof-installed solar systems. Critics are always so fast to glance at a number or article and then convey them not as opinions, but as absolutes. But I suggest to be sure to do your due-diligence. Germany has horrid solar generation conditions, averaging only four sun-hours per day. So yes, it is not going to displace other traditional forms of energy generation. But be careful to state it has failed, because that was never the point. Germany made a strategic move in investing a lot of capital in solar energy generation - to attain industry leadership. Germany now possesses the intellectual property and the manufacturing and export capacity that is expected to make it one of the three dominant global players in an industry that will be worth tens of billion dollars a year. Even today, it already has over 50,000 employees in the solar industry.
2. Rooftop Solar Energy Generation Systems - I continually hear, "We are not going to make any dent with only rooftop installments. We will only displace a couple of coal power plants, at best." I have irrefutable evidence to the opposite - I personally have dozens of rooftop installation projects I can share with anyone, anytime, that have eliminated a homeowner's entire energy bill. These installations were in Arizona and California, primarily in desert regions, where averages of 7-8 sun-hours per day are common. So to take the above often-repeated statement-of-fact further, indeed if we extrapolated that on a much larger scale, and there are several hundred thousand homes in the Phoenix metro area with rooftop installations that are 100% offsetting their energy bills, we can displace more than a "couple of coal power plants at best." So that is indeed not an absolute fact - it's actually very much incorrect.
3. End-User Return-on-Investment - As far as overall return-on-investment, we have a program in place with realtors and have executed several successful case studies in Phoenix and Palm Springs that are clear in showing it has a significant ROI on a homeowners capital investment - better returns than most places you could deploy that capital in this economy. When you combine government subsidies that help offset a significant portion of the homeowners out-of-pocket up-front costs with the lift on property values in this real estate market (with 20-year warranties on the balance-of-systems, you are selling a home that does not have an electricity bill attached to it - a powerful hedge against future energy and inflation cost increases), the resultant ROI is powerfully conclusive in these markets that residential solar installations are absolutely viable.
4. Long-Term Outlook for Solar - The longer-term outlook is cloudier, but trends positive. Government funding, as well as funding from the private sector, has been flowing strong into the solar industry. That is a leading indicator - "follow the flow,", as we say in Silicon Valley. But that isn't sustainable long-term - the key metric to follow is the LCOE (Levelized Cost-of-Energy), or LEC (Levelized Energy Cost), two different names for the exact same thing. It is an economic assessment of the cost the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital. A net present value calculation is performed and solved in such a way that for the value of the LEC chosen, the project's net present value becomes zero. Typically LECs are calculated over 20 year lifetimes, and are given in the units of currency per kilowatt-hour, for example USD/kWh or EUR/kWh or per megawatt-hour. Solar's LEC must come down to the level of other, traditional energy generation sources for it to truly gain critical mass and the accelerated investment and deployment that comes with it.
5. The Green Culture Cannot be Discounted - Another powerful force isn't a quantifiable metric but must be factored when forecasting the solar industry, which is the cultural and societal push to renewable Energy, both domestic and internationally. The United States has been effectively put in the position of either taking over the leadership of the GreenTech sector, and the climate debate, as only the U.S. can do, or find ourselves behind Europe and Asia in a technology sector absolutely critical to the economy. And effectively there is no choice - whether you believe in global warming or Renewable Energy, we are jumping on the train because we must.
6. The Smart Grid Impact - The Smart Grid's evolution and the corresponding innovations will have a dramatic effect on Solar's LEC. The Smart Grid is in its infancy, so we will see its impact on Renewable Energy sources and their net efficiencies over the next 5-10 years start to be realized. I cannot stress enough how critical a factor the Smart Grid will have on the entire energy industry, and the result of its impact simply cannot be forecasted yet - by the Smart Grid's very nature, there are too many variables to accurately analyze and draw a clear conclusion.
7. Solar Component Oversupply Issue - The oversupply of solar panel units does indeed have an impact on First Solar, but it is a net-positive for the industry as a whole for obvious reasons. Case-in-point, China's Solar production capacity has increased substantially (both qualitative and quantitative, I have seen impressive bench test results from very low costs panels as compared to expensive established brands, and the build quality is impressive), and the impact of a downward pressure of solar panel components will continue to effect LEC in a positive manner for the solar industry as a whole.
8. The Federal Government Impact - Finally, at least in the near-term, we have an Administration and Congressional body that, right, wrong or indifferent, is dedicated to continue investment substantial sums into the GreenTech industry, solar very much included. And the investment is coming both directly and in the form of subsidies and tax-credits. It's stunningly substantial when I can eliminate 75% of a homeowner's out-of-pocket initial costs of a rooftop solar energy system. That cannot be discounted, again in the near-term.
Just some insights to consider when you look at the solar landscape from a macro-level. I hope it is helpful!
Disclosure: No holdings in any of the companies referenced in this article.
Sunday, October 25, 2009
Bye, Bye Love: Leaving My iPhone for Droid
You never forget your first love. Even harder is breaking up when you love the whole family that surrounds your love. But, as Gordon Lightfoot once sang, "I don't know where we went wrong, but the feelings gone and I just can't get it back..."
The iPhone has finally lost my heart. It was a wonderful relationship, one I'll always have cherished memories of. I own a ton of Apple (APPL) products, and I have been extremely happy with all of them. But I have to move on from the iPhone. Otherwise, I am either going to lose my mind, or my life from a stress-induced heart attack. So fitting: I literally just dropped yet another call on my iPhone as I type these words. Enough is enough. It's time to pen a farewell, and look forward to the hot new smart phone in town that has all the guys attention: Droid.
I'm hoping Droid isn't another one of those sleek smart phones that charges into town, gets everyone excited, and then lets us down. But from both the reports I am reading, and a few industry insiders that have actually gotten their hands on working models I've spoken to, the Droid should be a contender. I think a lot of the rhetoric is overheated - this won't "bury the iPhone," as a noted technology columnist breathlessly wrote last week. But I think this is the device that will finally give the iPhone a competitor. I know one thing - I am just overwhelmed with excitement at the thought of calls not dropping at mind-boggling regularity.
If the initial reports we are hearing are accurate, this will provide the Google (GOOG) Android OS platform the traction we have all been waiting to see. I have used the iPhone since it was introduced, and have always immediately upgraded when the new versions have been released since. I have owned too many Macs to recall, and I have the Apple TV, the Time Capsule - suffice it to say, I like Apple products. But my iPhone actually hit the wall last Thursday after the 11th - I am not exaggerating, the 11th - drop on a VERY important call conference call. Now, I am fairly even-tempered, and have always chalked up the iPhone's dropped calls and terrible reception problem as one to live with in exchange for what I feel is the technology invention of the decade.
But eleven dropped calls over the course of an hour? And it wasn't like I was in a parking garage, or driving down a desert road through the mountains. I was in Los Angeles, on the fourth floor of a building. No one else on the call in the same office had a single drop. I hear and read it everywhere - it's AT&T (T), it's the iPhone, it's almost solved, etc. But now, I am actually doing the unthinkable - I am going to give the Droid a try.
Reasons Beyond the Dropped Calls Issue for Migrating to Droid
There are a few reasons for the switch to Droid, which is a major deal for an Apple guy like myself. Lately, I have been utilizing a lot more of Google's products, and have had a very positive experience with them. I am using Google Wave, a truly revolutionary product that, once a lot of bugs are worked out (it's complex new technology in early, early beta, but even so....wow, it's a game-changer), is going to go vertical quickly. I am in the GreenTech industry, and knowing a few senior executives at Google (who were the guys that finally convinced me to give all their products a test drive, and now I'm using a lot of them full-time), Google's PowerMeter is just a a tippy-toe of their plans for the Smart Grid. I started using Google Docs - solid, cloud-based solution, not as sleek as Apple's iWorks software products, but perfectly fine for day-to-day documents. Google Voice is my next trial, and I hear great things - including fantastic synergistic ability with the Droid.
So, all-in-all, Google continues to impress me. And if Droid truly does gain the critical mass the pundits are predicting, I am expecting a lot of these Google products will have some special integration abilities or applications to optimize their use on Android OS mobile devices. And, yes, mobile application programmers will begin to really push Android mobile apps out, I know many mobile app firms, and for a year, I have heard "once Android has enough market share..." way too many times. It won't be the landslide overheated pundits are breathlessly proclaiming. But will finally begin to see that acceleration compression point in Android application development needed to make the Droid a viable contender to the iPhone.
This leads me to a few final conclusions:
1. Droid is not an "iPhone Killer" - Droid won't be what is considered "Disruptive Technology," but could be a "Disruptive Innovation," and perhaps accelerate the pace of mobile smart-device adoption rates. But until we actually see the phone, and it has a few months on the market, the rhetoric needs to cool down (I was at CES when the PalmPre was debuted there, and people were exclaiming the iPhone was dead - neat device, but the iPhone keeps on trucking).
2. Clear and Present Danger to Apple is the iPhones Phone Feature - I love the statement, "I love everything about the iPhone except the phone feature. I don't know if it's the phone's design, if it's AT&T (I have never used another device on the AT&T network), if it's all of AT&T's bandwidth being swallowed by data-transfer overload - and I don't care anymore. I am trying the Droid, but will keep my iPhone, and by Christmas I will decide on the winner. I will not go into 2010 having daily dropped calls. I travel quite a bit, and I can find no geographical sense to it - my iPhone drops calls everywhere, my friend's iPhones drop calls...I am a devoted Apple fan, but something must be done. If a MacHead has had it, I must assume many are frustrated as well. I hear great things about Verizon (VZ) - I know I was using T-Mobile (DT) and a Blackberry prior to iPhone's arrival, and I never had a major issue with dropped calls.
3. Droid Will Hit Other Smart Phone Devices Harder Than it Hits iPhone - My strong opinion is, if Droid is everything we are hearing, and if the pricing news I hear is correct, Research in Motion (RIMM), Palm (PALM), Nokia (NOK)and others will feel Droid's debut harder than Apple. The iPhone may experience a slowing of their growth in the 30+ demographic, but all the data I have seen regarding smart phone devices suggests it's the 30+ users that are ripe and ready to be picked by Motorola (MOT).
4. Do Not Discount the Advantage Apple's Brand and Marketing Has Over Droid - Which phone will attract more first-time smart phone users remains to be seen. Apple's marketing (brilliant, and their agency, TBWA/Chiat/Day (OMC), are the absolute kings of "return fire messaging" - their new spots (Broken Promises is my favorite) mocking Windows 7 are fantastic creative), their overwhelming market share lead, the seamless integration with iTunes, the "cool" factor directly related to the iPhone's core demo (younger, affluent, hipsters, Gen Y and X, creative, etc) and finally, Apple's ability to innovate like no other consumer technology company on the planet, leads me to think Droid has it's work cut out for it to "bury" the iPhone. Also, the Apple brand is powerful - in The Centre for Brand Analysis' 2009 "CoolBrands" Study, Apple just absolutely dominated for the 5th straight year: iPhone was #1, Apple #3, and iPod #4. And while Google was a strong #8, they are starting to take a beating as they have grown so large - America loves the underdog, and Google is evolving into "The Evil Empire", taking that crown from Microsoft (MSFT). Additionally, many marketing surveys are showing consumers are not linking the Google, Android and Droid brands together - I can tell you I have had way too many people ask me what in the world that Droid spot was selling. The Droid spots are a classic example of very clever creative, winning rave reviews from many inside the advertising industry - but leaving consumers wondering what the hell was that all about?
5. The iPhone is a Gaming Device - An important factor often overlooked as we try to predict future market share in the smart phone category is Apple's tight relationship with the gaming industry. Games are predicted to make up 25% of all iPhone applications by next year, and a recent DFC Intelligence report has predicted the iPhone will overtake BOTH Nintendo (NTDOY.PK) and Sony (SNE) for the lead in portable gaming device sales by 2014. Apple is well aware of this, and has heartily embraced gaming companies. I am also aware from insiders Apple is fully consulting with major gaming players in regards to future generation iPhones. Gaming is a fantastic sector to be part of, and will continue growing. Droid, and the Android OS, has an almost insurmountable disadvantage, being so late to the game, and leaving application developers the difficult task of programming games for an operating system deployed on multiple hardware executions (a game that rocks on Droid may be terrible on the MyTouch, for example). And again, back to branding - Android doesn't mean anything to a gamer, nor does Motorola or Verizon - and none of these brands are even close to Apple in terms of the buzz factor, important to the primary gamer demographic profile.
No One on the Corner Has Swagger Like Apple
There are a few reasons for the switch to Droid, which is a major deal for an Apple guy like myself. Lately, I have been utilizing a lot more of Google's products, and have had a very positive experience with them. I am using Google Wave, a truly revolutionary product that, once a lot of bugs are worked out (it's complex new technology in early, early beta, but even so....wow, it's a game-changer), is going to go vertical quickly. I am in the GreenTech industry, and knowing a few senior executives at Google (who were the guys that finally convinced me to give all their products a test drive, and now I'm using a lot of them full-time), Google's PowerMeter is just a a tippy-toe of their plans for the Smart Grid. I started using Google Docs - solid, cloud-based solution, not as sleek as Apple's iWorks software products, but perfectly fine for day-to-day documents. Google Voice is my next trial, and I hear great things - including fantastic synergistic ability with the Droid.
So, all-in-all, Google continues to impress me. And if Droid truly does gain the critical mass the pundits are predicting, I am expecting a lot of these Google products will have some special integration abilities or applications to optimize their use on Android OS mobile devices. And, yes, mobile application programmers will begin to really push Android mobile apps out, I know many mobile app firms, and for a year, I have heard "once Android has enough market share..." way too many times. It won't be the landslide overheated pundits are breathlessly proclaiming. But will finally begin to see that acceleration compression point in Android application development needed to make the Droid a viable contender to the iPhone.
This leads me to a few final conclusions:
1. Droid is not an "iPhone Killer" - Droid won't be what is considered "Disruptive Technology," but could be a "Disruptive Innovation," and perhaps accelerate the pace of mobile smart-device adoption rates. But until we actually see the phone, and it has a few months on the market, the rhetoric needs to cool down (I was at CES when the PalmPre was debuted there, and people were exclaiming the iPhone was dead - neat device, but the iPhone keeps on trucking).
2. Clear and Present Danger to Apple is the iPhones Phone Feature - I love the statement, "I love everything about the iPhone except the phone feature. I don't know if it's the phone's design, if it's AT&T (I have never used another device on the AT&T network), if it's all of AT&T's bandwidth being swallowed by data-transfer overload - and I don't care anymore. I am trying the Droid, but will keep my iPhone, and by Christmas I will decide on the winner. I will not go into 2010 having daily dropped calls. I travel quite a bit, and I can find no geographical sense to it - my iPhone drops calls everywhere, my friend's iPhones drop calls...I am a devoted Apple fan, but something must be done. If a MacHead has had it, I must assume many are frustrated as well. I hear great things about Verizon (VZ) - I know I was using T-Mobile (DT) and a Blackberry prior to iPhone's arrival, and I never had a major issue with dropped calls.
3. Droid Will Hit Other Smart Phone Devices Harder Than it Hits iPhone - My strong opinion is, if Droid is everything we are hearing, and if the pricing news I hear is correct, Research in Motion (RIMM), Palm (PALM), Nokia (NOK)and others will feel Droid's debut harder than Apple. The iPhone may experience a slowing of their growth in the 30+ demographic, but all the data I have seen regarding smart phone devices suggests it's the 30+ users that are ripe and ready to be picked by Motorola (MOT).
4. Do Not Discount the Advantage Apple's Brand and Marketing Has Over Droid - Which phone will attract more first-time smart phone users remains to be seen. Apple's marketing (brilliant, and their agency, TBWA/Chiat/Day (OMC), are the absolute kings of "return fire messaging" - their new spots (Broken Promises is my favorite) mocking Windows 7 are fantastic creative), their overwhelming market share lead, the seamless integration with iTunes, the "cool" factor directly related to the iPhone's core demo (younger, affluent, hipsters, Gen Y and X, creative, etc) and finally, Apple's ability to innovate like no other consumer technology company on the planet, leads me to think Droid has it's work cut out for it to "bury" the iPhone. Also, the Apple brand is powerful - in The Centre for Brand Analysis' 2009 "CoolBrands" Study, Apple just absolutely dominated for the 5th straight year: iPhone was #1, Apple #3, and iPod #4. And while Google was a strong #8, they are starting to take a beating as they have grown so large - America loves the underdog, and Google is evolving into "The Evil Empire", taking that crown from Microsoft (MSFT). Additionally, many marketing surveys are showing consumers are not linking the Google, Android and Droid brands together - I can tell you I have had way too many people ask me what in the world that Droid spot was selling. The Droid spots are a classic example of very clever creative, winning rave reviews from many inside the advertising industry - but leaving consumers wondering what the hell was that all about?
5. The iPhone is a Gaming Device - An important factor often overlooked as we try to predict future market share in the smart phone category is Apple's tight relationship with the gaming industry. Games are predicted to make up 25% of all iPhone applications by next year, and a recent DFC Intelligence report has predicted the iPhone will overtake BOTH Nintendo (NTDOY.PK) and Sony (SNE) for the lead in portable gaming device sales by 2014. Apple is well aware of this, and has heartily embraced gaming companies. I am also aware from insiders Apple is fully consulting with major gaming players in regards to future generation iPhones. Gaming is a fantastic sector to be part of, and will continue growing. Droid, and the Android OS, has an almost insurmountable disadvantage, being so late to the game, and leaving application developers the difficult task of programming games for an operating system deployed on multiple hardware executions (a game that rocks on Droid may be terrible on the MyTouch, for example). And again, back to branding - Android doesn't mean anything to a gamer, nor does Motorola or Verizon - and none of these brands are even close to Apple in terms of the buzz factor, important to the primary gamer demographic profile.
No One on the Corner Has Swagger Like Apple
When asked about the new competition, Tim Cook, Apple's COO, responded, "“I think they’re trying to catch up with the first iPhone that we released two years ago, and we’ve long since moved beyond that." That is swagger Jay-Z would be proud of.
And the facts back that up: In Apple's latest earnings statement, "iPhone sales grew 7 percent from the same period last year. During the entire fiscal year, Apple sold about 21 million iPhones, a 78 percent increase from the previous year." That number may have been even higher, but the company had some trouble meeting the demand. And Apple didn't take advantage of the new GAAP accounting rule changes as they apply to iPhone and accounting of future subscription earnings, which would have lifted the numbers even higher. Although the changes won't affect Apple's actual cash flow, they will see large benefits from a technical and sentiment perspective, and their corresponding lift on the company's stock price and valuation. Key benefits from the changes:
And the facts back that up: In Apple's latest earnings statement, "iPhone sales grew 7 percent from the same period last year. During the entire fiscal year, Apple sold about 21 million iPhones, a 78 percent increase from the previous year." That number may have been even higher, but the company had some trouble meeting the demand. And Apple didn't take advantage of the new GAAP accounting rule changes as they apply to iPhone and accounting of future subscription earnings, which would have lifted the numbers even higher. Although the changes won't affect Apple's actual cash flow, they will see large benefits from a technical and sentiment perspective, and their corresponding lift on the company's stock price and valuation. Key benefits from the changes:
- Inflows from quant driven strategies and retail investors as AAPL shares will screen cheaper on “New” GAAP consensus estimates vs. “Current” GAAP (19x vs. 23x)
- Likelihood of larger earnings surprises given analysts have consistently underestimated iPhone gross margins which have ranged between 50-60% over the last year
The bottom line is that the new rules allow Apple to recognize the majority of the revenue and direct costs of an iPhone upfront (estimated 95%), shifting value from the balance sheet to the income statement.
Overall, it's much too early to make any serious statements about an "iPhone Killer." Yeah, I am excited, I will get one the first day, and I am going to give it until Christmas before I official stop using my iPhone. I do think it's great for the mobile space as a whole that Android is finally getting the traction it needs, and I was a devoted Motorola guy WAY back in the day - it would be great to see Droid be the beginning of their comeback.
One thing for sure, I am excited to get my hands on it and see if Droid lives up to the hyper-buzz!!!
Disclosure: No holdings in any of the companies referenced in this article.
Tuesday, August 25, 2009
No Size Limit to Ride the Smart Grid!
October 25, 2009 - Phoenix, AZ: It's State Fair season again in Phoenix, Arizona, one of two cities in the Southwest I like to call home (with Los Angeles being the other). As I was driving past the fair last week, I marveled at all the rides, from the old favorites to some new, scarier-looking variants. And I looked at all the working parts that held those thrilling rides together - and yet they must be disassembled quickly, loaded onto trucks, and hurried on to thrill another county of fairgoers. To think of all the factors involved in the engineering process - speed, movement, safety, reliability, easy assembly, size limitations for their disassembled pieces - it was truly something to admire. Just before I drove on, I noticed the ubiquitous size limitation signs we all ran up to as children, fingers-crossed that we had grown enough in the past year to finally hop on the big rides. At that very moment, I was on the speaker phone with several Smart Grid executives, one from a large player, and three from smaller start-ups with exciting technology that is currently gaining critical traction in the marketplace. The discussion was a friendly little debate on what role the giants getting involved in the Smart Grid space - companies with household names like Google, Oracle, IBM, General Electric, large utilities and of course, the giant among giants - the Federal Government - would have in terms of their effect on the multitude of smaller Smart Grid contributors. Two thoughts clicked immediately - first, I had just figured a catchy little title for this article - and second, when we stand back, as I did at the fairgrounds, and give a long, wide look at all the working pieces that will integrate and interoperable with each other, you get that same staggering feeling, marveling at both existing pieces, as well as the possibilities. With all the buzz surrounding the Smart Grid, I wanted to further explore the subject of that friendly little debate in my car - will the large players dominate the Smart Grid evolution, dictating standards that may or may not inhibit innovation, or, like the Internet, will startups have a chance to thrive on the Grid, providing the constant innovation that, in my opinion, will be critical to ensuring the optimum evolutionary path the Smart Grid takes.
The large firms entering the space as enthusiastically as they are is by no means a bad thing, from any vantage point. Google and GE and Oracle are bringing large amounts of funding, fantastic technology, and very important experienced leadership into the space. It has created the start of the big momentum swing, and both the present Smart Grid solutions and platforms, as well as what is on the drawing board for both near-term and longer-term deployment, is fantastically impressive. The Smart Grid will soon be a household term as it begins to touch end-users in many ways, and is an absolutely critical piece of our nation's energy distribution scheme. It will improve efficiencies and save energy, which has been the primary focus during its current infancy stage. As it evolves, and innovations begin to dramatically increase the Grid's capabilities, the potential impact on the United States economy cannot be overstated. It will change the way we consume and generate energy; it will lead to the discovery of revolutionary new transmission strategies, including the wireless transmission of electricity and space-based electricity generation; it will effect what we drive and how we drive; it will impact industrial production immensely; it will create giant energy markets where various energy sources (not just electricity, but soon fossil fuels and even water distribution); it will lead to dramatic changes in all our electric household appliances; it will usher in a major period of software applications that will utilize the real-time Smart Grid data for numerous executions; ultimately, it will begin a very lucrative transformation period for the United States economy, resulting in a golden period for the US economy; and it will provide the U.S. Economy an extraordinary advantage in the global market.
Can the Smart Grid truly be this large of an opportunity?
Our analysis says it is an opportunity of a very large magnitude, and will positively impact the economy much stronger than the Internet did in the 90's, ushering in the "GreenTech Revolution" period. , and the largest technology companies are all incepting Smart Grid divisions, preparing for the oncoming opportunity. Google will be a force to reckon with as the Smart Grid begins to gain traction in the next 24 months - they are dedicating not only large amounts of capital to Smart Grid initiatives, but under the radar, a lot of their Tier One talent base. That dedication of elite talent at Google to the Smart Grid and other GreenTech initiatives should not be overlooked, that talent is one of Google's most valuable assets. Google also has strong ties to the current Administration, which is certain to dictate some of the standards of the Smart Grid as it evolves. And Google is also very active in funding smaller Smart Grid players, as well as actively looking for tactical start-up acquisitions and strategic partners in its PowerMeter initiative (www.google.org/powermeter). The Smart Grid activities of Google, Oracle, IBM and other major technology providers is a clear indicator at the macro-level that the Smart Grid is ready for an accelerated growth stage, and there are limitless opportunities for investors and entrepreneurs to fulfill the growing needs of GreenTech and the Smart Grid sector.
Let's look at the Smart Grid's current evolutionary stage by way of comparison to the Internet's early days and evolution, with the caveat that they are two different animals, but both trying to accomplish the same thing - lightening fast communication of massive amounts of critical data. One important point of differentiation as we make this analogy between the Smart Grid and the Internet is that the Smart Grid's data is directly tied to the efficient, coordinated distribution of the United States' electricity and energy capacity, a CRUCIAL component of social, economic and national security for our nation. This will inevitably require federal, state and local government involvement, as well as involvement from the utilities and the actual energy generators - LOTS of input points that will not allow the Smart Grid to evolve quite as organically as the Internet has, at least in these first few years. Inevitably, to accelerate growth, investment and continual innovation, Smart Grid communication platform standards will have to emerge at several levels. There are so many small working pieces needed as a large national Smart Grid comes to fruition, we will see constant innovation in a fast-paced environment, just like we saw with the Internet.
To further illuminate the issues raised above regarding data transfer platforms, here is a good (if a bit old) article that lays out the communication platform standards and some of the players from GreenTechMedia.com:
To quickly illustrate a glimpse of the opportunity, here are four very general examples:
1. The Actual Smart Meter - The actual meter hardware, and what communication platform will be used to read it (radio frequency mesh networks, Wi-Fi, Wi-Max, the use of Internet Protocol throughout the stages of data collection, etc) and transmit that information to both the end-user and the utility. The processes and data transfer platforms chosen will dictate how truly real-time inbound data is. One cautionary note: the Smart Meter is the pivot point, if you will, of the Smart Grid - it serves as the connection between all the Smart Grid applications inside a residential or commercial building, and the utility companies, who will desire as much energy usage information as possible to aggregate and analyze, to determine with as much quality real-time intelligence instant energy distribution decisions. That explained, there is a 20% pocket of the public that resists sharing data, viewing it as an invasion-of-privacy that could be abused in some fashion. The Internet and cable providers have faced it, Google Maps has faced it and now allows users some blockage ability of their satellite imagery, and the Smart Grid very much will face this challenge. The public currently holds a very low opinions of the energy and utility companies. And the potential that through these Smart Meters and Smart Appliances, data regarding activities inside their own homes will be beamed to utilities, energy corporations, marketplaces, and even state and federal governments, is already starting to cause grumblings. The industry should be well-prepared to combat many of the myths of the Smart Grid, provide information on what actual data the Smart Meters transfer, who exactly receives that data, and how that data is used.
2. The End-User Touchpoints - Basically, the different ways the energy consumption intelligence is communicated to the end-users. We have seen many existing, upcoming and proposed solutions for both residential and commercial energy management systems - wall-mounted touchscreen dashboards, online-accessible dashboards with remote command-and-control ability (your Smart Grid software has analyzed and suggested, based on the current kWh tier cost, the time-of-day, the afternoon weather data it's being fed in real-time - clouds moving in and falling outdoor temperature - to turn off your air-conditioner, which you remotely do on your laptop in an airport), mobile applications with the same remote ability as well as potentially mobile applications with automated command-and-control functionality (walking around your house with the latest PowerMeter application for your Google Android phone, you can turn on and off lights, appliances, etc), and I think critically, the role A.I. (Artificial Intelligence) will play to continually evaluate and improve your home's energy consumption efficiency automatically, putting many energy efficiency decisions on autopilot so we are not bogged down with yet another information stream to monitor (email, Twitter, newsfeeds, Google Wave - I don't want another thing to monitor, to be sure!) - the opportunities are endless for various data communication and energy management solutions on the end-user side. I'm excited daily by what I see evolving!
3. End-User "Smart" Home Appliances and Commercial Equipment - Smart Grid data will be fed to household appliances, as well as commercial equipment, and will be able to suggest, or simply implement automatically, energy management decisions based on real-time data being fed back-and-forth, improving efficiencies and lowering costs. If you load the dishwasher up and hit start, and it suggests based on the time-of-day you will save $3.24 to wait 38 minutes to run the machine based on the off-peak tier kWh cost, studies have shown consumers will wait the 38 minutes. In the cases of other home equipment - take pool pumps - they could be automatically set to run at off-peak times, and to not run during rain and wind storms based on weather data feeds (when those pop-up pool bottom cleaners are useless) to maximize savings without the end-user having to manage it on a constant basis. There are huge obvious advantages to commercial equipment applications, although in many cases, hours-of-operation and type-of-enterprise will dictate usage, and software will be developed to factor in that information as well. Imagine the commercial opportunities with real-time energy usage and management data to bring efficiencies into place, with energy costs being a major percentage of fixed overhead for many businesses.
4. Utility-Level Data Collection, Communication and Analysis - Obviously, huge enterprise-solution opportunities here on the macro-level, but also keep in mind all the different smaller pieces needed to collect, transfer, analyze and communicate that energy usage data. Some examples: the actual smart meters utilities are starting to install; the wireless reading devices utility companies will be purchasing to read those meters; the software and data collection hardware points (will they be inside the utility meter vehicle zipping by? Will the information read be immediately beamed via 3G or 4G wireless networks back to central data collection centers? Will newer developments have smart meters hardwired to high-speed data cable, enabling a secure, encrypted IP transfer of data via installed fiber? Or how about utilization of existing power lines with power line data communication...); utility-provided end-user data communication hardware and software package options; data interconnectivity platforms to other utility companies, state grids, and a federal grid for government oversight, management and emergency command-and-control capability; data interconnectivity platforms for real-time energy marketplaces, bringing free-market forces and their inherent efficiencies to the transfer and distribution of electricity and other energy sources, resulting in lower energy costs for end-users and higher profitability for energy generators by diverting power to peak-time demand geo-locations (I believe this will really help the Clean Energy sector, with their intermittent power generation sources like solar and wind, become more profitable, become a important part of the base-load that only traditional energy generation sources can provide today, and lower the all-important levelized cost-per-kWh to levels competitive with traditional fossil fuel energy sources). As you can see, lots of niche opportunities here as well.
Conclusion: Small Startups Will Play an Integral Role in the Smart Grid's Evolution
In conclusion, with so many working parts critical to the evolution of the Smart Grid, there are incredible opportunities for small, innovative startups to enter the Smart Grid space and achieve the type of stunningly-large success quickly that we witnessed with the Internet. There indeed are hurdles to clear in order to begin this acceleration compression point. The major hurdle facing many Smart Grid startups are the myriad of regulations, differing rules and very little in the way of standards. These barriers must be eliminated quickly, allowing innovation to dictate new emerging standards, not government bureaucracy or utility consortiums with self-interests dictating technologies and standards that may prove to severely inhibit growth and performance of the Grid. As I consult and invest in firms entering the Smart Grid sector, I am stressing the importance of keeping close watch on key indicators of the large players. It's critical for Smart Grid startups to weigh carefully the industry macro-trends and standards emerging as they develop their technologies and hardware solutions.
Some of the large Smart Grid company's indicators we are now keeping constant watch of:
- Strategic partners
- Future planning announcements
- Studying R&D budgets directed at the Grid - both budget allotment trends and obtaining as much intelligence on where those funds are being directed
- New product announcements and introductions, and their time frames
- Technologies, data communication platforms, and software solutions
- Interoperability and open-source trends, versus proprietary solutions
As we monitor and gather this intelligence, trends will begin to emerge and allow us to help smaller startup clients with recommendations based on where different areas of the Grid are trending, to ensure their killer application or hardware will not be rendered obsolete because of a certain data platform they designed their solution with fades into extinction a year after their product debut. My guess is if the current Administration moves in the next 12-24 months on setting federal Smart Grid standards for some of these communication and data touchpoints, keep a close eye on Google's activities (again, Google and the current Administration are tight, and Google has the clout, the reputation, the talent and the cash to move fast help dictate some of those standards).
This report is the launch of SolVentus Energy's weekly focus on the Smart Grid, with the goal of informing and assisting readers as you evaluate GreenTech, and Smart Grid, startup investment opportunities. We invite you to visit solventusenergy.com for further information.
Next Weeks Focus - Itron: For all the buzz surrounding Google and Oracle and GE, Itron is THE current Smart Grid industry leader. They have fantastic traction in the strategic first-to-market (FTM) play, and that has always been an important deciding factor in all things technology. They also are bringing on important synergistic partners, have fantastic solutions already in place and operating, and impressively, are a Google PowerMeter official strategic partner. We will focus on Itron in detail next week!
Disclosure: No holdings in any of the companies referenced in the comment.
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