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Sunday, August 19, 2018

Mailbag: Questions on Energous

I've been asked some questions on Energous and my recent posts, and rather than answer in the slightly-annoying-to-reply-in comments section here, or in private email, I thought I'd just answer them as a post in themselves. Nothing startlingly new here, for those who have read my prior posts, except for one thing. In the earnings call, CEO Rizzone talked about devices at the 5 to 15 Watts level, previously they'd claimed up to 5 Watts and 15 feet, so if he truly meant Watts, that's quite a bold new claim.

1) Has Energous implicitly conceded it cannot generate significant charging power in the near field, ergo its new focus on tertiary products?

I'll start with the most important point - this company has no products, and in my opinion, never will. To say otherwise is to play their game. Everything is turned on its head compared to other companies, all IMO of course. If the thinking of most of Energous' detractors is correct, the goal is not to release a product but to maintain interest in share purchase by large institutions, not to develop technology but to offer the fantasy of safe at-distance wireless charging, that marketing is the true innovation and money earner in the company, and engineering R&D is simply the necessary expense to maintain the illusion it's about products and technology. In summary, it's a very well run marketing company with large R&D expenses that is successfully extracting millions of dollars a year for the insiders.

Now to the 'technology'. I'm going to start covering the 'at a distance' application - basically the non-contact version, since I'm not sure you meant "near field" when you said "near field", and there are multiple definitions of that term being used. In physics terms, near-field and far-field refer to the regions of interference from radiation emitters. In simple terms near-field is close to the emitters where the field varies extensively (it's bumpy) while further out in the far-field it varies inversely with distance (it's smooth) - the image below from Wikipedia shows this. Where this transition happens is relative to the size of the transmitter and the wavelength of the radiation.


So for Energous there is the "contact" version of their charger, the "miniWattUp", which they position as a competitor to Qi, except it's less efficient, slower at charging, has no existing infrastructure, and isn't available (there are multiple product announcements that never make it to market, such as with Myant). Then they have the claim of "at-distance" charging, such as the "long range" device they've been promising for years at 15 feet and up to 5 Watts (now 15 Watts apparently), and the FCC Part 18 approved "mid range" device that will send at best 30 mW at 0.9 meters to a single device, requires a safety cutoff, and also isn't available.

I'm also careless with the use of the terms here, so in part I'm writing this to force myself to be more consistent - the confusion from Energous I think is deliberate, as it helps them with allowing the public to think whatever they want of the technology, rather than making them see it as it is.

Now to actually answering the question:

Energous seem to be careful not to bluntly lie, but let ignorance and laziness of press and investors do the work for them in drawing incorrect conclusions they want from what is said. For years they hinted about a "Tier One" they had a deal with, that they did everything bar say was Apple, until they finally had to give up on that one following AirPower last year - there's a post on some of that here. They deliberately confuse everyone by talking about "WattUp" which is a branding term for all their "products" such as the contact, mid, and far range devices. They also give demonstrations of products that are not FCC approved and exceed the SAR limits to get higher power levels and have people associate with the approved products. I cover some of that here.

In summer 2017 the CEO was already dialing back expectations in specific statements:

“As long as you’re in that 15-foot range, you’ll be charging. Small, small amount of energy. It’s not charging super fast, like you would be plugged in the wall, but a small amount of energy, trickle charging it. And as you put it down closer or farther away, the amount of power changes.”

I cover my opinion of the journalism that let him get away with that statement and no follow up here.

Rizzone says this again in January this year, in a Barron's article

As for five watts, “I don’t see it happening at 15 or 18 feet,” concedes Rizzone. More likely, he thinks Energous will be shipping at the end of 2019 systems that can charge devices such as wearables and smartphones at that distance, but perhaps only with a watt or two, perhaps only hundreds of milliwatts. 

Despite these statements, Rizzone makes claims in the earnings call this month that would lead people to believe 5 to 15 Watts charging is coming. It's no wonder people are still thinking that somehow you'll be charging at the same rate as a wire from the wall. If Energous ever end up in court on fraud claims, they can point to this and say "See, in major interviews we said it was a trickle charge, we never lied, they just interpreted it another way"

Regarding the contact version - The FCC reports for the latest contact device, the 2ADNG-NF130, shows two antenna each able to transmit just shy of 1 Watt. I assume they are at 90 degrees to one another to try to improve performance with receiver position. Given Qi charges at 5 to 7.5W there is literally no way, even at 100% efficiency, for this method to challenge the established market leader. FCC documents show this system charges at a maximum of 300 mW, so a tiny fraction of what is needed, and at no more than about 15% efficiency (Qi is usually 70%ish).

Now does anyone think that the far range transmitter is going to be better than one that's in contact?

So to answer the first question - they seem to almost deliberately confuse terms like feet and Watts, and give differing statements at different times. When Energous have no choice, or are on the record, they downplay performance and obfuscate. They have to know it won't work at the multi-watt level, there is no question there, but what can they badger the FCC into allowing, especially as it seems they have contacts at the top like Chairman Ajit Pai willing to break the normal rules for them. They have to keep this gravy train going for as long as they can, so let the rubes think the next great release is 18 months out perpetually. One thing I'll give to Energous, they are geniuses at how to milk this market.

Next question:

2) Given your assessment of its RF based technology and its limitations re SAR compliance, what could the basis be for Rizzone's claim on the call of achieving 5 to 15 watts for midfield?

Now let's get the first thing out the way - as with all at-a-distance wireless power transfer - is sending 5 to 15 Watts possible? Yes, of course it is. But you do not want to be anywhere near that thing, as it will be hideously dangerous to anyone around, and highly inefficient. So it is possible, just not in any vague sense practical or within SAR limits.

So in the real world, the basis is 'None'. It was always fantasy. This is like me claiming I can run a 3 minute mile, but I just need to train harder and I'll soon get there, maybe another 18 months... Now Energous claimed the 15 feet for the "far range" device in Jan 2015, to my knowledge this is the first time anyone has ever claimed 15 Watts for Energous. Either a slipup by the CEO, or a sudden increase in performance for this so-far nonexistent technology.

The "mid range" device was the one that got Part 18 approval last December, and only goes to ~100mW max, 0.9 meters max, at safety limits, so why would they be able to charge >50x faster at longer ranges? See the quote above where they admit it's less than a wall charger, so not even 5 Watts. Yes, Energous are inconsistent, but that helps them, confusion benefits their message as most people give up.

Looking at the physics, I don't think there's a practical combination of size and safety that results in an even vaguely useful amount of power received (impractical, maybe). That doesn't mean that they won't keep this deception going IMO, and pretend something ridiculous that games the system is coming and will have the fanboys salivating - but in any practical sense it will be pointless. Now, here's what he said in the call:

We expect to see the full impact of this next generation of chips towards the middle of next year, when we anticipate the first product releases to the consumer using our high power WattUp technology for quick charging and applications requiring 5 to 15 watts of charging power.

So that's just not going to happen. It's a year out, minimum, same as all their claims, then it's for applications that require 5 to 15 Watts, he doesn't say they'll actually provide it. Maybe the chips will do 5 to 15 Watts, but the antenna and rest of the system won't. This is definitely a "hopeful" statement and probably can be justified because they keep asking the FCC to approve their 5 to 15 Watt (feet?) device and keep getting told 'No, not safe'. I expect as the end gets closer, the statements will get a little riskier and them less careful about blatantly lying (see recent statements by CEOs of well known tech companies for examples...)

Next question:

3) It seems odd that Dialog would highlight its relationship among others with Energous in its latest press release. Merely justifying its investment and partnership seems unlikely to be the only reason; isn't there something material the partnership could realistically produce?

Yeah. Dialog. No one gets why they did this. I liken them to Safeway and Walgreens with Theranos, where stupidity at the CEO level over-rode all internal advice. They had warned it was possible they were going to lose some of Apple's business, and perhaps were desperate for a 'must have' technology to replace and got suckered, or maybe they knew it was a scam and after the share price hike got their money back out at a profit (looking at their quarterly reports, I don't think they did). I have no idea, it might be a great business school case study when this is all over. As for their statements, note that they make no press releases on Energous since January, and in quarterly reports they say the minimum they can and still be compliant with disclosure rules. This is not a relationship they want to promote right now.

Overall with Dialog I'd say "Stop trying to apply logic and sense to this decision, it's not there". Anyone who has worked in large businesses knows that even when there is a ton of money on the line, what the coal-face workers know are dumb-assed decisions still get made.

4) What do you see Energous doing next?

I see them continuing what they've been doing for the last few years, until the market or the SEC says they can't. What does this mean? Basically, gaming the system and abusing the poor diligence of both investors and press, to raise money from a hopeful public. If I had no scruples, what I'd do is try to find a way to weasel around the FCC rules on Part 18 on my long distance charging to get something that sends 10's of mW over 2 to 3 meters. Perhaps something impossibly large, say a 1 to 2m square array, to keep the W/kg down for SAR, and pushing the far-field boundary out for 'contained' energy. Maybe a safety cutoff variable with charge rate so at any useful rates no-one can be in the room, and if they can it charges at the sub-mW level, but the press and public will not understand that. It would be utterly useless and impractical, something that would never be viable as a product, but the press and investors will believe, because they have no idea what's actually just happened. (Alternatively, I'd get it approved under Part 15 at the sub mW level and then claim Part 18 is coming). Products will be announced for 18 months out, and that they've decided to cancel the contact and mid-range products to concentrate on the long range one, hence managing to excuse how they failed to deliver upon promised products.

At that point, stock price will spike, and they'll a) have the insiders sell their current holdings, b) raise more capital via stock, up to $75 million at the boosted price, to keep this thing going another couple of years, and c) reward themselves with more stock and bonuses. IIRC the CEO gets large bonuses if the market cap spikes beyond $1 billion (a $38.70 stock price assuming no more dilution). We may then see a company with a market cap of >$1 billion, with no products, and revenues in the high 5, low 6 figure range.

Basically, expect something to happen to goose the stock price. This trick worked last year, why not do it again? When someone is rewarded for a set of actions, they are incentivized to repeat. In the end, this stock is going to zero, IMO, but that doesn't mean it's not going to be a rollercoaster until then.

(Repeating the seemingly obligatory statement - I have no financial position, short or long, in Energous or any related company)

10 comments:

  1. For my part, thank you. All very clear and once again extraordinarily helpful on the issues of the engineering front (a subject curiously never discussed in their earnings calls), including the mild corrections to my questions. Btw, I should have said focus on tertiary "markets", rather than "products".

    And great explanation of their long game. Now, some minor notes:

    Rizzone could not have inadvertently crossed himself up re the mention of 15 watts instead of 15 feet, in that his exact phrasing was re. anticipation of products for "applications requiring 5 to 15 watts of charging power", although have to admit it isn't clear at what distance.


    Rizzone seemed to obfuscate things at least for me with his phrase: "the main focus of the company last quarter was on the first phase of Wireless Charging 2.0, specifically near field or contact-based transmitters..." Not clear if was he equating the two, or mentioning them as separate things.


    Lastly, to be fair, given that a substantial amount of 1H expenses were in the form of (non-cash) stock compensation, Energous "only" burned $15.4 million in cash in the first six months. Ergo, it actually has enough cash to get it through Q2 of 2019. So the recent new registration would not normally seem necessary to come so quickly after the last deal. But guess you have to be ready for the next good opportunity to sell stock.

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    1. I agree that the Watts vs feet statement could simply have been crossed wires during a call, and do point that out. In normal circumstances I'd shrug my shoulders, however Energous have a habit of obfuscating details, changing specs, over promising and under delivering, and generally profiting from misreading by investors. The entire "WattUp"branding is deliberately designed to do this. It's not unreasonable to take what is on an earnings call as accurate, if there are mis-statements then the company can correct and clarify after, but in this case they didn't. They don't deserve the benefit of the doubt.

      "Wireless Charging 2.0" is yet another example of ill defined terms used to manipulate and confuse.

      For a company several years old, with near $200m in expenses to date, and technology approved by regulators months ago, they have no products and no deals, and importantly they have no published specs they can be held to, which allows Rizzone to make statements like this with no consequence, or at least point to and say "ooops we meant this". Compare this to PowerCast who publish data sheets on their products, that you can actually buy. There is no doubt as to what they mean.

      I disagree with you discounting the 1H expenses as stock compensation - that near 1/3 of their burn is equity is a big red flag for a company without product or substantial revenue. I don't think you can discount it, as if you drove equity compensation to zero the execs would leave, and I'm pretty sure the engineering staff would too. My opinion is that it's the only reason many of the staff are there right now and that as the goal here is to extract money, this is the core of the insider MO

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  2. Thank you. To be clear, I do NOT think Rizzone was misunderstood; I think he MEANT to say "5 to 15 watts", no matter how implausible. It would be of real interest if someone would actually question him in a public forum, such as on the next earnings call. But we've learned not to expect that from the "analysts" covering the co.

    The stock compensation is in fact considerable for a co. with such little fundamental success since inception--I don't discount that at all as another red flag. I do not doubt your thesis as to being the core MO here. My observation that it is not part of the cash burn is correct however. A simple read of the cash flow statement confirms this. Too bad for them that all their expenses can't be paid for similarly. But to repeat, there is little doubt this recent registration was to be prepared to raise cash on a run in the stock, even if that happens well before they run out of it around mid-year 2019.

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    1. Sounds like we are pretty much in agreement on all these points then!

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  3. Yes, and thank you again for your care and patience in spelling things out so well from an engineering perspective. Just not something some investors want to hear!

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    1. Thanks for your comments. Regarding investors, my aim isn't to stop them investing, it's to give good information upon which they can then make a judgement as to whether they will risk their cash. People are and should be free to do dumb things with their money, but I want to be sure those without access to professional due diligence have at least a chance of seeing the reality before putting their money in. Most will ignore or not even try to find anything but the company PR, nothing I can do about that, but if a few people do and make more informed choices because of it, I'll be happy.

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  4. Paul - This is your best post to date. For the engineers here you make complex concepts clear. For the non-technical you do a good job translating engineering issues, as well as taking on the role of market psychologist. Thank-you.

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    1. Appreciate it. One thing I forgot to add on the market options - if all else fails, claim the IoT charging market is gigantic, and 'pivot' to that, they only need mW of power!

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    2. If they went after the IoT/sensor markets initially, i.e. harvesting existing RF to power the devices, it would be a credible business. How large is this market be though, a few million in licensing fees? So to tap financing they had to pretend it was possible to power phones and such...

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    3. There is a decent market there - powering RFID, IoT in industrial settings where you have many sensors that are hard to reach and batteries are a pain etc. PowerCast seem to be making a living at it, but they don't have $60m a year in expenses - I think you could make a few $10s of millions at it a year, decent, but not a $billion+ market cap.

      Problem with taking funding to get bigger than is possible, is that your company gets geared to scaling to that size, so rather than just pivoting, you can't work a market that small. Your sales channels are incorrect, your distribution models are incorrect, you've likely even got the wrong engineering staff. Rather than pivot, the company just dies. The sadder part is that companies that would be realistic about technology and market size would likely never receive money, so those who will exaggerate have an advantage in fundraising.

      Interestingly Ossia were pushing on IoT charging last year, but have more recently shifted to similar marketing to Energous, so I wonder if they just couldn't make it there.

      It's a route that many at-distance wireless power companies take - huge claims, then moving to a "licencing model", then backing off the claims, then moving to IoT.

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