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A green plant grows from a chip.

Q&A about capacitors and electrolyzers

Håkan Persson, CEO of Smoltek, talked at the one-day conference Aktiedagen Lund organized by Aktiespararna (the Swedish Shareholders’ Association). His presentation offered some news and insights that are worth exploring further. So, let’s follow up with some questions for Håkan.

At the begin­ning of Octo­ber 2023, Smoltek’s CEO, Håkan Persson, talked at the one-day con­fer­ence Aktied­a­gen Lund organ­ized by the Swedish Share­hold­ers’ Asso­ci­ation. Some of what he said is prob­ably known to you as a well-informed share­hold­er or investor, but there are also some insights, if not news, worth noting.

So, I sat down with Håkan to fol­low up on some points he made in his present­a­tion. In total, we covered sev­en top­ics in depth. You can read the ques­tions and answers in this post.

But before doing that, you may want to check out his presentation.

Watch Håkan Persson’s talk at Aktied­a­gen Lund on Octo­ber 9, 2023.

Why capacitors and electrolyzers?

In your talk, you say that Smol­tek has explored many applic­a­tion areas for its pat­ent-pro­tec­ted tech­no­logy – grow­ing car­bon nan­ofibers on dif­fer­ent mater­i­als. Among all these, Smol­tek has focused on decoup­ling capa­cit­ors and elec­tro­lyz­er cell mater­i­als. Why?

We have a long list of pos­sible applic­a­tions for our tech­no­logy. It ranges from heat dis­sip­a­tion to bio­sensors. Many items on the list are related to semi­con­duct­ors. This is because Smol­tek has grown out of research in this area at Chalmers Uni­ver­sity of Tech­no­logy. But there is also a lot on the list that is not related to the semi­con­duct­or industry.

To explore the oppor­tun­it­ies out­side the semi­con­duct­or industry, we formed a sep­ar­ate busi­ness divi­sion, Smol­tek Innov­a­tion, to identi­fy an immin­ent need that we can address. Our ana­lys­is showed that the glob­al hydro­gen mar­ket urgently needs a bet­ter elec­tro­lyz­er cell mater­i­al where we can make a big dif­fer­ence. So, we decided to focus on that mar­ket, and con­sequently, we changed the name of the busi­ness divi­sion to Smol­tek Hydro­gen.

Even before that, we had formed a sep­ar­ate busi­ness divi­sion, Smol­tek Semi, to do the same for the semi­con­duct­or industry. We found that met­al-insu­lat­or-met­al (MIM) capa­cit­ors, used by the semi­con­duct­or industry, are a huge mar­ket where we can make a big impact.

That’s why we are pur­su­ing these two mar­kets with car­bon nan­ofiber-enhanced cell mater­i­al and car­bon nan­ofiber-enhanced MIM capa­cit­ors, respectively.

We are focus­ing exclus­ively on these two busi­ness divi­sions for now and in the fore­see­able future. But we have many more ideas on our list, so we expect to cre­ate more busi­ness divi­sions in the future. You can think of Smol­tek as an incub­at­or for car­bon nan­ofiber-rein­forced solu­tions for vari­ous applications.

Still the world’s smallest capacitor?

In 2021, Smol­tek presen­ted the world’s thin­nest capa­cit­or as a fully usable pro­to­type. In your present­a­tion, you say Smol­tek can man­u­fac­ture ultra-thin decoup­ling capa­cit­ors more effi­ciently than com­pet­ing tech­no­lo­gies. Does this mean that com­pet­it­ors have caught up?

No, there are cur­rently no thin­ner capa­cit­ors on the open mar­ket than our prototype. 

But there are strong con­tenders whose capa­cit­ors can also be char­ac­ter­ized as ultra-thin. These capa­cit­ors are man­u­fac­tured by dig­ging deep trenches in sil­ic­on. This is why they are called deep trenches capa­cit­ors or sil­ic­on capa­cit­ors. They are not widely used because of their costs, and we believe there is a lim­it to how far they can go.

We don’t feel com­pet­it­ors breath­ing down our neck because our CNF-MIM capa­cit­ors have two com­pet­it­ive advant­ages over sil­ic­on capacitors.

First, CNF-MIM capa­cit­ors are expec­ted to be cheap­er to pro­duce, so we can com­pete on price and still have a good mar­gin for capa­cit­ors aimed at high-end device segments.

Second, our capa­cit­ors will have sig­ni­fic­antly high­er capa­cit­ance per unit area and unit height.

Scanning electron microscope image of Smoltek's prototype capacitor. Measurement line shows a height of 38.2 µm.
Scan­ning elec­tron micro­scope image of Smol­tek’s pro­to­type capa­cit­or that is thin­ner than any com­mer­cially avail­able capacitor.

Why the premium segment except Apple?

You men­tioned that Smol­tek tar­gets the premi­um seg­ment, except Apple, with its CNF-MIM capa­cit­ors. Can you explain that strategy?

I talked about the premi­um seg­ment of the smart­phone mar­ket. We define the seg­ment as smart­phones that 2023 cost more than 300 USD to buy from wholesalers.

There are hun­dreds of brands in this mar­ket seg­ment. The largest is Sam­sung. The best-known is Apple. But there are also oth­er big play­ers like Xiaomi, Oppo, and Vivo, as well as well-recog­nized brands such as Google Pixel and Sony Xperia.

It is this mar­ket seg­ment that we address with our CNF-MIM capa­cit­ors. With one cru­cial excep­tion: Apple.

Of course, Apple knows what we are doing. But right now, we choose to focus on the rest of the premi­um seg­ment because we believe Apple has a tight part­ner­ship with a capa­cit­or man­u­fac­turer and is not likely to jump ship any time soon.

Although Apple rep­res­ents one-third of the premi­um seg­ment, the remain­ing mar­ket is huge. We estim­ate that the oth­er premi­um smart­phone man­u­fac­tur­ers pur­chase between 3.5 and 4.5 bil­lion capa­cit­ors annu­ally. And our goal is to cap­ture one-third of that mar­ket eventually.

We are con­sid­er­ing mak­ing smart­phones our first tar­get mar­ket because they greatly need ultra-thin capa­cit­ors. And we nar­rowed it down to the premi­um seg­ment because of the high­er gross profit margin.

How­ever, the mar­ket for CNF-MIM does not end with smart­phones. We are explor­ing oth­er pos­sib­il­it­ies and have iden­ti­fied more places where our capa­cit­or tech­no­logy can make a big dif­fer­ence. So, the mobile mar­ket is just the beginning.

Slide 7 in Håkan's presentation from Aktiedagen Lund on October 9, 2023
Slide from Håkan Persson’s present­a­tion at Aktied­a­gen Lund on Octo­ber 9, 2023.

What planning has Smoltek and Yageo initiated?

You say that Smol­tek and YAGEO have star­ted plan­ning for the next step. What does that mean?

Let me start by recapit­u­lat­ing where we are today and where we are going.

YAGEO wants the right to sell our CNF-MIM capa­cit­ors when that time comes. And we need a dis­trib­ut­or who can sell and ship our capa­cit­ors to the big play­ers. We have there­fore agreed on a col­lab­or­a­tion with two phases.

The first phase is to devel­op and pro­duce engin­eer­ing samples of CNF-MIM capa­cit­ors and bring them to the mar­ket. This allows poten­tial cus­tom­ers to test and design them into their applic­a­tions. This phase is gov­erned by a joint devel­op­ment agree­ment (JDA) that we signed in August 2022.

The second phase is form­ing a joint ven­ture to mass-pro­duce our CNF-MIM capa­cit­ors. We plan for a fab­less pro­duc­tion, which means the man­u­fac­tur­ing will be done by sub­con­tract­ors rather than in-house. Pro­duc­tion will start when we have a design-win, when someone has designed a future product with our CNF-MIM capacitors.

Right now, we are in the first phase. We have made the first batch of just over a quarter of a mil­lion capa­cit­ors without car­bon nan­ofibers. We are cur­rently mak­ing a sim­il­ar batch, now with car­bon nan­ofibers. These will be tested and eval­u­ated by YAGEO, and when they meet the per­form­ance met­rics out­lined in the joint devel­op­ment agree­ment, we will enter phase 2.

In par­al­lel with the devel­op­ment of engin­eer­ing samples, YAGEO and Smol­tek have already begun plan­ning the next step to avoid los­ing time.

The fact that YAGEO is already pre­pared to put in the resources and do the work involved in plan­ning for phase two is an excel­lent testi­mo­ni­al from YAGEO.

What is electrolyzer cell material?

Let’s switch gears and talk about the hydro­gen industry. Smol­tek devel­ops and plans to sell elec­tro­lyz­er cell mater­i­al. What is it?

It’s a lay­er of cor­ro­sion-coated car­bon nan­ofibers that pen­et­rates the mem­brane on the anode side. On the out­side of the met­al are atoms of iridium.

Iridi­um is a scarce and costly earth met­al used as a cata­lyst in a par­tic­u­lar type of elec­tro­lyz­er. Smoltek’s cell mater­i­al will use 95 per­cent less iridi­um than exist­ing tech­no­logy, thus con­serving a finite resource and sav­ing vast amounts of money for pro­du­cers of electrolyzers.

This mar­ket is massive. It is not just about future energy sys­tems and trans­port­a­tion. There is a huge need here and now. Hydro­gen has been used in industry for over 100 years.

But 95 per­cent of that hydro­gen is pro­duced from fossil fuels. That is not sus­tain­able. There­fore, the industry is facing a gigant­ic trans­ition to elec­tro­lyz­ers that pro­duce fossil-free hydro­gen. And that’s when iridi­um is needed.

Read more about electrolyzers

Fossil-free hydro­gen, or green hydro­gen, is pro­duced by run­ning elec­tri­city from sol­ar, wind, or hydro­power plants through water. This is called water elec­tro­lys­is. The appar­at­us in which it takes place is called an elec­tro­lyz­er.

There are two types of elec­tro­lyz­ers: an older type with low effi­ciency and uses alkaline chem­ic­als, and a new­er type that is more effi­cient and doesn’t use chem­ic­als. The new­er tech­no­logy uses a pro­ton exchange mem­brane (abbre­vi­ated PEM), and con­sequently, it is called a PEM elec­tro­lyz­er.

PEM elec­tro­lyz­ers need iridi­um as a cata­lyst. The met­al acts as a place for water molecules to hold on while they split into hydro­gen and oxygen.

And here is the crux: Iridi­um costs many times more than gold because it’s so rare and hard to extract. In 2023, a single kilo of iridi­um costs up to 200,000 euros; by 2030, just sev­en years from now, it is estim­ated to cost up to 700,000 euros.

So even though cur­rent tech­no­logy only needs 2 mil­li­grams of iridi­um per square cen­ti­meter of mem­brane, it is a sig­ni­fic­ant cost for elec­tro­lyz­er manufacturers.

That’s the prob­lem we address with our cell material.

Smoltek’s cell mater­i­al cur­rently uses 75 per­cent less iridi­um than avail­able tech­no­logy. And we expect to save up to 95 per­cent of iridi­um com­pared to today’s exist­ing tech­no­lo­gies. In this way, our cell mater­i­al con­serves a finite resource and saves a lot of money for elec­tro­lyz­er manufacturers.

What prevents competitors?

What pre­vents com­pet­it­ors from mak­ing the same savings?

The stand­ard tech­no­logy uses 2 mil­li­grams of iridi­um per square cen­ti­meter. Extern­al research insti­tutes expect this level to be reduced to 0.8 mil­li­grams per square cen­ti­meter by 2030. 

Improv­ing the cur­rent tech­no­logy bey­ond this will be dif­fi­cult, and the tech­no­logy has a lim­it where iridi­um can­not be fur­ther reduced without severe deteri­or­a­tion of the lifetime.

Com­pare that to Smoltek’s cell mater­i­al, which uses only 0.5 mil­li­grams already, expect­ing to reach 0.2 mil­li­grams quite soon and even­tu­ally 0.1 milligrams.

Our tech­no­logy is pro­tec­ted by pat­ents and pending pat­ents. And entirely new solu­tions require years of research and devel­op­ment. Remem­ber, we have been work­ing on car­bon nan­ofibers for almost 20 years.

What’s the go-to-market strategy?

How will Smol­tek bring the cell mater­i­al to market?

The approach is the same as we use for our capacitors.

We are work­ing in par­al­lel to fur­ther devel­op the cell mater­i­al from a lab pro­to­type to a veri­fied product and to devel­op an indus­tri­al pro­cess for mass pro­duc­tion. We expect to step out of the lab and take the first steps in the indus­tri­al arena in 2024.

The goal is to be up and run­ning with mass pro­duc­tion in 2027. Before that, we will start small-scale pro­duc­tion of engin­eer­ing samples and find the right part­ners to bring the cell mater­i­al to the world market.

Slide 13 in Håkan's presentation from Aktiedagen Lund on October 9, 2023
Slide from Håkan Persson’s present­a­tion at Aktied­a­gen Lund on Octo­ber 9, 2023.

Over and out

Sev­en ques­tions and sev­en thor­ough answers later, I con­clude by remind­ing you to vis­it Smoltek’s investor rela­tions page on Linked­In. Find the post about this Q&A and tell us what you want to know more about. I can’t prom­ise you’ll get an answer right away or even at all. After all, Smol­tek is a lis­ted com­pany and has many rules to con­sider. But we will do our best to answer everything we can in due course.

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