phononic

We recently caught up with Phononic CEO Tony Atti to talk about his company’s effort to transform the refrigeration market using solid state technology. Solid state cooling, which uses semiconductor technology, offers an alternative to traditional gas compressor-based systems that make up the vast majority of residential refrigeration. Tony believes his technology could reduce the environmental impact and reduce energy consumption in refrigeration as well as through HVAC systems.

Below is the full conversation, edited for readability.

Michael Wolf: Tell us how you guys came up with this idea.

Tony Atti: I started my career in research and development, then in venture capital specifically investing in companies that at their origins were like Phononic — early, unproven, disruptive technology promise, no real application for a particular market but great interest if it ” works.”

In this particular case, semiconductors have a rich legacy. They transformed data, IT, LED lighting, solar power, in each case taking upon an entrenched incumbent that no one thought could be dislodged. When we looked at cooling and heating, there was actually precedence for semiconductor cooling and heating, and what’s called Peltier thermoelectric devices, the physics of which is almost as old as compressors, heating’s, and fans but commercial efficacy has been limited by efficiency, scale, manufacturability, and cost.

With a concerted effort in late ’08, we had identified some promising material sites and related research at a number of universities, and in February 2009, with venture capital backing from some of Silicon Valley’s finest, we launched Phononic to move the needle and compete in the mainstream.

Michael Wolf: Explain the Peltier effect and how it cools using solid-state technology.

Tony Atti: It’s surprisingly simple. From a solid-state perspective, a semiconductor chip can manipulate three things: electrons, photons, and phonons. Electrons are data, photons are light, and phonons are literally heat. I tell people when you stand at the top of the mountain and yell, you hear an echo of sound. A phonon is quite literally an echo of heat and when you power a thermoelectric Peltier chip, it drives phonons from one side to the other, leaving one side cold, one side hot. The magnitude of that temperature difference from one side to the other and the power required to deliver that temperature difference determines your viability in cooling, heating, and refrigeration.

Michael Wolf: In our pre-call, you said you had met with all the liars and thieves out there who have done research. Maybe there is some snake oil salesman, but you you found people at three universities who had actually done core research on this.

Tony Atti: Well, I’ll say this as respectfully as I can. The founding of Phononic has been now 115 people that we have, the grand total of engineers and technologists that we have on staff that have ever worked in thermoelectric cooling before is two people. What we found was —

Michael Wolf: Do you let them ride on the same plane together or distribute the knowledge enough?

Tony Atti: [laughter] They didn’t’ even join until much later. We had found some really compelling material science that had not necessarily manifest itself until a working prototype or chip, but we went beyond material science and went to other semiconductor industries like solar, like data, like LED lighting who had tackled similar challenges before. We morphed them all together into one ragtag team in Raleigh in North Carolina, gave them about 15 to 18 months of runway and the devices and the components that came on the back of it had data that was provocative in addressing those efficiency, scale, manufacturability, and cost metrics that I mentioned early. It was really a function of combining very different disciplines who had not often worked together in the past and getting out of their way and seeing what they could do.

Michael Wolf: It feels like what happened with LED lighting, which was a massive shift. It reinvented an entire industry like it became a mass market thing that everyone wrote about. Phononic cooling, you were talking about solid state cooling, it seems like it has the same potential. Maybe I’m singing to the choir, but why haven’t we heard people talking about this? Traditional refrigeration is not energy efficient. It’s actually not great for the environment. Are we looking at potentially a similar wave over the next decade with what happened with LED lighting?

Tony Atti: We certainly hope so. We have a slightly tougher burden than LED chips had, which is LED chips came in at the mainstream as a first of their kind approach. Thermoelectric Peltier cooling has been around for roughly 20 to 25 years and it’s always believed to be a niche-level market for electronics enthusiasts or low-end performing chillers. I often tell people as I was doing my market diligence while engineers were innovating the technology, the skeptics that we came across went well beyond physics to simply questioning if we could even get cold let alone if we could compete with any kind of an engineering metric.

We had to not only innovate at the chip level, but if you look at Phononic’s commercial successes, we’ve had to deliver full on-package refrigerators and serve people beers and sodas from them inside to convince them that we can get cold, let alone compete on efficiency, scale, and other cost metrics.

Michael Wolf: This is something you have to do early in the market, to prove to people that this is real. You said it was a niche market before, so it sounds like someone that actually productized Peltier-based cooling. Talk about what was out there before your company.

Tony Atti: Depending on the market segments of interest, there were 6 and 12-bottle wine chillers dropped on our desks with people telling us how hated they were that they didn’t get cold, they’re constantly broke, and they couldn’t hold temperature. Also many fiber optics and telecom customers were forced, and I use that word literally “forced” to use incumbent thermoelectric coolers because the real-state constraints that data and fiber and telecom provide precludes you from using a compressor or a heat sink or a fan where a Peltier device really is your only choice.

Michael Wolf: Basically, telecom wiring closets and wine coolers, it sounds like.

Tony Atti: That was pretty much it and while as an entrepreneur you can say, “Well, at least there’s a market and a use and it was in every case, the end-user had a bad experience with their Peltier device. It gave us a benchmark with which to compare ourselves but we use the word fun a lot with Phononic where things really got fun is in late 2013 and 2014, realizing that just simply presenting performance data in chips was either unbelievable or just too difficult for industries to figure out how to adopt.

We took the company one step further and hire a group of refrigeration and HVAC engineers, bolted them on to what had been a semiconductor company and really started to innovate full products as opposed to just components.

Michael Wolf: You went beyond just producing core components and integrating technology and were producing refrigerators.

Tony Atti: By the end of this calendar year, we will have close to 3,500 refrigerators in hospitals, clinics, pharmacies, and life sciences laboratories and close to 500,000 thumbnail-sized chips going to high-performance fiber-optic customers. That traction draws back to those first customer engagements that at the time like we’re pretty much in fiber and telecom and engaging healthcare and residential refrigeration because both camps had at least some familiarity with Peltier cooling that at least give us a benchmark with which to compare ourselves.

What was unanticipated but really where all the innovation all came together was we built a team first to prove to ourselves but then ultimately to the market that you could productize this technology and go back to those four main pillars I mentioned – efficiency, scale, manufacturability, and cost not just at the chip level but at the product level vis-à-vis the compressor or related incumbents currently being used. When we did that approach, it was amazing how the markets ultimately started to come to us for adoption.

Michael Wolf: You’re mainly in commercial deployments, but one of the things I gathered from your materials is this could be put into the home, not only like where we think the refrigerator in my kitchen or maybe the refrigerator in my garage, but you had these maps of the home where you envisioned your tech in the living room, everywhere.

Tony Atti: Well, that’s where product roadmaps just it’s just fun and daring. There’s two elements from an entrepreneur’s perspective and you touched upon it what’s an appropriate product development strategy. So, healthcare, life sciences, and pharmacy, the logic there is when you’re “disruptive,” articulating your value proposition can be challenging. If you can believe just for a moment, in those commercial and healthcare-related markets, we had healthcare professionals documenting the temperatures of a refrigerator by hand in a logbook because they don’t trust the temperature variance or the reliability of a compressor-based product. Right there, we have no moving parts, no noise, incredible uniform temperature, 20 percent to 30 percent energy savings, and no CFCs or toxic refrigerants. It’s completely sustainable. That’s a clearly discernible value proposition to a healthcare, life sciences, or pharmacy customer —

Michael Wolf: So, precision cooling, much like what we kind of see in the culinary world precision heating has been a big deal. You guys are bringing more precision to the cooling aspect.

Tony Atti: When it’s a vaccine, drug, or biological sample, it absolutely has to have that or millions of dollars of inventory are at risk.

Michael Wolf: By the way, that’s where sous vie started, in the precision water baths.

Tony Atti: Yeah, exactly. The challenges really catapulted from there. That gives a young company market traction, revenue, referenceable customers, but candidly that market approach is somewhat defensive, meaning we chose those markets not just because the economics were good but we chose those to shut the critics up. It’s reliable. It could be used with valuable inventory; the value proposition is easy to understand.

When we look at the domestic or residential refrigeration market, we’ve frequently been engaged with defensive approaches as well, meaning let’s take market share from existing obvious applications. But on the residential side, the value proposition is much more emotional. What surprised us when we did some market sampling is the top three complaints that came from people who are refrigeration users in the home: (1) noise, (2) noise, and (3) noise [laughter]. Everyone complains about the sound of either the icemaker, the compressor kicking on, the fans that you hear from your refrigerator.

When you look at our value proposition relative to the home, the ability to distribute refrigeration in both obvious and non-obvious areas, we want to break the stranglehold that the refrigerator has in the kitchen and decentralize that cooling and heating throughout the home.

Michael Wolf: Is it not just for obvious like I want a beer chiller at my feet but also maybe cooling the wiring closet where I have all my TV and my video games. I mean what are some of the places we’ll be seeing that?

Tony Atti: We mentioned scale. Scale applies not only to area but also to the magnitude of cooling that could be provided. What’s interesting when people think of the residential market and we made this mistake as well, everyone thinks that the world is American and everyone has a 28- to 35-cubic foot refrigerator. That’s barely 8 percent to 9 percent of the global refrigeration market. Overwhelming, the size is anywhere from 5- to 8-cubic feet. That’s something as Americans we would stick in a garage, but for other small space or urban living, we want to decentralize that cooling for beverage or food throughout the home.

From there, we want to move beyond into climate control where you’re providing localized cooling, localized heating, not always having to depend upon a centralized HVAC system that sits outside or on your roof. It makes no sense to us that we live in very large homes, all of which are cooled and heated where more often than not you’re only occupying one room at a time.

Whether it’s refrigeration for food and perishables or moving beyond to your own personal comfort, that’s where we want to see the decentralized approach for residential use.

Michael Wolf: Do you have not the requirement to that chest and venting to the outside where that that actually makes it more appealing?

Tony Atti: Well, if you look at some of the maps and needs that we sometimes put online or that we communicate, there is tremendous flexibility, given the weight savings associated with what we believe we can do. We can vent through a window. We can vent through the ceiling joist, so there’s a lot of flexibility as to where you reject that heat, and if you even look at fans whether they’re outdoor or indoor, air stratification depending upon the height of your ceilings allows you to maintain some of the heat up near the top while you have circulated cooler air below it. We don’t need all that complicated duct work or depending on some of our product concepts can leverage the duct work that you already have. But the more important thing is you can size the components. You can size the products, depending upon the size of the rooms that it’s going into.

Michael Wolf: Once you start to apply this for comfort cooling, I mean it seems like one of the big problems around just traditional air-conditioning unit has a huge impact on the environment and so I thought about you guys in terms of reducing refrigeration impacts, but this also has a much bigger impact if you start talking about cooling and comfort applications.

Tony Atti: To be completely clear on, I mentioned earlier emotional attachments, when you look at the refrigeration aspect, the value proposition there, sustainability, efficiency but really like its convenience, you can decentralize that cooling throughout the home for your own personal use. When you move into climate control, the statistics and the potential impact on CFC reductions and climate aspects is simply staggering, particularly when you look beyond North America.

When you look at Asia or Europe, very few homes or apartment complexes have centralized HVAC. Cooling and heating and comfort is almost always provided by either a window unit or a split-level system that’s drilling holes in your wall to vent to the outside. The way that we’re designing some of our product concepts is to either work in concert with or independent of the presence of a centralized HVAC system.

Michael Wolf: I’ve lived in the Southwest. I lived in Arizona where basically for 6 months, you’re living and breathing air-conditioning.

Tony Atti: Sure.

Michael Wolf: Could you replace in a high-demand like that a centralized system a centralize system in home?

Tony Atti: We never use the word replace particularly when you’re talking about centralized because the role of a centralized system tends to be 3, 4, 5, 6 tons of cooling capacity. We think that’s an inefficient way to deliver cooling and heating when it’s often needed on a more localized level. We would prefer to instead have a portable or mobile unit depending on the size of your home that can provide seasonally adjusted heating or seasonally adjusted cooling depending upon the environment that you believe in.

When we modeled out these concepts, we chose the Southwest. We chose San Francisco. We chose the Southeast. We even chose my hometown of Buffalo in New York for fun just to look at different seasonally adjusted energy savings and we’re highly competitive on costs when you factor in the ability to both cool and heat from anywhere from a 10×10-foot to a 20×20-foot room.

Michael Wolf: Where are we today with you guys in terms of design wins? Can we expect to see you guys in some consumer products in the next year or two?

Tony Atti: Yes, you can. We have announced residential partnership with Haier, one of the largest appliance manufacturers in the world who bought GE’s appliance business, which was a really strategic to enter the North American market. We have a product roadmap that’s in production with Haier. We have other engagements as well that move beyond the commercial and electronics space that we mentioned earlier. We’re not quite ready to go public with those, but we just raised a significant round of capital and our product roadmap is starting to come into play. A lot of the customers we’ve engaged to date from the market validation perspective gets us market intel that we need to ultimately position our own roadmap for ’17, ’18, and ’19.

Michael Wolf: When we do see it first in the US, it could conceivably be with the GE brand because that’s how Haier has decided to go into the US. They bought that business.

Tony Atti: Yes.

Michael Wolf: How far do you think this goes? How far do you think you see solid state cooling? I mean if you look at lighting, for example, I don’t know if that’s a perfect analogue, but when you look at lighting, I think the US is on track to see largely LED lighting in new bulbs people bring into their homes.

Tony Atti: Yeah.

Michael Wolf: Soon. Do you think that at some point, solid state cooling, solid state refrigeration could reach that type of penetration?

Tony Atti: That’s most likely a decades-long roadmap, but we believe the prospects are certainly there to ultimately realize that change. We’re trying to work backwards from that and design our products, particularly with refrigeration and home cooling comfort in mind adaptable to the existing infrastructure, build familiarity with it such that we then get reference designed into that next generation of home building. We certainly believe the prospects are there.

Michael Wolf: What about intellectual property? Do we have competition with you, guys, or you guys own all that IP?

Tony Atti: Going back to the origins of the company and having come from academic and government research and my own background at a point early in my career, we have exclusive license agreements in place with three distinguished universities that at least protect your foundation and your plank, or give you a plank to build from. Then from there, we have a significant number of assets and company-owned IP that we’ve developed off that respective foundation. Beyond that, we’re quite tactical. Many North American companies struggle with this, but we’re patented internationally. All of our IPs is filed in the EU, the US, Japan, Korea, and even China. Last year, we had our first two patents issued in China, so we’re very aggressive in building not only the patent portfolio but where it’s protected as well.

Michael Wolf: Hey, Tony, this has been fascinating. This topic to me is really interesting, maybe I’m just a nerd [laughter]. But I do think that when you have the potential to do fairly big world-changing type of stuff with something like this, I think it’s an interesting topic, so thanks for spending time with me.

Tony Atti: Mike, thanks for the interest. We’re always happy to tell our Phononic story.