With each fuel cell Mechanical Technology Inc. sells this year, it will lose money.

That doesn't sound like the recipe for a successful business.

But MTI -- which expects to be the first company in the world to successfully commercialize micro fuel cells with the sales -- said losing money at first is necessary when building an industry from the ground up.

First, the company needs to get its units into industrial users' hands, which it is doing with sales to Intermec Technologies Corp., an Everett, Wash.-based company that makes hand-held bar code and radio frequency tag scanners.

Next year, MTI is shipping off some units for testing with special-forces units in military radios and remote sensors. And in several years, MTI's methanol-powered Mobion fuel cells could replace the batteries in consumers' cellphones, laptop computers and personal digital assistants.

"That consumer market is the real home run for us," said William Acker, president and chief executive of MTI MicroFuel Cells Inc., the MTI subsidiary developing the Mobion micro fuel cell.

On Monday, the science journal Scientific American recognized MTI Micro as one of its 50 technology leaders for 2004. On Tuesday, Popular Science magazine named MTI's Mobion fuel cell one of its annual 100 "Best of What's New."

On Thursday, MTI unveiled for the first time the units that have been designed to work in Intermec's hand-held inventory control devices, which read RFIDs, or radio frequency identification tags on products. Intermec had not previously revealed the scanning unit, set to hit the market in the coming weeks, but let MTI show them off after it won the recognition from the science publications.

Fuel cells produce electricity through a chemical reaction, producing just small amounts of water and heat as waste. MTI's units run off methanol.

MTI hasn't disclosed the value of its deal with Intermec, and won't say just how much it loses on each sale. Partially because of those losses, though, the company said it will sell hundreds, rather than thousands, of its fuel cells in this first round.

By the end of next year, MTI expects to sign a deal with a company that will help bring its fuel cell to the mass market.

But first MTI needs to make the units cheaper. And it needs to make them smaller. While the fuel cell itself is smaller than a business card and as thin as a stick of gum, the methanol cartridge that powers it -- and some of the attached wiring -- makes the unit the size of a pack of cards. That's still too large for some cellular phones and other uses.

The big obstacle, though, is convincing the world's airlines and regulatory agencies to allow the methanol-powered devices in the passenger compartments of airplanes.

Acker said that process could take several years, though last week the company won the clearances it needs to transport the units by ship or in planes' cargo holds. Stock analyst David Kurzman, who covers the company for the New York City investment firm Needham & Co., is optimistic that methanol fuel cells will soon be in consumers' phones and other electronic devices.

He said earlier this week that he believes MTI's obstacles are regulatory rather than technical.

Source: Knight Ridder/Tribune Business News