Phononic looks to disrupt markets with novel cooling technology

Tony Atti gets frustrated when he hears people complaining that U.S. companies don’t make anything anymore.

As proof to the contrary, Atti points to his own Durham startup, Phononic.

“We make stuff,” says Atti, the company’s founder and CEO. “We make and sell stuff. It’s tangible. You can hold it.”

Founded in 2009, Phononic makes semiconductors and other components at its 20,000-square-foot facility on Capitola Drive in Durham. Of the company’s more than 100 employees, about 40 are involved in manufacturing.

Phononic has spent most of its short life developing its patented cooling and refrigeration technology. While the company isn’t disclosing its revenue now that its first products have hit the market, Phononic – backed by nearly $90 million in outside funding – has grand ambitions to become a force in multiple billion-dollar markets.

“We are daring to be big,” Atti said.

Phononic’s devices are the foundation for its next-generation laboratory and medical refrigerators, which the company began shipping under its own Evolve brand after Labor Day. (Although Phononic makes the semiconductors and other components in Durham, those devices are shipped to a contract manufacturer in China that incorporates them in the final product.)

Phononic’s technology also is being deployed in home refrigerators and wine chillers that will be sold later this year by Haier, a Chinese company that was the world’s largest appliance maker even before it agreed in January to buy General Electric’s appliance business for $5.4 billion. Initially, Haier will sell the wine chillers in the U.S. and the free-standing and built-in refrigerators in Europe and China.

Phononic’s solid-state technology is a replacement for the mechanical compressors and heat exchange systems that power traditional refrigerators. Atti said this approach creates a cascade of advantages.

Eliminating moving parts means the units are nearly silent and they consume less energy – at least 25 percent less than other pharmacy-grade refrigerators. They’re more reliable, enabling them to be covered by multi-year warranties that are much longer than the industry norm. They are freon-free and, since the refrigerators don’t need to accommodate bulky moving parts, they’re also more space-efficient.

A Haier chiller that will store 40 bottles of wine, Atti said, will be the same size as a traditional wine chiller that accommodates 30 to 32 bottles.

The difference becomes apparent when you open the door of a Phonic refrigerator. Instead of hearing the usual whirring noise of a fan, you’re greeted by silence.

Evolve’s 1.8-cubic-foot refrigerators are competitively priced with other high-end pharmacy-grade refrigerators that cost between $1,500 and $2,000 each, Atti said. An upcoming 5.5-cubic-foot model also has been priced within the $1,800 to $3,000 charged by competitors.

“We sell within those boundaries with what we argue is superior performance,” he said.

Similarly, Atti anticipates that Haier will price its consumer fridges on par with other high-end products.

Phononic, said Atti, already has sold more than a thousand Evolve refrigerators and expects to sell several thousand more this year.

Other applications

Phononic has developed “technology that can be disruptive and revolutionary in the cooling space,” said Bobby Helmedag, director at Rex Health Ventures, the venture capital arm of Rex Healthcare that is among Phononic’s investors.

Helmedag’s broad reference to the cooling industry is deliberate, because Phononic’s technology isn’t limited to refrigerators.

It also has contracts with multiple fiber optics manufacturers – which the company says it can’t disclose – to provide semiconductor devices that cool the lasers that transmit and receive data in fiber optic networks.

“When your phone buffers when you are watching a video,” said Atti, “it is because somewhere up or down the food chain an optical switch that transmits that data was slowed due to heat.”

In addition, this summer the company expects to begin selling under its own brand a device for cooling the CPU, or central processing unit, in gaming and high-performance computer workstations.

The Hex 2.0 CPU Cooler, which is the size of a closed fist and replaces the traditional heat sink inside the CPU’s chassis, will cater to a $500 million global after-market that is driven by gamers and others with “intense computer needs,” Atti said.

Phononic is pursuing a two-pronged strategy of going it alone in some markets – such as with its Evolve medical and pharmaceutical refrigerators and the Hex 2.0 – and teaming with much larger corporate partners in others. But the two strategies aren’t mutually exclusive.

The company is, for example, talking to established manufacturers of medical refrigerators about producing units powered with Phononic technology. And it’s working with a manufacturer of workstations and servers that has expressed interest in building the company’s CPU cooler into its products.

There are so many potential applications for Phononic’s cooling and refrigeration technology that Rex’s Helmedag admitted that one concern he had when Rex invested in the business was that it might spread itself too thin.

But, he said, that hasn’t been a problem.

“Tony’s got a fantastic team, and they are delivering great products,” Helmedag said. “We’re extremely happy.”

Rex Healthcare actually was the testing ground for the Evolve refrigerators, which Phononic improved based on the feedback it received before it started selling them. Rex has a total of three units – one in a laboratory, one in its pharmacy and one in its blood donation center.

The competition

Anita Watkins, director of strategic innovation at Rex, said the hospital staff is delighted with the features of its three Evolve refrigerators. They include “a much more consistent temperature” – which can be crucial for storing pricey drugs and vaccines – and the quiet operation.

“They just want Phononic to make them bigger as quickly as they can,” Watkins said.

Phononic expects to launch its larger 5.5-cubic-foot model this summer.

Evolve refrigerators are “an ideal product for use in a hospital room, a patient room,” said Jerilin Kenney, director of health care and laboratory cold products at Phononic. “The reason for that is, it’s virtually silent. If I brought a unit in this room and we carried on this conversation, you would hear the air conditioner before you hear the refrigerator.”

Although there are other companies that have developed solid-state cooling and refrigeration technology, Atti says they have thus far limited themselves to niche markets such as small beverage chillers.

“Our competition is (traditional) compressor-based manufacturers,” Atti said.

Atti, 41, was a director at MHI Energy Partners, a boutique private equity firm with offices in New York City and Calgary, before he raised $2 million in seed capital to develop a solid-state cooling and refrigeration technology with mass applications.

Phononic was a virtual company for its first year, using its funding to sponsor research at three universities: California Institute of Technology, University of California at Santa Cruz and the University of Oklahoma. Phononic also acquired the intellectual property rights stemming from that research.

“I lived on an airplane for a year,” Atti said.

Appeal of the Triangle

When it came time to build a prototype in 2010, Atti, who had moved to the Triangle in 2007 to be an entrepreneur-in-residence at one of the businesses MHI had invested in, decided that the region would be an excellent place to set up shop.

The area offered several advantages, including a tradition of making semiconductors that don’t rely on a silicon base – the leading exponent of which is Durham LED lighting company Cree – and a strong materials science program at N.C. State University. Another plus was the availability of suitable clean room space at the university’s Centennial Campus, which was Phononic’s initial home.

The company produced its first working prototypes in 2013.

“We went from a whiteboard scientific experiment ... to our first proof of commercial product in barely four years development time,” Atti said. “In any semiconductor application, that is simply warp speed.”

Nor is the company slowing down. It next plans to target the home heating and air-conditioning market.

David Ranii: 919-829-4877, @dranii