Ocean Power IPO Heads for Choppy Waters

The problem with the Ocean Power IPO lies less in the technology than in the expanding competitive field. Even since the oil crisis of the 1970s, engineers have taken wave power seriously again. Ocean Power's PowerBuoys look just like that -- buoys with elongated bottom halves -- while others look like giant snakes and still others have long stingray-like wings.

Wikipedia lists 33 companies with wave-power aspirations, but there are surely more. All the competing approaches are good for innovation, but only a handful of these are likely to emerge from an inevitable shakeout.

The other risk is that Ocean Power is hitting the U.S. markets at a far earlier stage of development than the IPO market is used to seeing. However, investors are taking a devil-may-care attitude about money-losing start-ups if they have a strong whiff of promise, so Ocean Power will probably get a pass.

That doesn't reduce the longer-term risk. Through 2004, the vast bulk of its revenue came from the U.S. Navy. That hurt the company in its fiscal year ended April 2006 when a Navy contract was delayed, pushing its revenue down 67%.

The good news is that Ocean Power has been relying on companies for revenue in recent years, including defense contractor Lockheed Martin , Spanish utility Iberdrola and French oil giant Total . In the nine months through January 2007, the Navy accounted for 57% of revenue, a number that is likely to decline if Iberdrola and others buy more PowerBuoys.